The need for more flexibility in the regulation of smart grids – stakeholder involvement


Energy and climate policy drive large scale integration of distributed generation and demand side management, with massive consequences for distribution grids. New technologies and actors shape the transformation of electricity networks towards smart systems. We argue that future regulation of smart grids needs to allow more flexibility. Firstly, the core of network monopoly starts to weaken allowing for more third party involvement. Secondly, the increasing number and heterogeneity of stakeholders makes “one-size-fits-all” regulation simply less suitable, whilst regulation needs to take account of various interests. In this paper we discuss stakeholder involvement and make policy recommendations to render regulation of smart systems more flexible.

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  1. 1.

    It can be argued that duplication of electricity grids is not efficient and therefore not desired from a welfare perspective (even if economically feasible under a given regime). It seems though that many regulations theoretically allow for duplication and that hence the reason why we find so little duplication in practice is economic unviability.

  2. 2.

    The term “unbundling” is used in telecommunications as well, but the meaning and implications are different form electricity markets. First, product bundling, possibly leading to price squeezes, has been widely discussed in telecommunications. Second, unbundling has been used to indicate that a third party would rent the entire line for a monthly fixed fee rather than pay a usage based fee. Thirdly, unbundling (or rather re-bundling) has been used to describe the development in the USA where the local intrastate telcos were allowed to integrate forward into the interstate markets. These are phenomena that are conceptually related to ownership unbundling as used in electricity but by no means equivalent.

  3. 3.

    Cf. Meyer (2012) for an overview of vertical scope economies in unbundling of electricity systems.

  4. 4.

    There seems to be a more general trend of decentralization and direct democracy elements also in politics e.g. the concept of liquid democracy where voters can participate in decision-making process beyond going to vote every several year. “The decision-making is based on the so-called intelligence of the network” (Litvinenko 2012, p. 406).

  5. 5.

    This was triggered by a fierce debate under the “light-handed-regulation” regime in New Zealand on the role of “voluntary” access negotiation, which later came to be known as the Efficient Component Pricing Rule (ECPR), proposed in particular by Baumol et al. (1996). Later the analysis was critically formalized by Carter and Wright (1999).

  6. 6.

    DCPR refers to distribution price control review which is the price control applicable to distribution network operators.

  7. 7.

    Even though the control takes place ex post, an appeal right might still have certain ex ante effects in encouraging regulators to involve consumers.


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The authors would like to thank participants of the Workshop on Digital EU-Integration and Globalisation, 12.11.2012, Essen for helpful comments. We gratefully acknowledge financial support by Next Generation Infrastructures within the research project “Triple-R – Roles, Responsibilities and Regulation in Smart Distribution Grids”.

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Correspondence to Nele Friedrichsen.

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Friedrichsen, N., Brandstätt, C. & Brunekreeft, G. The need for more flexibility in the regulation of smart grids – stakeholder involvement. Int Econ Econ Policy 11, 261–275 (2014).

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  • Network Operator
  • Smart Grid
  • Electricity Supply
  • Stakeholder Involvement
  • Electricity Distribution