Crisis, sustainability of electricity prices and state interventions in Argentina

Abstract

This article examines the sustainability of wholesale power prices following the 2001 economic crisis in Argentina. We depart from the contractual disputes between the multinational power generating companies and the state of Argentina, arising from price and investment interventions after the economic crisis. Then, we move on to argue that these sector-specific measures were inevitable once some of the key macroeconomic policies such as the currency board system were discarded. Using an error correction method and estimating a counterfactual price series, we demonstrate that in the absence of changes in the price determination method and direct public investment, the level and the volatility of power prices would have been much higher with further knock on effects on the rest of the economy.