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(Showing results 1 to 7 of 7)



Electricity Distribution in the UK and Japan: A Comparative Efficiency Analysis 1985-1998

Toru Hattori, Tooraj Jamasb and Michael Pollitt

Year: 2005
Volume: Volume 26
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-2
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Abstract:
This paper examines the relative performance of electricity distribution systems in the UK and Japan between 1985 and 1998 using cost-based benchmarking with data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods. The results suggest that the productivity gain in the UK electricity distribution has been larger than in the Japanese sector. In particular, productivity growth accelerated during the last years when the UK utilities were operating under tightened revenue caps. It also suggests that efficiency scores are higher for UK utilities. The findings also highlight the advantages of using multiple techniques in comparative analysis and in incentive regulation.



A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

Juan Rosellón and Hannes Weigt

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-5
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Abstract:
We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco's profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.



Long-run Cost Functions for Electricity Transmission

Juan Rosellón, Ingo Vogelsang, and Hannes Weigt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-5
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Abstract:
Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piece-wise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion. Key words: Electricity transmission, Cost function, Incentive regulation, Merchant investment, Congestion management



Power System Transformation toward Renewables: An Evaluation of Regulatory Approaches for Network Expansion

Jonas Egerer, Juan Rosellón, and Wolf-Peter Schill

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.jege
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Abstract:
We analyze various regulatory regimes for electricity transmission investment in the context of a power system transformation toward renewable energy. Distinctive developments of the generation mix are studied, assuming that a shift toward renewables may have temporary or permanent impacts on network congestion. We specifically analyze the relative performance of a combined merchant-regulatory price-cap mechanism, a cost-based rule, and a non-regulated approach in dynamic generation settings. We find that incentive regulation may perform better than cost-based regulation but only when appropriate weights are used. While quasi-ideal weights generally restore the beneficial properties that incentive regulatory mechanisms are well-known for, pure Laspeyres weights may either lead to over-investment or delayed investments as compared to the welfare-optimum benchmark. Laspeyres-Paasche weights, in turn, seem appropriate under permanently or temporarily increased network congestion. Thus, our analysis provides motivation for further research in order to characterize optimal regulation for transmission expansion in the context of renewable integration.



A New Perspective: Investment and Efficiency under Incentive Regulation

Rahmatallah Poudineh and Tooraj Jamasb

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.rpou
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Abstract:
Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising their networks. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of "no impact efficiency" as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.



The Impact of Regulation on a Firm's Incentives to Invest in Emergent Smart Grid Technologies

Paulo Moisés Costa, Nuno Bento and Vítor Marques

Year: 2017
Volume: Volume 38
Number: Number 2
DOI: 10.5547/01956574.38.2.pcos
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Abstract:
This paper analyzes the implementation of new technologies in network industries through the development of a suitable regulatory scheme. The analysis focuses on Smart Grid (SG) technologies which, among others benefits, could save operational costs and reduce the need for further conventional investments in the grid. In spite of the benefits that may result from their implementation, the adoption of SGs by network operators can be hampered by the uncertainties surrounding actual performances. A decision model has been developed to assess the firms' incentives to invest in "smart" technologies under different regulatory schemes. The model also enables testing the impact of uncertainties on the reduction of operational costs, and of conventional investments. Under certain circumstances, it may be justified to support the development and early deployment of emerging innovations that have a high potential to ameliorate the efficiency of the electricity system, but whose adoption faces many uncertainties.



Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources

Jesse D. Jenkins and Ignacio J. Pérez-Arriaga

Year: 2017
Volume: Volume 38
Number: Number 3
DOI: 10.5547/01956574.38.3.jjen
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Abstract:
Under increasing penetration of distributed resources, regulators and electricity distribution utilities face greater uncertainty regarding the evolution of network uses and efficient system costs. This uncertainty can threaten revenue adequacy and challenges both cost of service/rate of return and incentive/performance-based approaches to the remuneration of distribution utilities. To address these challenges, this paper proposes a novel methodology to establish allowed utility revenues over a multi-year regulatory period. This method combines several "state of the art" regulatory tools designed to overcome information asymmetries, manage uncertainty, and align incentives for utilities to cost-effectively integrate distributed energy resources while taking advantage of opportunities to reduce system costs and improve performance. We use a reference network model to simulate a large-scale urban distribution network, demonstrate the practical application of this regulatory method, and illustrate its performance in the face of both benchmark and forecast errors.





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