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Ownership unbundling and investment in electricity markets — A cross country study

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  • Gugler, Klaus
  • Rammerstorfer, Margarethe
  • Schmitt, Stephan

Abstract

This paper is the first to explicitly test for the presence of a trade-off between static and dynamic efficiency and a trade-off between vertical economies and competition in a regulated industry, the electricity industry. We show for 16 European countries over the period 1998–2008 that higher electricity end-user prices in a country subsequently lead to larger aggregate investments in the capital stock, i.e. in generation, distribution and transmission assets. Moreover, there is a trade-off between vertical economies and competition. Ownership unbundling and forced access to the incumbent transmission grid increases competition but come at the cost of lost vertical economies. Generally, we find that regulation that affects only the market directly, like the establishment of a wholesale market or free choice of suppliers, increases aggregate investment. Regulation, however, that adversely affects the incumbent directly, like ownership unbundling, decreases aggregate investment spending.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:702-713
    DOI: 10.1016/j.eneco.2013.08.022
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    1. Avenali, Alessandro & Matteucci, Giorgio & Reverberi, Pierfrancesco, 2014. "Broadband investment and welfare under functional and ownership separation," Information Economics and Policy, Elsevier, vol. 28(C), pages 70-82.
    2. Hyland, Marie, 2016. "Restructuring European electricity markets – A panel data analysis," Utilities Policy, Elsevier, vol. 38(C), pages 33-42.
    3. repec:eee:enepol:v:111:y:2017:i:c:p:403-413 is not listed on IDEAS
    4. Tomaso Duso & Jo Seldeslachts & Florian Szücs, 2017. "The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets," Discussion Papers of DIW Berlin 1674, DIW Berlin, German Institute for Economic Research.
    5. Gugler, Klaus & Liebensteiner, Mario & Schmitt, Stephan, 2017. "Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 450-478.
    6. Gert Brunekreeft & Mika Goto & Roland Meyer & Masahiro Maruyama & Toru Hattori, 2014. "Unbundling of Electricity Transmission System Operators in Germany – An Experience Report," Bremen Energy Working Papers 0016, Bremen Energy Research.
    7. Brunekreeft, Gert, 2015. "Network unbundling and flawed coordination: Experience from the electricity sector," Utilities Policy, Elsevier, vol. 34(C), pages 11-18.
    8. repec:eee:juipol:v:50:y:2018:i:c:p:13-25 is not listed on IDEAS
    9. Andrea Bastianin & Paolo Castelnovo & Massimo Florio, 2017. "The Empirics of Regulatory Reforms Proxied by Categorical Variables: Recent Findings and Methodological Issues," Working Papers 2017.22, Fondazione Eni Enrico Mattei.
    10. Clò, Stefano & Ferraris, Matteo & Florio, Massimo, 2017. "Ownership and environmental regulation: Evidence from the European electricity industry," Energy Economics, Elsevier, vol. 61(C), pages 298-312.
    11. Bacchiocchi, Emanuele & Florio, Massimo & Taveggia, Giulia, 2015. "Asymmetric effects of electricity regulatory reforms in the EU15 and in the New Member States: Empirical evidence from residential prices 1990–2011," Utilities Policy, Elsevier, vol. 35(C), pages 72-90.
    12. Baek, Chulwoo & Jung, Euy-Young & Lee, Jeong-Dong, 2014. "Effects of regulation and economic environment on the electricity industry׳s competitiveness: A study based on OECD countries," Energy Policy, Elsevier, vol. 72(C), pages 120-128.
    13. Carlo Cambini & Federico Caviggioli & Giuseppe Scellato, 2015. "R&D, Patenting and Market Regulation: Evidence from EU Electricity industry," IEFE Working Papers 78, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    14. Klaus S. Friesenbichler, 2016. "Policy interaction and the integration of volatile renewable energy," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(2), pages 193-211, April.
    15. Poudineh, Rahmatallah & Jamasb, Tooraj, 2016. "Determinants of investment under incentive regulation: The case of the Norwegian electricity distribution networks," Energy Economics, Elsevier, vol. 53(C), pages 193-202.

    More about this item

    Keywords

    Static and dynamic efficiency; Vertical economies; Ownership unbundling; Regulation; Electricity; Investments;

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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