European Journal of Law and Economics

, Volume 39, Issue 3, pp 553–572 | Cite as

Governing smart grids: the case for an independent system operator

Article

Abstract

The next years should bring about a rapid transformation of the electricity sector towards high levels of renewable generation and increasing numbers of electric vehicles. Smart grids are seen as the silver bullet responding to the challenge of integrating renewables, managing flexibility, and keeping the costs down in distribution networks. Network unbundling on the other hand is essential for competition in the liberalized electricity industry. It forces independence of the networks and thereby eliminates concern that incumbent integrated (network) firms discriminate against new entrants. With smart grids the unbundling questions become relevant for distribution networks, because active control in smart grids entails discrimination potentials. However, smart grids exhibit coordination needs for efficient system operation and unbundling eliminates firm-internal coordination. Accounting for both aspects, this paper proposes an independent system operator to govern smart distribution grids. It eliminates discrimination incentives and serves coordination needs, thereby striking a balance between both competition and efficiency goals.

Keywords

Smart grid Unbundling Governance Coordination Independent system operator 

JEL Classification

L43 L94 D23 L22 L51 

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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Bremer Energie InstitutBremenGermany

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