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

Klaus Gugler (), Mario Liebensteiner () and Stephan Schmitt ()
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Stephan Schmitt: WIK Consult and Research Institute for Regulatory Economics, Vienna University of Economics and Business

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: 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 cross-country 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.

Keywords: Cost function; Economies of Scope; Ownership Unbundling; Vertical Integration (search for similar items in EconPapers)
JEL-codes: L22 L25 L51 Q48 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-com, nep-eff, nep-ene and nep-reg
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Related works:
Journal Article: Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies (2017)
Working Paper: Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies (2014)
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