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Governing Smart Grids - the Case for an Independent System Operator

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  • Nele Friedrichsen

Abstract

The next years should bring about a rapid transformation of the electricity sector towards high levels of renewable generation. Smart grids are seen as the silver bullet responding to the challenge of integrating renewables, managing flexibility, and keeping the costs down in distribution networks. Network unbundling on the other hand is essential for competition in the liberalized electricity industry. It forces independence of the networks and thereby eliminates concern that incumbent integrated (network) firms discriminate against new entrants. With smart grids the unbundling questions become relevant for distribution networks because active control in smart grids entails discrimination potentials. However, smart grids exhibit coordination needs for system efficiency and unbundling eliminates firm-internal coordination. An independent system operator seems to be an appropriate compromise solution. It eliminates discrimination incentives and serves coordination needs, thereby striking a balance between both competition and efficiency goals.

Suggested Citation

  • Nele Friedrichsen, 2011. "Governing Smart Grids - the Case for an Independent System Operator," Bremen Energy Working Papers 0011, Bremen Energy Research.
    • Handle: RePEc:bei:00bewp:0011
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    More about this item

    Keywords

    smart grid; unbundling; governance; coordination; independent system operator;
    All these keywords.

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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