Network unbundling and flawed coordination: Experience from the electricity sector

What is a good balance between competition and coordination? On the upside, unbundling in network industries promotes competition, but this should be balanced against the downside of unbundling, that is, the cost of coordination. Firm-internal coordination falls away and must be replaced by external market mechanisms. This is a non-trivial task. The cost of flawed coordination resulting from fragmentation can be substantial and policy should focus more on market mechanisms and governance structures to secure better coordination. This paper examines the problem of coordination and discusses with real-world examples why the market faces difficulty in providing effective coordination.     

Organisation and reforms of the electricity sector in Slovenia

As a new member state of the EU, Slovenia has been required to adopt EU legislation in full. The Slovenian electricity market has been partially opened since 2001. From 1 July 2007, when households became eligible customers, the electricity market opened fully. The electricity reforms carried out so far comprise of market liberalization, unbundling of activities, allowing regulated TPA, formation of an organized power market, adoption of incentive-based price cap regulation and the establishment of an independent regulatory body. The challenge that remains to be addressed is how to enhance competition in an electricity market that has a net importer position with limited cross-border capacity. Envisaged investments in generating and cross-border capacities will partially close the gap between domestic generation and consumption. Furthermore, since Slovenia has one of the largest levels of state ownership in the electricity sector among EU member states, privatization of electricity companies is envisaged in the near future.     

Evaluating the evidence on electricity reform: Lessons for the South East Europe (SEE) market

This paper discusses the evidence on electricity reform and relates it to the current situation of the South East Europe (SEE) electricity market. We begin by discussing the main elements of the European Union (EU) electricity reform model. Then we go on to discuss emerging good practice in the regulation of national electricity markets in the EU. This is important because it reflects the key role placed on independent regulation of the electricity sector in the EU reform model. Next, we evaluate the empirical evidence on the success of the EU reform model in particular and the success of electricity reforms more generally. This leads on to a discussion of the particular context of SEE electricity reform and what specific issues this raises. We conclude with a discussion of the importance of more general institutional context of SEE electricity reform. The paper suggests that it will be a substantial, but worthwhile, challenge to create a workable supra-national electricity market in the region.     

Cybersecurity and resilience in the swiss electricity sector: Status and policy options

Electricity systems are critical infrastructure. With increasing digitalization, they become particularly vulnerable to cyberattacks. Cybersecurity hence becomes increasingly crucial for the security of supply. Based on a detailed analysis of the status of cybersecurity in the Swiss electricity sector, we derive a set of policy recommendations on how to raise countries’ cybersecurity levels in electricity systems. The analysis builds on a national E-survey that solicited self-assessment of cybersecurity maturity levels of 124 Swiss energy market participants. It was complemented by a detailed, comparative analysis of cybersecurity measures in Switzerland and its surrounding European neighbors. On average, we found a cybersecurity maturity that needs to be ameliorated regarding information and operation technology in the Swiss electricity sector. This situation calls for improved regulatory measures and monitoring to stimulate cyber resilience among market participants.     

Energy reform in Mexico: Imperfect unbundling in the electricity sector

Mexico is in the midst of enacting new energy market reform. After one year of presidential proposals, 21 laws were enacted in August, 2014. The analysis shows inconsistencies and lacunae in defining an open electricity market. According to the proposed reform, incumbent Comisión Federal de Electricidad (CFE) will keep transmission and distribution vertically integrated with newly created subsidiaries subject to third-party subcontracting, while private generation participants will compete in a wholesale market operated by Centro Nacional de Control de Energía (CENACE). Following an institutional economics approach and a framework to account for transition and coordination issues, the problem of misaligned incentives is analyzed along two governance dimensions: regulatory failure and market foreclosure. The research predicts negative effects of energy reform on grid investments and government coordination in Mexico.     

The bird in hand: Stipulated settlements in the Florida electricity sector

In the last quarter century, stipulated settlements between the electric utilities and the Office of Public Counsel have largely superseded the traditional method of litigation before the Florida Public Services Commission. Some have opposed settlements. But consumers have gained from reductions in electricity revenues worth over $3 billion, which are greater or earlier than would have otherwise occurred. The utilities have benefited from commitments by parties outside the scope of the Commission, and from a more flexible accounting policy. Most importantly, stipulations have changed the form and nature of regulation: away from a conventional rate of return approach to a fixed-price approach, and later away from incentive schemes with profits caps to stronger and more enforceable incentive schemes without profit caps.     

