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

  • Nele FriedrichsenEmail author


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.


Smart grid Unbundling Governance Coordination Independent system operator 

JEL Classification

L43 L94 D23 L22 L51 



Financial assistance from Next Generation Infrastructures within the project UNECOM and from the German Federal Ministry of Economics within the research project IRIN - Innovative Regulation for Intelligent Networks (grant number: FKZ 0328007A) is gratefully acknowledged. The author would also like to thank Gert Brunekreeft, Rolf Künneke, Roland Meyer, Christine Brandstätt, and Jana Friedrichsen for valuable suggestions. Furthermore, the author acknowledges useful comments by participants of the 9th Conference on Applied Infrastructure Research, October 8–9, 2010 in Berlin, the 3rd Annual Conference on Competition and Regulation in Network Industries, November 19, 2010 in Brussels, the SIB Business Week Workshop on Research in Air Transport and other Network Industries, May 19-21, 2011 in Bremen, and the 13th Economics of Infrastructures Conference, May 26-27, 2011 in Delft. All remaining errors are the responsibility of the author.

Conflict of interest

The author declares that she has no conflict of interest.


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Bremer Energie InstitutBremenGermany

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