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On the role of international benchmarking of electricity Transmission System Operators facing significant investment requirements

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  • Gert Brunekreeft
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    Abstract

    Electricity networks currently face massive investment requirements. This paper argues that, given the investment requirements, (international) benchmarking is not an adequate tool for the regulation of transmission system operators (TSO). Errors in the outcomes of benchmarking will likely distort network investment and therefore the costs of doing it wrong are high. The paper discusses options to reduce the weight of benchmarking in TSO regulation and options that do not rely on benchmarking at all. Overall, facing massive investment requirements, it seems desirable to switch to a regulatory system with ex-ante investment approval and away from ex-post benchmarking.

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    File URL: http://www.bremer-energie-institut.de/download/bewp/bewp12.pdf
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    Bibliographic Info

    Paper provided by Bremer Energie Institut in its series Bremen Energy Working Papers with number 0012.

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    Length: 27 pages
    Date of creation: Oct 2012
    Date of revision:
    Handle: RePEc:bei:00bewp:0012

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    Web page: http://www.bremer-energie-institut.de/

    Related research

    Keywords: electricity; network; regulation; benchmarking; uncertainty;

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    1. Dieter Helm, 2009. "Infrastructure investment, the cost of capital, and regulation: an assessment," Oxford Review of Economic Policy, Oxford University Press, vol. 25(3), pages 307-326, Autumn.
    2. Haney, A.B. & Pollitt, M.G., 2012. "International benchmarking of Electricity Transmission by Regulators: Theory and Practice," Cambridge Working Papers in Economics 1254, Faculty of Economics, University of Cambridge.
    3. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    4. Grout, Paul A. & Zalewska, Anna, 2006. "The impact of regulation on market risk," Journal of Financial Economics, Elsevier, vol. 80(1), pages 149-184, April.
    5. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    6. repec:sen:journl:v:13:y:2012:i:2:p:160-187 is not listed on IDEAS
    7. Joskow, P.L., 1989. "Regulatory Failure, Regulatory Reform And Structural Change In The Electric Power Industry," Working papers 516, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. R. Meyer, 2011. "Benchmarking Economies of Vertical Integration in U.S. Electricity Supply: An Application of DEA," Competition and Regulation in Network Industries, Intersentia, vol. 12(4), pages 299-321, December.
    9. Jörg Borrmann & Gert Brunekreeft, 2011. "The Effect of Monopoly Regulation on the Timing of Investment," Bremen Energy Working Papers 0009, Bremer Energie Institut.
    10. Mae Baker, 1998. "Fund managers' attitudes to risk and time horizons: the effect of performance benchmarking," The European Journal of Finance, Taylor & Francis Journals, vol. 4(3), pages 257-278.
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