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


  • Machiel Mulder


  • Victoria Shestalova


  • Mark Lijesen



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.

Suggested Citation

  • Machiel Mulder & Victoria Shestalova & Mark Lijesen, 2005. "Vertical separation of the energy-distribution industry; an assessment of several options for unbundling," CPB Document 84, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:docmnt:84

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    References listed on IDEAS

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    Cited by:

    1. Roland Meyer, 2011. "Vertical Economies and the Costs of Separating Electricity Supply-A Review of Theoretical and Empirical Literature," Bremen Energy Working Papers 0006, Bremen Energy Research.
    2. Daniel Scholten & Rolf Künneke, 2016. "Towards the Comprehensive Design of Energy Infrastructures," Sustainability, MDPI, Open Access Journal, vol. 8(12), pages 1-24, December.
    3. Marius Buchmann, 2016. "Information Management in Smart Grids - Who Should Govern Information Management to Balance Between Coordination and Competition on the Distribution Grid Level?," Bremen Energy Working Papers 0022, Bremen Energy Research.
    4. 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.
    5. 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.
    6. B. Willems & E. Ehlers, 2008. "Cross-Subsidies in the Electricity Sector," Competition and Regulation in Network Industries, Intersentia, vol. 9(3), pages 201-228, September.
    7. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 61-93, January.
    8. P.W.J. De Bijl, 2005. "Structural Separation and Access in Telecommunications Markets," Competition and Regulation in Network Industries, Intersentia, vol. 6(2), pages 95-115, June.
    9. John Kwoka & Michael Pollitt & Sanem Sergici, 2010. "Divestiture policy and operating efficiency in U.S. electric power distribution," Journal of Regulatory Economics, Springer, vol. 38(1), pages 86-109, August.
    10. 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.
    11. Machiel Mulder & Gijsbert Zwart, 2006. "Market failures and government policies in gas markets," CPB Memorandum 143, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Buchmann, Marius, 2017. "Governance of data and information management in smart distribution grids: Increase efficiency by balancing coordination and competition," Utilities Policy, Elsevier, vol. 44(C), pages 63-72.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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