"Electrical Grid Regulatory Effectiveness with Regards to Electricity Reliability in the EU“

1. "Electrical Grid Regulatory Effectiveness with Regards to Electricity Reliability in the EU“ Master-Thesis Economics, JKU Stefan Schmidinger Supervising tutor: Prof. Christine Zulehner Energieinstitut an der JKU Linz, 6.Nov.2012

2. Introduction: Liberalization of Energy Markets • First Directive 96/92/EG of the European Parliament • Amendment 2003 • Directive 2003/54/EG of the European Parliament • Grid access to third parties • Regulation about grid tariffs • Unbundling • Motivation was/is the establishment of competition and prevention/neutralization of natural monopolies

3. Motivation • Lots of theoretical evaluation about types of regulation • Almost no empirical evaluation • Anna Ter-Martirosyan, Oct. 2003, The Effects of Incentive Regulation on Quality of Service in electricity Markets, working paper

4. Determination of Regulations • No Regulation at all. • Rate of Return Regulations: costs (not just the costs which cannot be controlled by the system operator) are totally refunded plus some premium. Costs * (1 + i) • Incentive Regulations: Price Cap Regulations which do not provide incentives to invest in the quality (in terms of outage avoidance or minimizing outage duration) of the grid. But provide an incentive to reduce costs. 1 + CPI – x • Regulations which also provide an incentive to improve performance. 1 + CPI – x – q i = allowedprofit (e.g. weightedaveragecostofcapital); x = efficiency factor ;q = quality penalty

5. Determination of Regulations Source: National Reports European Energy Regulators 2005-2011 & Frontier-Economics IWET Report 2011

6. Hypothesis: Is there a casual influence of the kind of regulation on the quality/performance of the electrical grid due to different incentives for the system operators? Rate of Return Regulation leads to lower grid outages. Evaluation of regulatory effectiveness!

7. Dependant Variable Dependant Variable: Minutes lost per year and capita (1999-2010) excluding exceptional events [MinLost] Unbalanced Panel: 19 countries 12 years

11. Explanatory Variable

12. First Outcomes

13. Confidence intervals 95(90)%

14. First Conclusion • 90% proof that Rate of Return leads to less outage than incentive regulation (even with quality standards) • In order to evaluate effectiveness of regulation grid tariffs would be necessary. (Which are not!)

15. Danke für Ihr Interesse! Kontakt: Stefan Schmidinger Energieinstitut an der Johannes Kepler Universität Linz Altenberger Straße 69 4040 Linz AUSTRIA Tel: +43 70 2468 5656 Fax: + 43 70 2468 5651 e-mail: schmidinger@energieinstitut-linz.at 15