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Competition and Regulation with Smart Grids

Author

Listed:
  • Marina Bertolini

    (University of Padova)

  • Marco Buso

    (University of Padova)

  • Luciano Greco

    (University of Padova)

Abstract

In the last few decades, liberalization and energy transition have deeply reshaped crucial segments of the electric industry (e.g., power generation, energy trading and retail supply) in several countries around the world posing. The development of smart grids is considered a solution to face the new challenges that arise by such dynamics. Our critical analysis of interdisciplinary literature and governmental documents highlights that input-based or outputbased regulation is not implementable in the case of smart grids because of unclear definition of smart performance. Thus, we introduce a new definition of grid smartness that is based on the volatility of market energy prices and flows and we develop a simple industrial-organization model of the electric market to analyze the impact of smart grids on competition and to assess the incentives of distribution system operators to invest in smart grids. We find that smartgrid investments foster the aggregate supply of energy, though with controversial effects on suppliers’ profits. We also find that the investments in smart grids implemented by the distribution system operators is suboptimal because they fail to internalize positive externalities on energy consumers and producers.

Suggested Citation

  • Marina Bertolini & Marco Buso & Luciano Greco, 2018. "Competition and Regulation with Smart Grids," "Marco Fanno" Working Papers 0226, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0226
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Electricity markets; investments; risk aversion; Distribution System Operator;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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