• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics of Electiricty Network Regulation

Extracts from this document...

Introduction

Electricity network regulation DISCUSS the rationale for economic regulation of energy networks in general and the use of "incentive regulation" approaches in particular and (2) pros and cons of using benchmarking methods in incentive regulation of the networks. The rationale for economic regulation of energy of energy networks is to remove monopolisation in naturally monopoly characteristic industries, helping to create a more natural market. Energy is a resource that is so key to development. By regulating the energy networks, it can potentially allow for a much wider consumer base and assist in development through allocative efficiency The UK government, under conservative governance, went under an extensive privatisation in the 1980's. By 1990 they had ventured into extensive electricity sectors reforms- ''The most ambitious exercise in the whole UK privatisation programme" (Yarrow 1994, to transform a stagnant, inefficient industry with high capital costs and low returns, into a competitive industry. ...read more.

Middle

They are effectively used to, ''mimic competitive market pressures''(1). There are different incentive schemes. Rate of return regulation (ROR), has a major flaw in that it does not reward improvements in efficiency and cost savings and instead rewards over- capitalisation. An alternative to ROR, is Price Cap (RPI-X) Regulation, where operators must work under a ceiling price, which is adjusted to take account of inflation, through RPI and efficiency factor 'X'. Firm's can increase profits, if they improve productivity and are below the efficiency factor X. Its main flaw is that it has sales maximisation properties and cost of regulation is high. Yard stick regulation, first proposed in 1985 by Shleifer, requires regulators to set price caps, based on collecting cost information, other than the firm's own- creating a hypothetical firm..(2) ...read more.

Conclusion

Another benefit of benchmarking is that as suppliers have to work within boundaries, they are forced to increase efficiency if they are to continue to make returns on the same scale To assess the effectiveness of benchmarking, we need to look at the long-term scale. If successful, benchmarking will reduce performance gap amongst firms. The wait to see if benchmarking performs can be years and this may be seen by some as a con. International benchmarking, also throws up some problems. Comparability issues can result between countries, which means regulators have to liaise with one another. Current rates must be used, and differences in external factors influencing the price must be taken into account. Economic regulation is needed in energy markets, to promote fairer market conditions and to prevent monopolisation in a sector key to our future. Benchmarking is a means to regulating energy markets, and with some adjustments can prove to be successful. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Applied Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Applied Economics essays

  1. Executive Summary What can economics learn from social science? ...

    However, the strength of empirical social research, namely its focus on particulars, is probably also one of its main weaknesses in the context of politics. Imagine decision-makers who are usually facing complex problems and are required to render decisions under time pressure for unknown phenomena with possibly far-reaching consequences.

  2. Transaction cost economics. Ronald Coase set out his transaction cost theory of the firm ...

    Moreover there are likely to be situations where a purchaser may require a particular, firm-specific investment of a supplier which would be profitable for both; but after the investment has been made it becomes a sunk cost and the purchaser can attempt to re-negotiate the contract such that the supplier

  1. Crime is a social concern and one of the biggest political issues in these ...

    Given this situation, their ethical level might fall to the point that they commit white color crimes. Thus, logically thinking, crime rates would increase as economic conditions worsen. Our hypothesis is that crime rates increase as economic conditions worsen. The crime rate which we use for our project consists of

  2. Crisis kills forecasting and classic theories of economics

    However, still none of these omniscient authors explain all mis-forecasts and unusual behaviour of economics at the start and the time of the current crisis. Therefore, this second answer already requires economical discussion - insights into financial forecasts and changes in theory of economics that inevitably will be done due to the current crisis.

  1. Economies of future electiricty generation in India

    The cost involved of importing coal can be significantly high and coal carries negative externalities- such as pollution due to dirty ash- with it. Despite large initial costs, hydro power is an efficient and clean resource of which India is increasingly utilising.

  2. Economics Questions on Entrepreneurs, Equilibrium Pricing. Markets and the Labour Supply Curve.

    For example when an increase in relative earnings is available to trained surveyors this may cause people to change jobs. There may be barriers to entry of a career or job. When artificial limitations to a particular industry labour supply, for example the introduction of minimum admission requirements as well

  1. Identifying Individual Preferences in the Airline Industry

    Jetstar is known for having many complaints from its passengers in term of its services, such as frequent delays and cancellations of flight. Those seem to be serious problems for business travellers, as time efficiency is the main factor. However, Jetstar?s network is constantly expanding by opening flights to some new locations in Asia.

  2. Demand Estimation of Indian Tractor industry

    + B4 (Cr) + B5 (Pst) + B6 (Pp) Ar = Area of land in Million Hectares Ps = MSP of sugarcane in Rs/quintal Pw = MSP of wheat in Rs/quintal Pst = MSP of steel in Rs/tonne Pp = MSP of paddy in Rs/quintal Cr = Credit input from Govt in Rs crores We initially collected the actual

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work