Electricity Network Investment and Regulation for a Low Carbon Future

The requirement for significantly higher electricity network investment in the UK seems certain as the capacity of distributed generation and large scale renewables increases on the system. In this paper, which forms a chapter in the forthcoming Book “Delivering a Low Carbon Electricity System: Technologies, Economics and Policy”, the authors make a number of significant suggestions for improvement to the current system of network regulation. First, they suggest that the RPI-X system needs to be overhauled in favour of a simpler yardstick based system and which allows for more merchant transmission investments. Second, future regulation should involve more negotiated regulation involving agreements between network owners and purchasers of network services. This would be particularly advantageous for decisions on new network investments. Third, more extensive use needs to be made of locational pricing within the transmission and distribution system in order to facilitate the least cost expansion of low carbon generation, including micropower. Fourth, consideration needs to be given to ownership unbundling of distribution networks from retail supply. This would better facilitate the entry of distributed generation and the development of appropriate competition between grid and off-grid generation supply and demand side management. Finally, there needs to be a significant increase in R&D expenditure in electricity networks supported by customer levies

The Consequences for Consumer Welfare of the 2001-2003 Electricity Distribution Price Review in The Netherlands

The Dutch regulatory process for setting the first X-Factors in the electricity distribution sector has gone badly wrong. During two-and-a-half years four different X-Factors were published by the regulator. These X-Factors fluctuated wildly. We demonstrate that Dutch electricity consumers will pay at least €300mln. more over three years for the distribution of electricity than might otherwise have been the case. We estimate that benefits for companies in terms of extra revenue from lowered X-Factors amounts to 3~5 percent of total asset value. We provide a history of the regulatory process and analyse the impact of the different X-Factors on the final bills of consumers. The negative political reaction to the perceived problems of regulation has hampered the course of deregulation and the privatisation of the municipally-owned electricity companies. The Minister of Economic Affairs and the majority of Parliament want the complete ownership unbundling of the sector by 1 January 2007

Deregulation and R&D in Network Industries: The Case of the Electricity Industry

Electricity reform has coincided with a significant decline in energy R&D activities. Technical progress is crucial for tackling many energy and environmental issues as well as for long-term efficiency improvement. This paper reviews the industrial organisation literature on innovation to explore the causes of this decline, and shows that it was predicted by the pre-reform literature. More recent evidence endorses this conclusion. At the same time, R&D productivity and innovative output appear to have improved in both electric utilities and equipment suppliers, in line with general improvements in the operating efficiency of the sector. Despite this, a lasting decline in basic R&D and innovation input into basic research may negatively affect development of radical technological innovation in the long run. There is a need for reorientation of energy technology policies and spending toward more basic research, engaging more firms in R&D, encouraging collaborative research, and exploring public private partnerships

Benchmarking and Regulation of Electricity Transmission and Distribution Utilities: Lessons from International Experience

Since the early 1980's, many countries have implemented electricity sector reform, many of which have bundled generation, transmission, distribution and supply activities, and have introduced competition in generation and supply. An increasing number of countries are also adopting incentive regulation to promote efficiency improvement in the natural monopoly activities - transmission and distribution. Incentive regulation almost invariably involves benchmarking or comparison of actual vs. some reference performance. This paper reviews the main approaches to incentive regulation and discusses various benchmarking methods. We also present the finding of a survey of the use of benchmarking methods in the OECD and few other countries. Our survey finds a variety of methods used by the electricity regulators although with a notable preference for the non-parametric methods. We then draw conclusions based on the finding of the survey highlighting the main outstanding issues and lessons for best practice implementation of benchmarking in electricity regulation

Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain

This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements and the role of sector rationalisation

A survey of the liberalisation of public enterprises in the UK since 1979

This paper examines the course of the deregulation and privatisation of public enterprises in the UK since 1979. The UK privatisation programme has been the most significant in the OECD involving the transfer of ownership of over 7% of GDP from the public to the private sectors. We examine the history and genesis of this programme, the development of the regulatory system based around RPI-X price control and the evidence on the effects of the privatisation. We conclude by evaluating the policy in the terms of its original aims. We find that public enterprise privatisation successfully reduced government involvement in industry, led to increased economic efficiency and a reduced fiscal deficit. Less clearly, it contributed to the curbing of Trade Union power and wider share ownership. Most significantly of all, as the most sustained and consistent policy of the 1979-97 Conservative governments, it gained sustained advantage for pro-market political forces in the UK

The Consequences for Consumer Welfare of the 2001-2003 Electricity Distribution Price Review in The Netherlands

The Dutch regulatory process for setting the first X-Factors in the electricity distribution sector has gone badly wrong. During two-and-a-half years four different X-Factors were published by the regulator. These X-Factors fluctuated wildly. We demonstrate that Dutch electricity consumers will pay at least €300mln. more over three years for the distribution of electricity than might otherwise have been the case. We estimate that benefits for companies in terms of extra revenue from lowered X-Factors amounts to 3~5 percent of total asset value. We provide a history of the regulatory process and analyse the impact of the different X-Factors on the final bills of consumers. The negative political reaction to the perceived problems of regulation has hampered the course of deregulation and the privatisation of the municipally-owned electricity companies. The Minister of Economic Affairs and the majority of Parliament want the complete ownership unbundling of the sector by 1 January 2007.electricity, price review, RPI-X, Netherlands, distribution networks