Gert Brunekreeft

Policy Uncertainty and Supply Adequacy in Electric Power Markets

This paper examines policy uncertainty adversely affecting investment in the electric power industry, covering generation and network assets. We focus on asymmetric, systematic, non-diversifiable risk with spin-offs. In generation, a key uncertainty is the inability of governments to refrain from intervention if capacity becomes scarce and prices rise. The policy expectations can, in fact, be self-fulfilling. One issue in network investment is that price-cap regulation is less suited to handling market risk than rate-of-return regulation. Another issue is the apparent inability of regulators credibly to commit to pre-announced policy. With increasing importance of new investment, a case can be made that (used-and-useful) rate-of-return regulation will regain territory in the future. Furthermore, improving checks and balances within the structure of regulation should be a focus of policy and good governance. Copyright 2005, Oxford University Press.

Zwischen Regulierung und Wettbewerb: Netzsektoren in Deutschland

Die Offnung von Netzsektoren fur den Wettbewerb ist in Deutschland derzeit in vollem Gange, nachdem diese Branchen uber lange Zeit durch entsprechende gesetzliche Beschrankungen yom wettbewerblichen Marktgeschehen ausgenommen waren. Ob so spektakular und offensichtlich wie in der Telekommunikation, der Elektrizitat und im Luftverkehr oder eher verhalten wie bei Eisenbahn, OPNV und im Postbereich, diese Marktoffnungen fuhren im Grunde zu immer gleichen Ergebnissen: Konsumenten werden als Kunden begriffen und mit innovativen Dienstleistungen und preisgunstigen, ihren Bedurfnissen entsprechenden Angeboten umworben. Die Konsumenten, die von den traditionellen Monopoluntemehmen eher standardisierte Produkte und einheitliche Preise gewohnt sind, mussen sich in der neuen Produkt- und Preisvielfalt neu orientieren. Fur Untemehmen ergeben sich sowohl zahlreiche Marktchancen als auch bis dato unbekannte Risiken. Neue Wettbewerber konnen in den Markt treten, verkrustete Strukturen brechen auf, Produktivitatsdruck und Innovationszwang halten in den etablierten Firmen Einzug. Wahrend dies fur einige Arbeitnehmergruppen negative Folgen hat, eroffnen sich fur andere neue Berufschancen.

The electricity supply industry in Germany: market power or power of the market?

Abstract This paper analyses the electricity supply industry in Germany, which was liberalized in April 1998. Noticeable aspects are the eligibility of all end-users, the lack of constraints on the vertical industry structure and the option for negotiated third party access. There is no sector-specific regulation. This paper argues that the vertically integrated firms concentrate on excessive network access charges, whereas the stages generation and retail appear to be relatively competitive. Empirical evidence suggests that in Germany network access charges make up a significantly higher share of end-user prices than in the UK, which is used as regulation-benchmark.

Prices for long-distance voice telephony in Germany

This paper examines the first 16 months of competition in the German market for long-distance voice telephony on the fixed network. It concentrates on price level and price structure. Competition induced by the entry of both network operators and switch-based service providers decreased the price level substantially. Furthermore, after initial attempts to design innovative price structures, most firms gave up differentiation, and instead charged uniform prices for long-distance calls for residential customers. Moreover, the decrease in the price level seems to have induced a shift in the peak-load structure, which raises concern about the regulation of the peak-load structure of interconnection charges.

A multiple-unit, multiple-period auction in the British electricity spot market

Abstract This paper examines the electricity pool in England and Wales. The approach followed in this paper builds on the auction approach of Von der Fehr and Harbord (Von der Fehr, N.H.M., Harbord, D., 1993. Spot market competition in the UK electricity industry. Econ. J. 103, 531–546), but adds realism by allowing explicitly for multiple-unit firms and multiple periods. In a formal setting, a bidding range will be derived, by characterizing the polar cases. The more interesting lower bidding rule will be characterized in detail, providing insights in the performance of the British electricity pool. Four aspects are examined more closely: (1) the mark-up; (2) the number of firms; (3) the auction frequency (bidding flexibility); and (4) load-profile competition.

Deep-ISOs and Network Investment:

Further unbundling measures are currently implemented in the European energy markets. One option is the “deep independent system operator” (deep-ISO). An ISO splits the system operator from transmission ownership, which can remain integrated with generation assets, if so desired. This construction avoids violation of constitutional law, but does not address the “strategic-investment-withholding” argument. Therefore, a deep-ISO receives the competence for transmission investment decision making and can if necessary order a transmission owner to make the investment. This construction creates an uneasy governance split between decision-maker and risk-bearer. In this paper, we discuss the scope of the deep-ISO and the role of third parties in decentralised transmission investment, in particular “tendered transmission investment”, to address the above mentioned governance problem.

Distributed Generation and the Regulation of Electricity Networks

Publisher Summary This chapter focuses on the effects of distributed generation (DG) on the electricity network. It examines the role of distribution network regulation for the integration of DG. It provides an overview of DG, its definition, status, and drivers. It also explains why DG is not just a generation issue, but will affect the electricity network and is therefore something to be dealt with by network regulation. It discusses how the network effects of DG influence the DNO under different regulatory regimes and provides an overview of coordination problems between DNO and DG plants. It presents a number of approaches to incentivize the DNOs to connect DG to its network. It is often argued that electricity generation close to consumers can reduce electricity network costs. This requires that DG plants are integrated into network operation and there will be many cases where the network needs to adapt to DG, incurring additional costs. Even in cases where the overall benefits of DG are positive, additional network costs clearly represent a disincentive for network operators to connect DG plants to their grid. Distribution network operators (DNOs) and the regulatory framework in which they operate play a central role in integrating and facilitating DG plants. This refers both to the incentives of DNOs to connect DG plants and to the coordination problem between DNO and DG. The regulatory framework essentially rests on two pillars: first, economic regulation of revenues or profits and, second, the approach toward vertical unbundling of the networks and the competitive businesses. Both have a potentially strong impact on the efficient integration of DG.

Distribution Pricing: Are We Ready for the Smart Grid?

Energy transportation costs typically make up a quarter of consumers? electricity bills, and most of this amount (90% in the United Kingdom, 75% in Brazil and Spain, and 60% in India, for example) is due to energy transportation through the distribution network. This cost could escalate over the next few decades as distributed energy resources are expected to grow substantially in response to the financial incentives many governments have created for renewable and efficient generation to meet their CO2 reduction targets.

Ownership Unbundling of Electricity Distribution Networks and Distributed Generation

Ownership unbundling of distribution network operators (DNO) and the commercial activities in the electricity supply industry will distort and may impede efficient investment in distributed generation (DG). DG is electricity generation connected to the distribution network and typically involves renewable energy sources and combined heat and power. Three arguments were examined in detail. First, the unbundled network operator may have poor incentives to connect new DG. Secondly, in the face of deep network impact, shallow connection charging distorts investment signals. Thirdly, the split between network and DG exacerbates coordination and information problems leading to flawed investment.

Open access vs. common carriage in electricity supply

This paper examines the question of whether the upstream infrastructure monopolist in electricity transmission should be allowed to participate on the downstream generation market. The central assumption is that the downstream market is characterized by a U-shaped AC curve. Under this assumption, it will be shown that the unregulated upstream monopolist has an incentive for partial forward integration. He or she will, however, not have an incentive to foreclose fully the downstream market. Furthermore, it will be shown that allowing the upstream monopolist to be active on the downstream market is superior to forbidding this. In other words, under the assumptions of the model, open access will be superior to common carriage.