Incentive regulation and investment: evidence from European energy utilities

Cambini, Carlo; Rondi, Laura

doi:10.1007/s11149-009-9111-6

Cited by 135 publications

(85 citation statements)

References 33 publications

(34 reference statements)

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“…Alesina et al, 2005;Lyon and Mayo, 2005;Grajek and Röller, 2005;Cambini and Rondi, 2010); and (ii) on the relationship between competition enhancing policies and productivity (e.g. Aghion et al, 2009;Buccirossi et al, 2013;Bourles et al, 2013).…”

Section: Model Specificationmentioning

confidence: 99%

The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Abstract:We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission's (EC) and EU member states' competition policy decisions, and combine it with firm-and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions -EC state aid and anti-trust interventions; as well as all individual Member State policy variables -do not have a uniform effect on energy markets' functioning. Our findings are consistent with the idea that the EC's merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.JEL codes: D24, L4, L98, Q4

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Section: Model Specificationmentioning

confidence: 99%

The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets

2017

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“…Nagel and Rammerstorfer (2008), on the other hand, show that a strict incentive regulation regime is more likely to create disincentive for investment. However, it is generally agreed that in incentive regulation regimes, due to the separation of firms' own cost from prices, the motivation for cost reducing investment is higher than under the rate of return regulation models (Ai and Sappington, 2002;Greenstein et al, 1995;Cambini and Rondi, 2010). 3 Thus, the main challenge of the regulator is to design the right incentives in order to prevent any systematic overcapitalisation or underinvestment.…”

Section: Investment and Regulationmentioning

confidence: 99%

A New Perspective: Investment and Efficiency under Incentive Regulation

Poudineh¹,

Jamasb²

2016

The Energy Journal

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractFollowing the liberalisation of the electricity industry since the early 1990s, many sector regulators have recognised the potential for cost efficiency improvement in the networks through incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in cost efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising the networks to ensure long term reliability and to meet their future challenges. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of "no impact efficiency" as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss some implications of incentive regulation and cost benchmarking for investment behaviour of network companies.

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“…Under a price cap regime, firms do have strong incentives to reduce cost. 6 Indeed, Cambini and Rondi (2010) show that investment levels by European energy companies in cost reduction are greater under incentive regulation than under rate-of-return regulation. However incentives to undertake durable sunk investments in new capacity are weak, especially when future demand is very uncertain.…”

Section: Policy Issuesmentioning

confidence: 99%

Regulation of network infrastructure investments: an experimental evaluation

2012

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This paper reports the results of an experiment evaluating three regulatory schemes for network infrastructure, in terms of their ability to generate efficient levels of capacity investment. We compare the performance of (1) price cap regulation, (2) a regulatory holiday for new capacity, and (3) price cap regulation with long term contracts combined with a secondary market. The setting is one in which network users can benefit from acting strategically, and are better informed than the network operator about demand growth. We find that the regulatory holiday creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and may reduce investment by providing noisier signals about future demand.

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Incentive regulation and investment: evidence from European energy utilities

Abstract: Incentive regulation, Energy utilities, Investment, Ownership, L51, L94, L95,

Cited by 135 publications

References 33 publications

The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets

The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets

A New Perspective: Investment and Efficiency under Incentive Regulation

Regulation of network infrastructure investments: an experimental evaluation

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