IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v132y2019icp754-763.html
   My bibliography  Save this article

Incentivizing timely investments in electrical grids: Analysis of the amendment of the German distribution grid regulation

Author

Listed:
  • Nolting, Lars
  • Schuller, Vanessa
  • Gaumnitz, Felix
  • Praktiknjo, Aaron

Abstract

The lack of appropriate regulatory frameworks is a main barrier for the expansion of distribution grids. Therefore, we ask whether the amendment of German incentive regulation ordinance will reduce agency costs between distribution system operators and the regulatory authority. To answer this question, we elaborate a theoretical framework based on regarding literature in the fields of (1) principal agency theory and (2) German grid regulation. We then apply this framework to changes in German incentive regulation for distribution grid operators: first, we statistically proof the existence of incentives to shift investments in time under the old German grid regulation; second, we derive that these misleading incentives are erased by its amendment; third, we quantitatively assess the expected effects on distribution grid operators’ investment behavior; and fourth, we conclude that the amendment leads to a diminished dead weight loss. Our results offer a quantitative basis for ongoing political discussions on appropriate regulation schemes. Based on our results, we can draw the conclusions that (1) the amendment of German grid regulation is an appropriate measure to reduce misleading incentives for distribution grid operators and (2) still a dead weight loss exists and other regulation schemes such as Yardstick competition should be considered.

