The potential impact of cross-ownership in transmission: An application to the Belgian electricity market

Guido Pepermans () and Bert Willems

Energy, Transport and Environment Working Papers Series from KU Leuven, Department of Economics - Research Group Energy, Transport and Environment

Abstract: This paper looks at the potential effect of partial ownership on the generation and the transmission sector of electricity markets. Ideally, in liberalized electricity markets, transmission is separated form generation. The transmission sector is a natural monopoly operated by a regulated transmission firm, while the generation sector is open for competition. This paper assumes that the transmission firm is not very well regulated and behaves strategically, that there is oligoplistic competition in generation, and that one of the generators, the incumbent, owns part of the transmission firm. We then study the effect of this partial ownership in a numerical model which is calibrated on the Belgian market. The model captures two kinds of partial ownership interactions: passive ownership, where the generation firm simply cashes its share of the transmission firm’s profit without having a direct impact on its decision process, and active ownership, where the generator has a direct influence on the transmission firm’s decision process. It is shown that ownership of the network operator by the incumbent generator reduces double marginalization (= welfare improving) but also reduces entry in the generation market (= welfare decreasing).

Keywords: vertical integration; unbundling; cross-ownership; electricity (search for similar items in EconPapers)
JEL-codes: L13 L22 L43 L94 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2005-01
New Economics Papers: this item is included in nep-com and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Potential Impact of Cross-Ownership in Transmission: an Application to the Belgian Electricity Market (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:etewps:ete0501

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