Ownership versus legal unbundling of electricity transmission network: Evidence from renewable energy investment in Germany

Abstract

There are concerns that transmission network companies owned by incumbent vertically integrated energy utilities may conduct anti-competitive discrimination to prevent entry into the electricity market. Different level of transmission network unbundling is implemented in European countries to create competitive electricity market, however, there is little empirical analysis regarding the effects, especially on renewable energy investment. The purpose of this paper is to offer the first causal evidence of the effect of ownership unbundling of a transmission network company from the vertically integrated utility on renewable energy investment, relative to legal unbundling. My geographic quasi-experiment approach exploits the fact that two transmission network firms in Germany have undergone ownership unbundling, while another two firms chose the Independent Transmission Operator model. Constructing panel data of renewable energy power plant capacity installed per municipality from 2008 to 2015, I use difference-in-difference regression and the Tobit random-effects model to identify the impact of ownership unbundling relative to legal unbundling. I find strong evidence that ownership unbundling has little effect on photovoltaics power, onshore wind power, and biomass power capacity increases relative to the Independent Transmission Operator model. This result implies that ownership unbundling and legal unbundling with stronger regulations are both effective for creating independent transmission network companies and for enabling entrants to invest in renewable energy.