Social cost-efficient service quality—Integrating customer valuation in incentive regulation: Evidence from the case of Norway

In order to overcome the perverse incentives of excessive maintenance reductions and insufficient network investments arising with incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating service quality. In this paper, we explore the impact of incorporating customers’ willingness-to-pay for service quality in benchmarking models on cost efficiency of distribution networks. Therefore, we examine the case of Norway, which features this approach to service quality regulation. We use the data envelopment analysis technique to analyse the effectiveness of such regulatory instruments. Moreover, we discuss the extent to which this indirect regulatory instrument motivates a socially desired service quality level. The results indicate that internalising external or social cost of service quality does not seem to have played an important role in improving cost efficiency in Norwegian distribution utilities.     

Performance based regulation of the electricity supply industry in Hong Kong: An empirical efficiency analysis approach

This paper presents an empirical efficiency analysis approach to analyze the efficiency and performance of utilities and its effects on prices under the price-cap performance based regulation (PBR) model. A data envelopment analysis (DEA)-like frontier-based method is used to compute the total factor productivity with the Malmquist productivity index. Results of case studies support the use of the approach to account for the relation of the X-factor and the PBR model on the two power utilities in Hong Kong's electricity supply industry.     

An integrated approach for optimal frequency regulation service procurement in India

Ancillary services (AS) management has become an important issue to be addressed in the Indian power system after adaption of the restructuring and unbundling processes following the enactment of Indian Electricity Act 2003. In an electricity market, frequency regulation is one of the ancillary services, which must be procured by the system operator (SO) from the market participants by some regulatory mechanism or using market-based approaches. It is important for the SO to optimally procure this service from the AS market. In this paper, an approach for determining the optimal frequency regulation service procurement has been proposed for equitable payment to generators and recovery from the customers. The effectiveness of the proposed method has been demonstrated on a practical Northern Regional Electricity Board (NREB) system of India.     

A regulatory policy to promote renewable energy consumption in China: Review and future evolutionary path

Renewable energy has become the world's strategic choice to solve environmental pollution, address the energy crisis and achieve social sustainable development. The establishment of a regulatory system coincides with the development stage of renewable energy and electricity market operation is significant in standardizing the market competition and guaranteeing healthy development of renewable energy in China. This paper analyses the current situation of renewable energy development and the existing renewable energy regulation system in China, pointing out that the main problems restricting renewable energy development are institutional mechanisms and market factors. The existing regulatory mechanisms also have deficiencies, such as the inclination towards economic regulation and the lack of a market adjustment mechanism. This paper proposes that China should comprehensively consider the renewable energy development stage, electricity market trading mechanisms and other factors in electricity regulatory requirements when policy making, actively exploring a new renewable energy regulation model adapted to different development phases. In addition, this paper suggests China's regulatory policy path based on the forecasting of renewable energy developing models.     

高比例可再生能源环境下考虑绩效的发电出清模式研究

在可再生能源渗透率日益提高的背景下,为了促进优质灵活调节电源在市场环境下的发展,以电力市场的运行特征和实际发展需求为依据,综合考虑机组调节性能和调节效果,提出基于AHP的主能量市场绩效评价体系,兼顾灵活性和经济性的要求,设计差异化的主能量市场出清机制,并以系统运行成本最小化为目标,构建基于绩效的主能量市场与备用市场联合优化出清模型,通过与传统出清模式的对比分析,来验证该发电出清模式的有效性,最后分析可再生能源占比对运行结果的影响。算例结果表明,新的市场机制能综合考虑性能与成本进行电力市场出清,起到了有效进行资源优化配置、引导灵活性电源投资的作用。     

Renewable energy regulation and structural breaks: An empirical analysis of Spanish electricity price volatility

International experience proves that electricity prices have undergone major changes in volatility since the entry of green technologies. The intermittency of renewable sources is one of the reasons for these changes, as it leads to higher volatility in periods of higher participation by renewables. We argue that the development of the regulatory system promoting renewable electricity also plays a crucial role. We raise a question that deserves attention: could an incentive scheme induce higher share of renewables and lower volatility simultaneously? In this paper, we conduct an empirical analysis with Spanish data. We analyze possible ensuing structural changes in Spanish electricity spot price volatility from January 2002 to December 2017. We identify two structural breaks linked to important measures related to renewable electricity: (i) the abolishment of the feed-in tariff scheme; and (ii) the establishment of a more market-oriented regulation based on investment and operating costs. We conclude that stable regulatory policies reduce volatility even though the presence of renewable sources is greater. Furthermore, market-based policy measures achieve lower volatility, encouraging good integration of intermittent renewable electricity.     

Comparing electricity distribution network revenues and costs in New South Wales,Great Britain and Victoria

A decade ago, electricity distribution network revenues per customer in New South Wales (NSW) were twice those in Great Britain (GB). Recent price controls imply that by 2014 they will be nearly four times as high. This paper examines possible reasons for this. The main reason does not seem to be geography, operating environment or industry structure. GB and Victoria have managed to accommodate increasing demand at broadly constant or even declining costs and revenues while delivering higher quality of service, while NSW has not. The regulatory framework and the practice of the regulatory body within that framework seem relevant. Australian regulators have not used benchmarking techniques as the GB regulator has. Perhaps the most important explanatory factor is private ownership in GB and Victoria compared to state ownership in NSW. This could also impact on the nature and effectiveness of regulation.     

