Econonomics of Energy and Environmental Policy

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Ownership Unbundling of Electricity Distribution Networks

Traditional restructuring of power markets has focused on legally separating monopolistic transmission and distribution infrastructure with sufficient regulatory oversight to ensure non-discriminatory access to networks, and transparent and cost-reflective tariffs. There is consensus that ownership separation for transmission assets is beneficial for competition and transparency. However, at the distribution level the benefits of going beyond legal unbundling are questionable. This paper reviews the theoretical arguments for ownership unbundling and summarises the findings from 23 academic papers and consulting reports. In addition, this paper empirically demonstrates that forced distribution ownership unbundling in New Zealand (from 1998) and the Netherlands (from 2009) did not increase retail competition and did not increase network quality. It resulted in significant one-off and structural costs. The combination of increasingly active distribution networks with bi-directional power flows from distributed renewables, in combination with the digitalisation of energy supply and creation of distribution data platforms, suggests that interaction between networks and customers, traditionally separated from a regulatory and competition perspective may become more interlinked in future. Policymakers should therefore assess a broader set of policy measures, taking into account this changing network landscape, when focusing on increasing retail competition and network quality.
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Keywords: Electricity distribution, Ownership unbundling

DOI: 10.5547/2160-5890.10.1.pnil

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Published in Volume 10, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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