Spillover effects of distribution grid tariffs in the internal electricity market: An argument for harmonization?

Abstract

The Robert Schuman Centre for Advanced Studies, created in 1992 and currently directed by Professor Brigid Laffan, aims to develop inter-disciplinary and comparative research on the major issues facing the process of European integration, European societies and Europe's place in 21 st century global politics.The Centre is home to a large post-doctoral programme and hosts major research programmes, projects and data sets, in addition to a range of working groups and ad hoc initiatives. The research agenda is organised around a set of core themes and is continuously evolving, reflecting the changing agenda of European integration, the expanding membership of the European Union, developments in Europe's neighbourhood and the wider world.For more information: http://eui.eu/rscasThe EUI and the RSCAS are not responsible for the opinion expressed by the author(s). Florence School of RegulationThe Florence School of Regulation (FSR) is a partnership between the Robert Schuman Centre for Advanced Studies (RSCAS) at the European University Institute (EUI), the Council of the European Energy Regulators (CEER) and the Independent Regulators Group (IRG). Moreover, as part of the EUI, the FSR works closely with the European Commission.The objectives of the FSR are to promote informed discussions on key policy issues, through workshops and seminars, to provide state-of-the-art training for practitioners (from European Commission, National Regulators and private companies), to produce analytical and empirical researches about regulated sectors, to network, and to exchange documents and ideas.At present, its scope is focused on the regulation of Energy (electricity and gas markets), Communications & Media, and Transport.This series of working papers aims at disseminating the work of scholars and practitioners on current regulatory issues. For further information Florence School of Regulation AbstractIn many countries, distribution grid tariffs are being reformed to adapt to the new realities of an electricity system with distributed energy resources. In Europe, legislative proposals have been made to harmonize these reforms across country borders. Many stakeholders have argued that distribution tariffs are a local affair, while the EU institutions argued that there can be spillovers to other countries, which could justify a more harmonized approach. In this paper, we quantify these spillovers with a simplifed numerical example to give an order of magnitude. We look at different scenarios, and find that the spillovers can be both negative and positive. We also illustrate that the relative size of the countries is an important driver for the signifcance of the effects. To be able to quantify these effects, we developed a long-run market equilibrium model that captures the wholesale market effects of distribution grid tariffs. The problem is formulated as a non-cooperative game involving consumers, generating companies and distribution system operators in a stylized electricity market. Nomenclature Sets ASet of agents in the non-co...

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