Network investments and the integration of distributed generation: Regulatory recommendations for the Dutch electricity industry

An increase in the distributed generation of electricity necessitates investments in the distribution network. The current tariff regulation in the Dutch electricity industry, with its ex post evaluation of the efficiency of investments, average benchmarking and a frontier shift in the x-factor, delays these investments. In the unbundled electricity industry, the investments in the network need to be coordinated with those in the distributed generation of electricity to enable the system operators to build enough network capacity. The current Dutch regulations do not provide for a sufficient information exchange between the generators and the system operators to coordinate the investments. This paper analyses these two effects of the Dutch regulations, and suggests improvements to the regulation of the network connection and transportation tariffs to allow for sufficient network capacity and coordination between the investments in the network and in the generation of electricity. These improvements include locally differentiated tariffs that increase with an increasing concentration of distributed generation.     

基于灰色关联度和理想解法的居民阶梯电价实施效果评价

为测评居民阶梯电价实施后的效果,基于定量与定性相结合的原则,从供电侧、用户侧和社会三方面构建多层次的阶梯电价实施效果综合评价指标体系,结合灰色关联度和理想解法综合评价居民阶梯电价方案的实施效果,并通过试点地区验证模型的有效性和合理性。     

Output-based incentive regulation in electricity distribution: Evidence from Italy

Incentive regulation in electricity distribution is expected to enlarge its scope, from an input-oriented instrument to one that includes additional, output-based incentives. This creates a potential conflict with more traditional concerns for productive efficiency. In the case of Italy, together with input-oriented instruments, output-based incentives have been applied to indicators of quality for over a decade. Using micro-data from the largest Italian distribution company, we conduct an assessment of the effects of this regulatory framework. The aim of this work is threefold. First, we measure performance in terms of cost-efficiency and find that similar cost-reducing efforts were exercised in all distribution units. Second, we measure performance with respect to the overall regulatory framework. Using quality-related rewards and penalties, we find that more cost-efficient areas were also more successful in earning rewards/avoiding penalties: favorable external conditions have similar, positive effects on both cost and quality performance. Using the cost of the energy not supplied, we find no evidence of a conflict between cost efficiency and social cost efficiency. Results indicate, however, that itis preferable to use social costs when measuring a single unit's performance. From these results we derive specific policy indications.     

The importance of incorporating reliability of supply criteria in a regulatory system of electricity distribution: An empirical analysis for Austria

Grid tariffs are the main source of income for distribution system operators (DSOs). Reductions of tariffs increase the cost pressure on DSOs; assuming they work efficiently, tariff reductions potentially lead to a decrease of the electricity system's quality if no reliability of supply criteria are incorporated in the regulatory system. Our statistical analysis shows that the correlation between grid tariffs and electricity supply interruptions in a regulatory regime neglecting this incorporation is significant and that furthermore decreasing tariffs harm the reliability of supply even in the short run. Our econometric analysis of the influence of tariffs on reliability of supply shows a significant correlation between the grid tariffs and the duration of power outages in the Austrian electricity grid; an annual average interruption duration per installed capacity of a specific grid increases ceteris paribus by 1.36 min if the grid tariff of this specific grid is decreased in the previous year by 1€/MWh.     

Teaching an old dog new tricks: Firm learning from environmental regulation

We examine a new mechanism by which environmental regulation can increase efficiency: intra-firm knowledge spillovers due to environmental regulation. County-level non-attainment of the National Ambient Air Quality Standards creates spatial variation in the degree of regulatory stringency, as states impose stronger environmental regulation in non-attainment counties. We use this spatial variation to examine how the efficiency of electricity generators responds to increases in regulation. We show that, in response to increased regulatory stringency, electricity generators find technical efficiency enhancements and then transfer these enhancements to other units within their fleet. We find that a change in regulatory stringency translates to within-firm spillovers of 3–4%, and that these gains occur at least 3 years after the increase in regulatory stringency.     

Investment incentives: regulation of the Finnish electricity distribution

Investments into the electricity distribution network are needed to support competition and to guarantee the security of supply as well as a good quality of electricity. The aim of this paper is to study the ex post regulatory system in Finland in context of investment incentives. The second objective is to study how the investments in the sector have developed after the liberalisation and what seem to be the most important factors influencing investments in light of empirical information and how regulation affects them. The investment volumes vary much between years but on average, no drastic developments have taken place.     