Suggested Citation

  • Nolting, Lars & Schuller, Vanessa & Gaumnitz, Felix & Praktiknjo, Aaron, 2019. "Incentivizing timely investments in electrical grids: Analysis of the amendment of the German distribution grid regulation," Energy Policy, Elsevier, vol. 132(C), pages 754-763.
    • Handle: RePEc:eee:enepol:v:132:y:2019:i:c:p:754-763
    DOI: 10.1016/j.enpol.2019.06.027
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421519303970
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2019.06.027?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cullmann, Astrid & Nieswand, Maria, 2016. "Regulation and investment incentives in electricity distribution: An empirical assessment," Energy Economics, Elsevier, vol. 57(C), pages 192-203.
    2. PER AGRELL & Peter Bogetoft & Jørgen Tind, 2005. "DEA and Dynamic Yardstick Competition in Scandinavian Electricity Distribution," Journal of Productivity Analysis, Springer, vol. 23(2), pages 173-201, May.
    3. Agrell, Per J. & Bogetoft, Peter & Mikkers, Misja, 2013. "Smart-grid investments, regulation and organization," Energy Policy, Elsevier, vol. 52(C), pages 656-666.
    4. Steinbach, Armin, 2013. "Barriers and solutions for expansion of electricity grids—the German experience," Energy Policy, Elsevier, vol. 63(C), pages 224-229.
    5. Muench, Stefan & Thuss, Sebastian & Guenther, Edeltraud, 2014. "What hampers energy system transformations? The case of smart grids," Energy Policy, Elsevier, vol. 73(C), pages 80-92.
    6. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
    7. Cossent, Rafael & Gómez, Tomás & Frías, Pablo, 2009. "Towards a future with large penetration of distributed generation: Is the current regulation of electricity distribution ready? Regulatory recommendations under a European perspective," Energy Policy, Elsevier, vol. 37(3), pages 1145-1155, March.
    8. Buijs, Patrik & Bekaert, David & Cole, Stijn & Van Hertem, Dirk & Belmans, Ronnie, 2011. "Transmission investment problems in Europe: Going beyond standard solutions," Energy Policy, Elsevier, vol. 39(3), pages 1794-1801, March.
    9. Battaglini, Antonella & Komendantova, Nadejda & Brtnik, Patricia & Patt, Anthony, 2012. "Perception of barriers for expansion of electricity grids in the European Union," Energy Policy, Elsevier, vol. 47(C), pages 254-259.
    10. Michael Hellwig & Dominik Schober & Luis Cabral, 2018. "Incentive Regulation: Evidence From German Electricity Networks," Working Papers 18-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    11. Stronzik, Marcus, 2011. "Zusammenhang zwischen Anreizregulierung und Eigenkapitalverzinsung. IRIN Working Paper im Rahmen des Arbeitspakets: Smart Grid-gerechte Weiterentwicklung der Anreizregulierung," WIK Discussion Papers 357, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    12. Tim Nelson & Paul Simshauser, 2014. "Metering and the principalóagent problem in restructured energy markets æ," Economic Analysis and Policy, Elsevier, vol. 44(2), pages 169-183.
    13. Matschoss, Patrick & Bayer, Benjamin & Thomas, Heiko & Marian, Adela, 2019. "The German incentive regulation and its practical impact on the grid integration of renewable energy systems," Renewable Energy, Elsevier, vol. 134(C), pages 727-738.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schreiner, Lena & Madlener, Reinhard, 2021. "A pathway to green growth? Macroeconomic impacts of power grid infrastructure investments in Germany," Energy Policy, Elsevier, vol. 156(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agrell, Per J. & Bogetoft, Peter & Mikkers, Misja, 2013. "Smart-grid investments, regulation and organization," Energy Policy, Elsevier, vol. 52(C), pages 656-666.
    2. Rami David Orejon-Sanchez & Jose Ramon Andres-Diaz & Alfonso Gago-Calderon, 2021. "Autonomous Photovoltaic LED Urban Street Lighting: Technical, Economic, and Social Viability Analysis Based on a Case Study," Sustainability, MDPI, vol. 13(21), pages 1-17, October.
    3. Agrell, Per J. & Brea-Solís, Humberto, 2017. "Capturing heterogeneity in electricity distribution operations: A critical review of latent class modelling," Energy Policy, Elsevier, vol. 104(C), pages 361-372.
    4. Vesterberg, Mattias & Zhou, Wenchao & Lundgren, Tommy, 2021. "Wind of change: Small-scale electricity production and distribution-grid efficiency in Sweden," Utilities Policy, Elsevier, vol. 69(C).
    5. Lidia Puka & Kacper Szulecki, 2014. "Beyond the "Grid-Lock" in Electricity Interconnectors: The Case of Germany and Poland," Discussion Papers of DIW Berlin 1378, DIW Berlin, German Institute for Economic Research.
    6. Michael Hellwig & Dominik Schober & Luis Cabral, 2018. "Incentive Regulation: Evidence From German Electricity Networks," Working Papers 18-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Avdasheva, Svetlana & Orlova, Yulia, 2020. "Effects of long-term tariff regulation on investments under low credibility of rules: Rate-of-return and price cap in Russian electricity grids," Energy Policy, Elsevier, vol. 138(C).
    8. Bayer, Benjamin & Berthold, Lennart & Moreno Rodrigo de Freitas, Bruno, 2018. "The Brazilian experience with auctions for wind power: An assessment of project delays and potential mitigation measures," Energy Policy, Elsevier, vol. 122(C), pages 97-117.
    9. Oduro, Richard A. & Taylor, Peter G., 2023. "Future pathways for energy networks: A review of international experiences in high income countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 171(C).
    10. Boßmann, Tobias & Eser, Eike Johannes, 2016. "Model-based assessment of demand-response measures—A comprehensive literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 1637-1656.
    11. Soares, N. & Martins, A.G. & Carvalho, A.L. & Caldeira, C. & Du, C. & Castanheira, É. & Rodrigues, E. & Oliveira, G. & Pereira, G.I. & Bastos, J. & Ferreira, J.P. & Ribeiro, L.A. & Figueiredo, N.C. & , 2018. "The challenging paradigm of interrelated energy systems towards a more sustainable future," Renewable and Sustainable Energy Reviews, Elsevier, vol. 95(C), pages 171-193.
    12. Cambini, Carlo & Congiu, Raffaele & Jamasb, Tooraj & Llorca, Manuel & Soroush, Golnoush, 2020. "Energy Systems Integration: Implications for public policy," Energy Policy, Elsevier, vol. 143(C).
    13. Munish Manas, 2015. "Development of preferential regulations, transmission tariffs, and critical technological components for the promotion of smart grid globally," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2015(2), pages 107-130.
    14. Pereira, Guillermo Ivan & Pereira da Silva, Patrícia & Cerqueira, Pedro André, 2020. "Electricity distribution incumbents' adaptation toward decarbonized and smarter grids: Evidence on the role market, regulatory, investment, and firm-level factors," Energy Policy, Elsevier, vol. 142(C).
    15. Norouzi, Farshid & Hoppe, Thomas & Elizondo, Laura Ramirez & Bauer, Pavol, 2022. "A review of socio-technical barriers to Smart Microgrid development," Renewable and Sustainable Energy Reviews, Elsevier, vol. 167(C).
    16. Larsen, Erik R. & Osorio, Sebastian & van Ackere, Ann, 2017. "A framework to evaluate security of supply in the electricity sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 646-655.
    17. Gacitua, L. & Gallegos, P. & Henriquez-Auba, R. & Lorca, Á. & Negrete-Pincetic, M. & Olivares, D. & Valenzuela, A. & Wenzel, G., 2018. "A comprehensive review on expansion planning: Models and tools for energy policy analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 346-360.
    18. Sardaro, Ruggiero & Faccilongo, Nicola & Roselli, Luigi, 2019. "Wind farms, farmland occupation and compensation: Evidences from landowners’ preferences through a stated choice survey in Italy," Energy Policy, Elsevier, vol. 133(C).
    19. Hellwig, Michael & Schober, Dominik & Cabral, Luís, 2020. "Low-powered vs high-powered incentives: Evidence from German electricity networks," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    20. Specht, Jan Martin & Madlener, Reinhard, 2019. "Energy Supplier 2.0: A conceptual business model for energy suppliers aggregating flexible distributed assets and policy issues raised," Energy Policy, Elsevier, vol. 135(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:132:y:2019:i:c:p:754-763. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.