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Vertical Economies and the Costs of Separating Electricity Supply--A Review of Theoretical and Empirical Literature

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  • Roland Meyer
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    Abstract

    Motivated by the European movement towards a separation of electricity networks from the competitive functions generation and supply this paper reviews theoretical and empirical literature on vertical synergies in electricity supply. In the analysis a clear distinction is made between four different unbundling options leading to different forms and magnitudes of synergy losses. Apart from coordination economies a main source of scope economies seems to result from a market risk effect if generation and retail are separated. Accordingly, the European policy of network unbundling (either transmission or distribution) results in synergy losses between 2 and 8 percent due to coordination losses, while an unbundling option that includes a separation between retail and generation, as observed in some U.S. states, may lead to a permanent cost increase of 20 percent or more due to a significant risk increase.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 33 (2012)
    Issue (Month): Number 4 ()
    Pages:

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    Handle: RePEc:aen:journl:ej33-4-08

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    Cited by:
    1. Rabindra Nepal & John Foster & Antonio Carvalho, 2014. "Revisiting Electricity Liberalization and Security of Supply: Empirical Evidence," Energy Economics and Management Group Working Papers 7-2014, School of Economics, University of Queensland, Australia.
    2. Nele Friedrichsen & Christine Brandstätt & Gert Brunekreeft, 2014. "The need for more flexibility in the regulation of smart grids – stakeholder involvement," International Economics and Economic Policy, Springer, vol. 11(1), pages 261-275, February.
    3. Christine Brandstätt & Gert Brunekreeft & Nele Friedrichsen, 2013. "The need for more flexibility in the regulation of smart grids – Stakeholder involvement," Bremen Energy Working Papers 0013, Bremer Energie Institut.
    4. Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, vol. 40(C), pages 702-713.

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