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Incentives for investments: Comparing EU electricity TSO regulatory regimes

December 2013

FSR Research Report

Co-author: Jean-Michel Glachant. 

The objective of this paper is to study the potential consequences of national regulatory choices with regard to network investments influencing the development of the European market in the North Western region.

To reach our objective, we first build an analytical framework to study the different properties of the national regulatory regimes. We consequently define criteria to compare the economic properties for investment of any regulatory regime. We establish a set of theoretical and empirical principles to identify the key economic properties of the main regulatory characteristics and the main design options, summing it up in a graphical analysis.

In a second step, we study selected countries in our analytical framework. Our high level analysis focuses on five European countries that are connected in a regional market and cover more than half of the EU electricity production. These countries are namely Belgium, France, Germany, Great Britain and the Netherlands. We address the existing regulatory incentives for investments in this area, relying on theoretical and applied economic literature as well as an analysis of each country regulatory regime. The frame is then used to compare the economic properties of these various national regulatory regimes.

Third, after discussion of the potential reasons of national choices, we analyse the potential outcomes of these regulatory regimes when being put together in the context of regional market integration. Finally, we discuss the need of some harmonisation and the key harmonisation targets.

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