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Economies of scope in electricity supply and the costs of vertical separation for different unbundling scenarios

Journal of Regulatory Economics volume 42, pages 95–114 (2012)Cite this article

Abstract

Motivated by the movement towards vertical unbundling in Europe this study measures the economies of scope for the U.S. electricity industry based on a multi-stage cost function. The paper analyzes three unbundling options and finds evidence for synergies that may be explained by coordination and risk effects. Separating generation from networks and retail appears to be the most costly alternative with an average cost increase of 19 to 26%. If generation and transmission remain integrated but are separated from distribution and retail, average scope economies amount to 8 to 10%. A split between the transmission level and the remaining supply stages leads to a cost increase of approximately 4%.

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Affiliations

  1. Jacobs University Bremen/Bremer Energie Institut, College Ring 2, 28759, Bremen, Germany

    Roland Meyer

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  1. Roland Meyer
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Correspondence to Roland Meyer.

Additional information

Roland Meyer is a postdoctoral research fellow at Jacobs University Bremen, Germany. His main research focus is on energy economics, notably market design and regulation of electricity markets. As an associate researcher at the Bremer Energie Institut he was involved in the international and interdisciplinary research project UNECOM (“Unbundling of Energy Companies”; www.unecom.de) on which this study is based.

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Meyer, R. Economies of scope in electricity supply and the costs of vertical separation for different unbundling scenarios. J Regul Econ 42, 95–114 (2012). https://doi.org/10.1007/s11149-011-9166-z

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Keywords

  • Ownership unbundling
  • Vertical integration
  • Economies of scope
  • Coordination economies
  • Market risk
  • Cost function estimation