2009 IEW Conference - Venice
Transmission Network Unbundling
and Grid Investments: Evidence
from the UCTE Countries
Paolo Nardi
CERTeT – Università Bocconi
Policy Review: an outline
• Sector Inquiry (January 2007)
• Third Energy Package (September 2007)
– Transmission Network Ownership Unbundling
• EP’s second reading (April 2009)
– ISO
– OU
– EEU
2
Policy Review (2): the debate
• Commissioner Kroes
– «There is evidence that investments are based on what is good
for the integrated company, rather than on efficiency gains for
the network company. We need to ensure a structural
unbundling that removes the opportunities for discriminating
against competing suppliers, and which provides the proper
incentives to invest in the network» (speech 06/17)
• Mrs Angela Merkel
– «Unbundling is a different issue. We have many traditions in
Europe. Fourteen member states already have unbundling,
others like Germany have a different tradition. I do not think the
issue of competition can be reduced to the unbundling question»
(Financial Times, March 6th 2007)
3
Literature Review
• Benefits of Unbundling (Léautier, 2001):
– Pro-competitive effect of grid investments
– Conflict of interest for vertically integrated incumbent
– Unbundling is the structural solution
• Costs (Kaserman and Mayo, 1991; Kwoka, 2002 and 2008):
– Diseconomies of scale
– Diseconomies of coordination
• Net impact? Ambiguous (Brunekreeft, 2008; Pollitt, 2008)
– Lack of definitive econometric evidence on reform effects
– Studies on wholesale and retail markets, not on
transmission network
4
Methodology (1)
• Research questions:
• Is there any evidence of a positive relationship
between unbundling and grid investments?
• Does the concentration in the wholesale market
matter with this evidence?
• Sample:
• 14 TX networks of UCTE countries (2000-2006)
• 28 major interconnections (2000-2006)
• Indicators:
• annual growth rates of capacity indicators
• quality indicators to evaluate side effects
5
Methodology (2)
•Non-parametric tests on medians between:
• TX-dataset:
• Unbundled vs. not unbundled country-year
• Ownership unbundled vs. not ownership unbundled
country-year
• ICX-dataset:
• ICX-year between both unbundled countries vs. not
both unbundled countries
• ICX-year between both ownership unbundled
countries vs. not both ownership unbundled
countries
6
Grid length of the network
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
AT
BE CH CZ
2000
2001
DE
ES
2002
FR HU
2003
IT
2004
NL
2005
PL
PT
SI
SK
2006
7
2000
2001
2002
2003
2004
2005
2006
8
PL-SK
PL-SE
IT-SI
HU-SK
FR-IT
FR-GB
ES-PT
ES-FR
DE-SE
DE-PL
DE-NL
DE-FR
DE-DK_W
DE-DK_E
CZ-SK
CZ-PL
CZ-DE
CH-IT
CH-FR
CH-DE
BE-NL
BE-FR
AT-SI
AT-IT
AT-HU
AT-DE
AT-CZ
AT-CH
Conventional thermal capacity
of ICX networks
14000
12000
10000
8000
6000
4000
2000
0
Empirical findings (1): capacity
•
Some capacity indicators are likely to
increase after ownership unbundling
– In TX networks, measured as annual growth
rate of grid length (significance= 0.03**)
– In ICX networks, measured as annual growth
rate of thermal capacity (significance=0.09*)
•
More mixed evidence when legal and
functional unbundling have been also
considered
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Empirical findings (2): quality
•
Any unintended costs of Ownership
Unbundling?
–
•
Concerns expressed by policymakers and scholars
on unintended costs of ownership unbundling
should not be overcome
Quality indicators show twisted results:
–
–
Significance is not always good
Even if unbundling per se is associated to an
apparent enhancement of quality indicators, the
same indicators systematically worsen if the
analysis focuses upon ownership unbundling
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Comments:
•
A scattered evidence of increased grid
capacity after ownership unbundling
– there could be a problem of short-run effect;
•
Yet a degradation of quality indicators
cannot be excluded
– A less reliable and low-quality TX and ICX
service could represent a side effect of
• difficult coordination and/or
• mismanagement of the maintenance activities
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Conclusions
• Ownership Unbundling does not take off
– Relevance of political issues
• A phenomenon of capture by ‘hybridized’ utilities
• Doubts on the economic rationale behind the EC’s proposal
– Benchmark Competition
• Regional Approaches by ERGEG (ACER)
• Pentalateral Group and market-led initiatives
12
Thank you for your attention
‘We must now return energy to centre stage’
(Commission President Barroso, January 2007)
13
Essential References
•
Brunekreeft, Gert (2008) Ownership Unbundling in Electricity Markets. A
Social Cost Benefit Analysis of the German TSO’s. EPRG Discussion Paper
08-15, University of Cambridge
•
Kaserman, David and Mayo, John (1991) The Measurement of Vertical
Economies and the Efficient Structure of the Electric Utility Industry. The
Journal of Industrial Economics 39 (5) 483-502
•
Kwoka, John (2002) Vertical economies in electric power: evidence on
integration and its alternatives. International Journal of Industrial
Organization 20 (5) 653-671
•
Kwoka, John (2008) Restructuring the U.S. Electric Power Sector: A Review
of Recent Studies. Review of Industrial Organization 32 (3) 165-196
•
Léautier, Thomas-Olivier (2001) Transmission Constraints and Imperfect
Markets for Power. Journal of Regulatory Economics 19 (1) 27-54
•
Pollitt, Michael G. (2008) The arguments for and against ownership
unbundling of energy transmission networks. Energy Policy 36 (2) 704-713
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