Output-oriented regulation - an overview

Gert Brunekreeft, Julia Kusznir and Roland Meyer

No 35, Bremen Energy Working Papers from Bremen Energy Research

Abstract: With output-oriented regulation (OOR), this report addresses a current development in regulatory practice that is becoming increasingly relevant, particularly as a result of the energy transition. The aim of OOR is the targeted incentivisation of predefined performance targets (outputs) that are not promoted to the extent desired by society within the framework of incentive regulation, which is otherwise primarily geared towards cost efficiency. OOR does not replace the existing revenue cap of incentive regulation, but supplements it with revenue elements (such as bonus/penalty payments) that are linked to the achievement of regulatory output targets. In the underlying study, the central economic reasons for the use of output-orientated regulatory instruments were discussed and specific areas of application for the regulation of electricity grid operators were identified and discussed. Three justifications for OOR take centre stage: 1. value creation, 2. whole system approach, and 3. cost-side distortion and risk. The justifications can often be traced back to external effects that can be internalised by means of OOR. However, depending on the area of application, the actual implementation is associated with challenges that could only be hinted at in this study and require more in-depth analysis.

Keywords: Capex-bias; risk; electric utilities; regulation (search for similar items in EconPapers)
JEL-codes: L43 L51 L94 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2020-11
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