Revenue decoupling,energy demand,and energy efficiency: Empirical evidence from the U.S. electricity sector

This paper investigates the relationship between the regulatory policy revenue decoupling, which separates utilities’ revenue from sales fluctuations, and electricity customers’ energy demand and efficiency in the U.S. electricity sector. To this end, we use recent Stochastic Frontier Analysis estimation techniques that account for both persistent and transient energy efficiency. The results show a significant negative correlation between decoupling and electricity consumption. However, the implementation year, which serves as a reference for price adjustments, is associated with increasing electricity demand and decreasing transient energy efficiency. Therefore, utilities seem to anticipate the implementation of decoupling, which partially offsets the benefits.     

Integrating environmental considerations into economic regulation of China's electricity sector

One of the key challenges for China's transition towards sustainable development is how to supply adequate and reliable electric power by an environmentally benign electricity sector. This paper examines to what extent environmental concerns have been integrated into economic regulation and the difficulties of doing so under the current regulatory framework. It finds that there has been a failure to adequately and systematically incorporate environmental considerations into the formulation and enforcement of electricity regulation. As a result, some of the potential gains of the adopted emission-control measures have not materialised and challenges remain for future adoption of other pollution-reduction initiatives.     

Governance,scale, scope: A review of six South African electricity generation infrastructure megaprojects

This empirical study analyses and evaluates six electricity generation megaprojects in South Africa, undertaken to facilitate an understanding of how project governance, scale and scope, influence the development performance of such types of projects in a sub-Saharan context (recognising the inference limitations). Three case-studies, Medupi, Kusile and Ingula, are significantly larger and have been problematical to build for the country's national electricity utility, Eskom. The three smaller case-studies, Avon, Dedisa and Sere, were all successfully commissioned and serve as a counterfactual for this analysis. The fieldwork involved 32 interviews with knowledgeable experts from at least one project.     

From the Raj to Independence: British investment in the Indian electricity sector

During the colonial times, electricity in India developed for a significant part thanks to British investment. Its growth remained modest and mainly linked to industrial needs, public lighting and common transportation. World War II stimulated industrial production and, consequently, the demand for electricity. The immediate years following the war were even more promising since the preparations for national Independence included a major restructuring of electricity generation and distribution. The 1948 Law on electricity and the first 5-year plans which began in 1951 set the framework for a major development. Instead of nationalization, India chose a policy which allowed for the participation of both private and public enterprises. British and Indian private investment responded positively to the change. At the beginning of the 1950s, the British presence was felt in the power industry. However, a decade later, it was already diminishing. This paper explains the nature of the policy which allowed a partnership between private and public sectors, the reasons why the latter finally prevailed over the former and the consequences on British investment.     

Opportunities and challenges for small-scale flexibility in European electricity markets

The increase of renewables in the electricity mix in Europe in the last years and the plans to shut down coal-fired power plants will change the power system operation rules. Expectations are that small unit aggregators can soon provide flexibility and balancing services in several European countries. This paper aims to perform a qualitative comparison of European market rules for small-scale-scale flexibility. The work focused more specifically on the prequalification process that the Balancing Service Providers should develop to participate in Frequency Containment Reserve Services and the specific needs of the small-scale flexibility and balancing providers. Five countries were chosen for the analysis: Switzerland, Belgium, Germany, Portugal, and Spain. Of the five countries compared, the one that appears to have fewer entry barriers and shows greater possibilities of working on a case-to-case basis is Switzerland, followed by Belgium and Germany. Portugal and Spain are developing their ancillary service markets and should soon allow the participation of small-scale balancing providers in ancillary services.     

Coordination between transmission and distribution system operators in the electricity sector: A conceptual framework

The increasing share of distributed energy resources in the distribution grid provides opportunities to use the resources for the overall benefit of both the Transmission System Operator (TSO) and the Distribution System Operator (DSO) to solve problems related to frequency control, congestion management, and voltage control. Consequently, coordination between system operators is needed to guarantee a safe, reliable, and cost-efficient use of flexibility-based services. This article presents five coordination schemes to enhance interaction between system operators. For each scheme, roles, responsibilities and market design are discussed. The advantages, disadvantages and feasibility of each coordination scheme are evaluated.     

