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Competition in smart distribution grids

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  • Bertolini, Marina
  • Buso, Marco
  • Greco, Luciano

Abstract

Smart grids are often considered a cornerstone of energy transition and market liberalization in electric industries. From a critical reading of the interdisciplinary academic and governmental literature, we draw a new definition of grid smartness that is based on the reduction of the volatility of market prices and flows. Then, relying on a simple industrial-organization model of the electric market, we analyze the impact of smart grids on competition among energy suppliers and on the incentives of distribution system operators to invest in it. We show that the risk-reduction effect of smart grids pushes firms to supply more energy. However, the latter can be compensated by an indirect competition effect of investments in smart grids which prevents the entry of firms into the market, though the aggregate effect on energy supply is always positive. We also find that distribution system operators under-invest in smart grids because they fail to internalize positive externalities on energy consumers and producers.

Suggested Citation

  • Bertolini, Marina & Buso, Marco & Greco, Luciano, 2020. "Competition in smart distribution grids," Energy Policy, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:enepol:v:145:y:2020:i:c:s0301421520304559
    DOI: 10.1016/j.enpol.2020.111729
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    More about this item

    Keywords

    Electricity markets; Smart grids; Investment regulation; Risk aversion; Distribution system operator;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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