Forschungsinstitut für Regulierungsökonomie, WU Vienna University of Economics and Business
Abstract
The EU has been promoting unbundling of the transmission grid from other stages
of the electricity supply chain with the aim of fostering competition in the upstream stage of
electricity generation. At presence, ownership unbundling is the predominant form of
unbundling in Europe. However, the benefits of increased competition from ownership
unbundling of the transmission grid may come at the cost of lost vertical synergies between the
formerly integrated stages of electricity supply. The policy debate generally neglects such
potential costs of unbundling, yet concentrates on its benefits. Therefore European crosscountry
evidence may shed some light on this issue. This study helps fill this void by
empirically estimating the magnitude of economies of vertical integration (EVI) between
electricity generation and transmission based on a quadratic cost function. For this purpose
we employ novel firm-level panel data of major European electricity utilities. Our results
confirm the presence of substantial EVI, which put the policy measure of transmission
ownership unbundling into question. (authors' abstract)Series: Working Papers / Research Institute for Regulatory Economic
