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Pitfalls in Restructuring the Electricity Industry

Author

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  • Meran Georg

    (Technische Universität Berlin,Berlin, Germany)

  • Schwarze Reimund

    (Deutsches Institut für Wirtschaftsforschung Berlin,Berlin,Germany)

Abstract

This paper models some reductions in output that may follow the opening of electricity markets to competition. Specifically, we show that vertical separation of electricity generation, transmission and distribution could reduce welfare compared to the previous system of vertically integrated monopoly, if grid owners can act as monopolistic retailers or, alternatively, set access prices that maximize merchandizing surplus. Moreover, we show that a rule of non-discriminatory pricing would not remedy any of these problems. Hence, to secure the efficiency gains of deregulation, the re-regulation of the remaining monopolistic core - the electric grid - cannot rely on simple rules like cost-based non-discriminatory pricing.

Suggested Citation

  • Meran Georg & Schwarze Reimund, 2004. "Pitfalls in Restructuring the Electricity Industry," German Economic Review, De Gruyter, vol. 5(1), pages 81-101, February.
    • Handle: RePEc:bpj:germec:v:5:y:2004:i:1:p:81-101
    DOI: 10.1111/j.1465-6485.2004.00095.x
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    Cited by:

    1. Markus Ksoll, 2001. "Two stages of uniform delivered pricing and a monopolistic network in competitive electricity markets," ERSA conference papers ersa01p280, European Regional Science Association.

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