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

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  • Gugler, Klaus
  • Liebensteiner, Mario
  • Schmitt , Stephan

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. (authors' abstract)

Suggested Citation

  • Gugler, Klaus & Liebensteiner, Mario & Schmitt , Stephan, 2014. "Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies," Department of Economics Working Paper Series 190, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:4360
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    11. Mydland, Ørjan & Kumbhakar, Subal C. & Lien, Gudbrand & Amundsveen, Roar & Kvile, Hilde Marit, 2020. "Economies of scope and scale in the Norwegian electricity industry," Economic Modelling, Elsevier, vol. 88(C), pages 39-46.
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    More about this item

    Keywords

    Cost function; Economies of Scope; Ownership Unbundling; Vertical Integration; Europäische Union; Elektrizitätswirtschaft; Entflechtung; Kosten; Kostenfunktion;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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