Vertical Economies and the Costs of Separating Electricity Supply-A Review of Theoretical and Empirical Literature

Roland Meyer

No 6, Bremen Energy Working Papers from Bremen Energy Research

Abstract: Motivated by the European movement towards a separation of electricity networks from the competitive functions generation and supply this paper reviews theoretical and empirical literature on vertical synergies in electricity supply. In the analysis a clear distinction is made between four different unbundling options leading to different forms and magnitudes of synergy losses. Apart from coordination economies a main source of scope economies seems to result from a market risk effect if generation and retail are separated. Accordingly, the European policy of network unbundling (either transmission or distribution) results in synergy losses between 2 and 5 percent due to coordination losses, while an unbundling option that includes a separation between retail and generation, as observed in some U.S. states, may lead to a permanent cost increase of 15 percent and more due to a significant risk increase.

Keywords: ownership unbundling; vertical integration; economies of scope (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-04
New Economics Papers: this item is included in nep-com, nep-ene, nep-eur and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Energy Journal, 33(4), 2012, pp. 161-185

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