"Electrical Grid Regulatory Effectiveness with Regards to Electricity Reliability in the EU“

Master-Thesis Economics, JKUStefan Schmidinger

Supervising tutor:Prof. Christine Zulehner

Energieinstitut an der JKU

Linz, 6.Nov.2012

First Directive 96/92/EG of the European Parliament Amendment 2003 Directive 2003/54/EG of the European Parliament

Grid access to third parties Regulation about grid tariffs Unbundling

Motivation was/is the establishment of competition and prevention/neutralization of natural monopolies

Introduction: Liberalization of Energy Markets

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Lots of theoretical evaluation about types of regulation

Almost no empirical evaluation

Anna Ter-Martirosyan, Oct. 2003, The Effects of Incentive Regulation on Quality of Service in electricity Markets, working paper

Motivation

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No Regulation at all.

Rate of Return Regulations: costs (not just the costs which cannot be controlled by the system operator) are totally refunded plus some premium.

Costs * (1 + i) Incentive Regulations: Price Cap Regulations which do not provide

incentives to invest in the quality (in terms of outage avoidance or minimizing outage duration) of the grid. But provide an incentive to reduce costs.

1 + CPI – x

Regulations which also provide an incentive to improve performance.

1 + CPI – x – q

i = allowed profit (e.g. weighted average cost of capital); x = efficiency factor ;q = quality penalty

Determination of Regulations

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Determination of Regulations

Austria

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

No Regulation 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0

RoR 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 0 0 0 0 0 0 0

Incentive Regulation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1

Quality Standards 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Source: National Reports European Energy Regulators 2005-2011 & Frontier-Economics IWET Report 2011

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Is there a casual influence of the kind of regulation on the quality/performance of the electrical grid due to different incentives for the system operators?

Rate of Return Regulation leads to lower grid outages.

Evaluation of regulatory effectiveness!

Hypothesis:

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Dependant Variable:

Minutes lost per year and capita (1999-2010) excluding exceptional events [MinLost]

Unbalanced Panel:

19 countries

12 years

Dependant Variable

81 2 3 4 5 6 7 80

50

100

150

200

250

300

350

400

450

MinLost

AustriaBulgariaCzech RepublicDenmarkFranceGermanyGBHungaryIrelandItalyLithuaniaNetherlandsPolandPortugalSloveniaSpain

Time [ years]

outa

ge [

min

]

91 2 3 4 5 6 7 8 9

0

0.5

1

1.5

2

2.5

3

Log_MinLost

AustriaBulgariaCzech RepublicDenmarkFranceGermanyGBHungaryIrelandItalyLithuaniaNetherlandsPolandPortugalSloveniaSpain

Time [years]

outa

ge [

log(m

in)]

10

1 2 3 4 5 6 7 8

-200

-150

-100

-50

0

50

100

Diff_MinLost

AustriaBulgariaCzech RepublicDenmarkFranceGermanyGBHungaryIrelandItalyLithuaniaNetherlandsPolandPortugalSloveniaSpain

Time [years]

outa

ge d

iffere

ce t

o t

-1 [

min

]

Explanatory Variable

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Variablenname Range Einheit QuelleMIN MAX

energy_import_dependence 0 1 binär National Reports CEERlatitude_capital 0 90 Grad; Sekunden http://www.worldcaps.comGDP_Capita_t 0 70 Euro je Einwohner Eurostatpop_density 0 500 inhabitants/km² Eurostatel_price_industrie_cent 0 15 cent/kWh Eurostatel_price_domestic_consumer_cent 0 21 cent/kWh Eurostathgt_t 0 7 kKdEntry_Regulation 0 6 oecd Public_ownership 0 6 oecd Vertical_integratioon 0 6 oecd energy_intensity_to/euro 0 20 to Rohöleinheit pro 1000 Euro Eurostat

el_consumption_capita_mwh 0 10 mWh EurostatWind_Photo 0 35 % EurostatZentralwirtschaft 0 1strong_wind_days 0 269 ECA&D projectprecipitation_days_R10mm 0 78 Tage ECA&D projectconsecutive_dry_days 0 203 Tage ECA&D projectcold-spell-duration 0 88 Tage ECA&D projectwarm-spell-duration 0 104 Tage ECA&D projectsnow-days_5cm 0 216 Tage ECA&D projectZeit 0 11 Jahre

Fir

st

Ou

tco

me

s

12

Confidence intervals 95(90)%

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2.5 3 3.5 4 4.5 5 5.5 60

2

4

6

8

10

12

ror incentive quality

marg

inal eff

ects

90% proof that Rate of Return leads to less outage than incentive regulation (even with quality standards)

In order to evaluate effectiveness of regulation grid tariffs would be necessary. (Which are not!)

First Conclusion

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Danke für Ihr Interesse!

Kontakt: Stefan Schmidinger

Energieinstitut an der Johannes Kepler Universität Linz

Altenberger Straße 69

4040 Linz

AUSTRIA

Tel: +43 70 2468 5656

Fax: + 43 70 2468 5651

e-mail: schmidinger@energieinstitut-linz.at

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