Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies

Gugler, Klaus and Liebensteiner, Mario and Schmitt, Stephan (2014) Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies. Working Papers / Research Institute for Regulatory Economics. Forschungsinstitut für Regulierungsökonomie, WU Vienna University of Economics and Business, Vienna.


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The EU has been promoting unbundling of the transmission grid from other stages of the electricity supply chain with the aim of fostering competition in the upstream stage of electricity generation. At presence, ownership unbundling is the predominant form of unbundling in Europe. However, the benefits of increased competition from ownership unbundling of the transmission grid may come at the cost of lost vertical synergies between the formerly integrated stages of electricity supply. The policy debate generally neglects such potential costs of unbundling, yet concentrates on its benefits. Therefore European crosscountry evidence may shed some light on this issue. This study helps fill this void by empirically estimating the magnitude of economies of vertical integration (EVI) between electricity generation and transmission based on a quadratic cost function. For this purpose we employ novel firm-level panel data of major European electricity utilities. Our results confirm the presence of substantial EVI, which put the policy measure of transmission ownership unbundling into question. (authors' abstract)

Item Type: Paper
Additional Information: This paper has been presented at the 37th IAEE International Conference on Energy and the Economy in New York City, ZEW Energy Conference 2014 in Mannheim, and at Workshops on Industrial Economics at University of Gießen and Vienna University of Economics and Business. Special thanks to Robert Weaver for his insightful remarks. Moreover we are grateful for comments by Tomaso Duso, Gerorg Erdmann, Georg Götz, Richard Green, Sven Heim, Thomas Triebs, Davide Vannoni, Michael Waterson, and Christoph Weiss.
Keywords: Cost function / Economies of Scope / Ownership Unbundling / Vertical Integration
Classification Codes: JEL L22, L25, L51, Q48
Divisions: Forschungsinstitute > Regulierungsökonomie
Depositing User: ePub Administrator
Date Deposited: 11 Nov 2014 09:50
Last Modified: 11 Nov 2014 10:16


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