Lessons from deregulation: Understanding electricity markets in South America

South America has been the most progressive region in the developing world in terms of deregulating the electricity industry. In this paper we compare the evolution of deregulation, from initiation to the current state, in four South American countries: Argentina, Brazil, Chile, and Colombia. These four countries are similar in many dimensions, such as culture, language and macro-economic development. They are also all depending, to a large extent, on hydro-generated electricity. All four countries have implemented different deregulated systems, allowing a unique possibility to compare the performance of different implementations of deregulation on one continent. We describe the course undertaken by these countries and the results attained so far, and also compare and contrast the development of the different electricity industries. Finally, we discuss what can be learned from these countries and what they can learn from each other.     

Effects of digital transformation on electricity sector growth and productivity: A study of thirteen industrialized economies

This study examines growth patterns and sources of labour productivity growth and catch-up in the electricity sector. The study uses decomposition analysis to examine 13 industrialized economies from 2000 to 2015, a period of high growth in the sector. The study finds that total factor productivity and digital assets are the most powerful drivers of labour productivity growth and catch-up, while non-ICT assets have only a minor effect. Furthermore, labour quality outpaces R&D as a determinant of productivity. This study has implications for labour and industrial policy in the context of technological transformation and institutional restructuring in the electricity sector.     

Governance choices and policy outcomes in the Latin American and caribbean electricity sector

The paper first provides, for Latin America and the Caribbean, country-specific synthetic quantitative measures of the degree of adoption of governance reforms in the electricity sector, focusing on four key dimensions (market structure, private sector participation (PSP), regulatory autonomy and operational organization). These measures are then correlated with standard policy performance outcomes measures. The findings suggest that, the reforms, considered jointly, were statistically significantly associated with higher technical and process quality but not with social or service improvements. Considered individually, increased regulatory autonomy enjoyed the highest positive correlation with desirable outcomes, but PSP has no significant correlation with any of the outcomes. In sum, as of 2018, governance reforms, considered jointly, had still not delivered on some promised payoffs, notably in addressing energy poverty, although the sensitivity analysis suggests that, for some indicators, the relationships are stronger for larger than for smaller countries.     

Quality performance gaps and minimal electricity losses in East Africa

The electricity sector in East Africa is characterized by high levels of electricity losses. The literature has extensively focused on investments and policy reforms that can potentially reduce losses. In this paper, we follow another approach by nonparametrically estimating the minimal losses given the actual inputs, outputs and electricity generation process. Minimal losses are then compared to actual losses to construct quality performance indicators. Using a tailored database for six East African countries over 10 years, we show that electricity losses could be reduced by 8%, representing savings of approximately $60 million per year.     

The dynamic impact of carbon reduction and renewable support policies on the electricity sector

Carbon reduction and renewable energy policies are implemented in Europe to improve the sustainability of the electricity sector while achieving security of supply. We investigate the interactions between these policies using a dynamic investment model. Our analysis indicates that both policies are necessary to achieve a sustainable power sector. However, renewable energy generation significantly affects carbon markets and could lead to very low prices. These would attract investments in carbon intensive technologies, locking the sector into future higher emissions. To contrast this effect, policy makers may introduce a floor price in the carbon market or adjust the emissions quota periodically.     

Clean-energy policies and electricity sector carbon emissions in the U.S. states

State governments in the United States have enacted various clean-energy policies to decarbonize electric utilities, diversify energy supplies, and stimulate economic development. With a panel data set for 48 continental states from 1990 to 2008, fixed-effect panel regressions are estimated to test the impacts of clean-energy policies on total carbon emissions, electricity consumption, and carbon intensity. The results indicate that supply-side policy tools, such as RPS and EERS, are negatively correlated with carbon intensity in the electricity sector. More aggressive policies are needed to reduce total carbon emissions.     

City in transition: Podgorica,Europe's youngest capital city

Podgorica, known as the “city under the mountain,” rests at the intersection of five riversand is Europe's youngest capital. Over a 2000-year-long history, Podgorica has experienced turbu-lence. The city has suffered conquests, wars, nearly complete destruction in WWII, associated with war-related conflicts in the 1990s, and gained its independence at the beginning of the 21st century. Today, Podgorica is a vibrant, dynamic, and rapidly growing city, with current developments that reflect the consequences of post-socialist economic, institutional, social, and cultural transition. In this case study, the development of the built environment of Podgorica is presented in six stages: Roman, Ottoman, Principality of Montenegro and Kingdom of Yugoslavia, socialist, transitional, and contemporary. The study shows the influence of each period in the development of the city and highlights two major challenges of present-day architecture, that is, growing into a modern-day metropolis and the challenge of juxtaposing contemporary Podgorica with Titograd and old Podgorica.