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Journal of Regulatory Economics

, Volume 48, Issue 3, pp 285–316 | Cite as

The effects of network regulation on electricity supply security: a European analysis

  • Michael SchmidthalerEmail author
  • Jed Cohen
  • Johannes Reichl
  • Stefan Schmidinger
Original Article

Abstract

This paper analyzes the interactions of the regulation of distribution networks and electricity supply security. In particular, the hypothesis is tested that output-based regulatory frameworks, which implicitly take into account quality-of-supply-criteria, improve the level of reliability vis à vis purely incentive-based schemes. To do so, novel empirical evidence is analyzed based on a cross-country panel data set covering 27 countries for the period from 1999 to 2013. Regional heterogeneity and potential endogeneity are controlled for. We find that the introduction of output-based regulation, ceteris paribus, leads to reductions of the annual outage duration by 16.05 % on average when compared to incentive-based systems. Given the substantial economic costs of power outages, marginal reliability improvements have considerable economic effects, which can now be quantfied. In the, admittedly hypothetical, case that EU member states, who have not yet done so, were to implement quality-controlling regulation, macroeconomic benefits amount to 930 m. € p.a. The findings support the argument that the value of electricity supply security should be explicitly accounted for when revising regulatory regimes in the future and that investment and maintenance possibilities for regulated firms need to adequately reflect the economic benefits of high levels of service reliability.

Keywords

Electricity network regulation Supply security Reliability Infrastructure enhancement Econometric Analysis 

JEL Classification

G18 L51 Q41 Q43 

Notes

Acknowledgments

This project has received funding from the European Union’s Seventh Framework Programme for research technological development and demonstration under Grant Agreement No [261696]. Additional funding was provided by the Austrian Federal Ministry for Transport, Innovation and Technology under the Security Research Program KIRAS [Grant No 836307].

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Michael Schmidthaler
    • 1
    Email author
  • Jed Cohen
    • 2
  • Johannes Reichl
    • 1
  • Stefan Schmidinger
    • 1
  1. 1.Energieinstitut at the Johannes Kepler UniversityLinzAustria
  2. 2.Department of Applied and Agricultural EconomicsVirginia Polytechnic Institute and State UniversityBlacksburgUSA

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