IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Unbundling, Regulation, and Pricing: Evidence from Electricity Distribution

Abstract:
Unbundling of vertically integrated utilities has become an integral element in the regulation of network industries and has been implemented in many jurisdictions. The idea of separating the network, as the natural monopoly, from downstream retailing, which may be exposed to competition, is still subject to contentious debate, as there is much empirical evidence that unbundling eliminates economies of vertical integration, though evidence on overall price effects is still lacking. In this paper, we study the effect of legal unbundling on grid charges in the German electricity distribution industry. Using panel data on German distribution system operators (DSOs), we exploit the variation in the timing of the implementation of legal unbundling and the fact that not all DSOs had to implement unbundling measures. We are also able to identify heterogeneous effects of legal unbundling for different types of price regulation because we observe a switch in the price regulation regime from rate-of-return regulation to incentive regulation during our observation period. Our findings suggest that legal unbundling of the network stage significantly decreases grid charges in the range of 5% to 9%, depending on the type of price regulation in place.

Download Executive Summary Purchase ( $25 )

Keywords: Vertical integration, Electricity distribution, Unbundling, Regulation

DOI: 10.5547/01956574.41.SI1.shei

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 41, Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2021 International Association for Energy Economics | Privacy Policy | Return Policy