美国电力市场监管制度演进研究

美国百年来的电力市场监管制度演进里程表明,监管制度和电力市场是在发展中不断互动的。美国的电力市场监管制度就是一场自由和监管的“拉锯战”,也是监管制度随着电力市场发展持续调整适应的过程。外部环境的发展,电力行业的发展,给电力市场监管提出新的问题,当新问题和旧制度之间矛盾不断激化时,政府通过监管政策来适应市场;反过来,新的监管制度同样能够引导市场的发展方向。梳理了美国电力市场监管制度自上世纪二十年代至今的演进过程,追溯监管制度变动的关键性事件,政府对于监管制度的设计和调整,分析其对电力市场发展的影响,为中国本轮电力改革提供参考。     

Evaluating the regulator: Winners and losers in the regulation of Spanish electricity distribution

The principal aim of this study is to evaluate the regulation of electricity distribution in Spain. To this end, we begin by analyzing whether the changes introduced by the regulator led distribution companies to improve their efficiency; we then address whether the reimbursements paid to the distribution companies are linked to efficiency; lastly, we examine whether consumers benefited from the efficiency improvements. We focus on Spain because the electricity regulator in that country is a longstanding pioneer in the implementation of incentive-based regulatory models. Our analysis was implemented using the regulatory model proposed by Bogetoft (1997) as a benchmark. The results show that the Spanish electricity regulator did not establish a link between efficiency and the reimbursements paid to electricity companies; in addition, the electricity companies benefited to the detriment of consumers.     

The changing role of the State in the expansion of electricity supply in Latin America

Throughout the history of the electricity industry, regulatory reform has been driven by the pursuit of tools able to create conditions that would favour infrastructure investment and, generally, to surmount the obstacles that hinder system expansion. This article addresses the interaction between regulatory schemes and electric power generation investment, with a review of the changing role of the State in the expansion of electricity supply in Latin America. It contains a critical assessment of changes in the regulatory framework since the outset of electric power market reform, describing the successive approaches to regulation adopted in the last three decades. The aim of this analysis is to help identify the key factors underlying the evolution of energy policies and to contribute to the formulation of a prospective view of the direction this evolution may reasonably be expected to take.     

Optimal regulation of renewable energy: A comparison of Feed-in Tariffs and Tradable Green Certificates in the Spanish electricity system

Incentives for renewable energy based on Feed-in-Tariffs have succeeded in achieving high levels of renewable installed capacity. However, these incentives have not been responsive to market conditions or price signals, imposing in some cases a great financial burden on consumers when Renewable Energy Sources reached significant levels. A way out of this problem could be a market mechanism where incentives respond to the level of investment on renewables. We explore this issue comparing a regulatory system based on Tradable Green Certificates, able to react to market changes, to a Feed-in-Tariffs incentive scheme. We model the strategic interaction between participants in the electricity pool and the Tradable Green Certificates market and focus on the optimal regulation for the retailer segment, which generates the desired demand for green certificates as a decreasing function of the certificate price. We then calibrate our theoretical model with data from the Spanish electricity system for the period 2008–2013. Simulations show that a green certificate scheme could both achieve the 2020 targets for renewable electricity and reduce regulatory costs. However, the role of regulators is still important, since setting the right target for renewable electricity affects the cost burden of the system.     

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.     

The economic value of transmission lines and the implications for planning models

Many connections between economic efficiency, regulation, the environment and energy markets are evident in the planning for transmission upgrades in an electricity network. Transmission owners have to make decisions about investing in new assets while facing uncertainty in the generation plans, regulatory and environmental constraints, and current system endowments. In this paper, we demonstrate an analytical method for determining the economic value of individual transmission lines in a meshed network by calculating the total welfare effects for the system. While many regulators believe that traditional congestion rents provide the correct incentives for investing in transmission upgrades, we show that the uncertainty in system conditions breaks down this paradigm. The analysis uses an existing Security Constrained Optimal Power Flow (SCOPF) model and a test network to demonstrate how the method can be used to determine the welfare effects of changing the capacity of selected transmission lines. The results show that a substantial portion of the economic benefits for an individual line may come from maintaining system reliability when equipment failures occur. Furthermore, these benefits can change dramatically when inherently intermittent sources of renewable generation are added to a network, and the changes in benefits are not captured effectively by changes in the expected congestion rents.     

Investigating emission regulation policy in the electricity sector: modeling an oligopolistic electricity market under hourly cap-and-trade

Global warming is one of the most alarming phenomena facing our planet today. There is a consensus among scientists that human-induced greenhouse gases (GHGs) should be regulated to slow down the heating of the Earth's oceans and atmosphere. As a major GHG producer, the electricity industry's emissions should be considered in any global emission regulation policy initiative. This paper develops an original equilibrium model for a cap-and-trade emission regulation scheme (CAT) applied to an oligopolistic electricity market. The model accounts for the strategic behavior of power companies under emission regulation and explicitly illustrates how this behavior is influenced by the scheme design. The model respects the electricity sector's emission targets over a commitment interval while accounting for the effect of these targets on the hourly operation of electricity markets, given hourly variations in system demand. Simulation results over different demand levels show that the model of the proposed policy is successful in meeting short-term emission targets by dispatching generation based on privately owned power generating companies' (Gencos') generation costs and emission intensities. The results signify the importance of accounting for the effects of hourly permit trading on hourly market clearing and hourly gaming strategies when studying the allocation of commitment interval permits among Gencos.