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Vertical separation of the energy-distribution industry; an assessment of several options for unbundling

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  • Machiel Mulder
  • Victoria Shestalova

    ()

  • Mark Lijesen

Abstract

The Dutch Minister of Economic Affairs has proposed to replace the currently implemented structure of legal unbundling of the energy distribution industry by ownership unbundling. In this study we analyse the costs and benefits of this proposal. We compare the proposal�to the current situation and to two alternative options that strengthen legal unbundling. We identify four mutually-related categories of benefits: better performance of networks, more efficient regulation, improved effectiveness of competition, and benefits of privatisation; and three categories of costs: one-off transaction costs, loss of economies of scope and the risk of less investment in generation. The analysis highlights that the benefits depend on the future development in small-scale generation and on allocation of the management of transmission networks. Mainly because of the uncertainty about the future role of small-scale generation and the uncertainty about the magnitude of the one-off transaction costs related to cross-border leases, the net welfare effect of ownership unbundling at the distribution level is ambiguous. We identify an alternative route for achieving some of the benefits considered.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 84.

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Date of creation: Apr 2005
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Handle: RePEc:cpb:docmnt:84

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Citations

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Cited by:
  1. Paul de Bijl, 2005. "Structural Separation and Access in Telecommunications Markets," CESifo Working Paper Series 1554, CESifo Group Munich.
  2. Dockner, Engelbert J. & Kucsera, Dénes & Rammerstorfer, Margarethe, 2013. "Investment, firm value, and risk for a system operator balancing energy grids," Energy Economics, Elsevier, vol. 37(C), pages 182-192.
  3. Roland Meyer, 2011. "Vertical Economies and the Costs of Separating Electricity Supply – A Review of Theoretical and Empirical Literature," Bremen Energy Working Papers 0006, Bremer Energie Institut.
  4. Machiel Mulder & Gijsbert Zwart, 2006. "Market failures and government policies in gas markets," CPB Memorandum 143, CPB Netherlands Bureau for Economic Policy Analysis.
  5. van Koten, S. & Ortmann, A., 2008. "The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?," Energy Economics, Elsevier, vol. 30(6), pages 3128-3140, November.
  6. Kwoka, J. & Ozturk, S. & Pollitt, M.G., 2008. "Divestiture Policy and Operating Efficiency in U.S. Electric Power Distribution," Cambridge Working Papers in Economics 0835, Faculty of Economics, University of Cambridge.
  7. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer, vol. 38(1), pages 61-93, January.
  8. Tsatsos, Aristidis, 2012. "Die Liberalisierung des russischen Gassektors: 3 Szenarios?
    [The liberalisation of the Russian gas sector: 3 scenarios?]
    ," MPRA Paper 44623, University Library of Munich, Germany.

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