Ownership Unbundling Research Articles

Legal and ownership unbundling in the Turkish natural gas market: A comparative analysis

This study introduces a theoretical framework for the Turkish natural gas market based on the principles of game theory and industrial organization. It investigates the effects of the legal and ownership unbundling on consumer surplus, social welfare, and competition. The model considers a mixed oligopoly with a transmission system operator (TSO), a state-owned incumbent, and a private firm. The state-owned incumbent is assumed to maximize consumer surplus and its own profit, while the private firm is assumed to be profit-maximizing. Additionally, the state-owned incumbent is assumed to be less efficient than the private firm. The game consists of three stages. In the first two stages, the state-owned incumbent and the private firm sequentially choose contract sizes in the upstream market. In the last stage, a contract size-restricted Cournot game is played. The findings of the study suggest that legal unbundling appears to offer greater advantages for consumer surplus and social welfare compared to ownership unbundling, particularly when considering key factors such as third-party access, non-tariff discrimination, and import liberalization. The results indicate that adopting the role of a Stackelberg follower by the state-owned incumbent in the upstream market is advantageous in terms of consumer surplus, social welfare, and competition under both unbundling approaches.

Unbundling of Transmission System Operators – The general European Union Policy and the Case in Georgia

Georgian Transmission System Operator has been certified and nominated as the sole transmission licensee in Georgia upon the specific conditions. Therefore, with the fulfillment of all criteria, the main objective of ownership unbundling (prevention of discrimination, optimization of the use of infrastructure, incentivizing economic investment) can be reached. However, in case of non-compliance with the unbundling ownership requirements and, thus, re-certification of Georgian TSO, the Government of Georgia shall consider the costs of such procedure for the country and, precisely, the state-owned company. Therefore, the responsible public entities shall work with the Regulatory Commission and the Transmission System Operator to ensure timely and proper planning and implementation of necessary activities to meet unbundling ownership requirements.

China's textbook approach to regulatory reform of the natural gas market

Natural gas, as a transition fuel, is considered essential for China's decarbonization and local air protection policy, yet the regulatory structure China relies on to promote gas use remains under-researched. China's central government recognizes the need for market-based reforms of the gas sector, but what regulatory and policy adjustments are necessary to reorganize gas supply on a market basis? The textbook approach to energy market reform, and its implementation in the European Union, provides important guidance on how to create a regulatory basis to support competition in gas supply, provided national institutional characteristics are taken into account. This article engages in a comparative analysis of China's gas market reform policies and their implementation at the provincial level, focusing on Guangdong, a laboratory of economic reforms in China. The analysis demonstrates that reforms in 2019–2021 integrated key aspects of the textbook model in China's gas regulations, including third-party access, price deregulation and ownership unbundling. However, the textbook is of limited use to address remaining institutional barriers to reform, including resistance of distribution monopolies to competition from state-owned enterprises. Guangdong's experience shows that reform is possible, but only if accompanied by institutional and pricing adjustments reconciling vested interests with competition.

A Retrospective Evaluation of the GDF/Suez Merger: Effects on the Belgian Gas Hub

We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006, which created one of the world’s largest energy companies. We perform a series of econometric analyses on the market for trading at the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analyses show a robust price decline after the merger. Additional evidence on traded volumes and number of hub participants is in line with an increased liquidity at the hub after the merger. This suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, remedies may have done more than simply mitigate the potential anti-competitive effects of the merger; they may have effectively created competition.

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

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.

Ownership Unbundling of Electricity Distribution Networks

Traditional restructuring of power markets has focused on legally separating monopolistic transmission and distribution infrastructure with sufficient regulatory oversight to ensure non-discriminatory access to networks, and transparent and cost-reflective tariffs. There is consensus that ownership separation for transmission assets is beneficial for competition and transparency. However, at the distribution level the benefits of going beyond legal unbundling are questionable. This paper reviews the theoretical arguments for ownership unbundling and summarises the findings from 23 academic papers and consulting reports. In addition, this paper empirically demonstrates that forced distribution ownership unbundling in New Zealand (from 1998) and the Netherlands (from 2009) did not increase retail competition and did not increase network quality. It resulted in significant one-off and structural costs. The combination of increasingly active distribution networks with bi-directional power flows from distributed renewables, in combination with the digitalisation of energy supply and creation of distribution data platforms, suggests that interaction between networks and customers, traditionally separated from a regulatory and competition perspective may become more interlinked in future. Policymakers should therefore assess a broader set of policy measures, taking into account this changing network landscape, when focusing on increasing retail competition and network quality.

How decentralization drives a change of the institutional framework on the distribution grid level in the electricity sector – The case of local congestion markets

The increasing share of renewables in the electricity system results in congestion on all network levels. To address this congestion, the EU Commission proposed that distribution network operators become responsible for local congestion management. Within this paper we analyze the institutional implications of the introduction of local congestion markets (also referred to as flexibility markets) and identify three discrimination concerns related to the DSO's role on these markets. We will argue that the standard governance models (legal unbundling, ownership unbundling, IDSO) do either not sufficiently address the identified discrimination concerns, or come with additional challenges which make their application less feasible. Instead, we discuss two novel approaches: The introduction of Independent Distribution Operators (IDO) or alternatively, a Common Flexibility Platform (CFP). While the IDO results in a change of the regulatory regime in Europe, the CFP could be applied given the current European unbundling rules. Since the CFP does not require stronger unbundling of DSOs, we recommend to investigate this solution further.

Natural Gas Industry Restructuring for Value Optimisation: A Case Study of Ghana

The global natural gas industry in emerging oil and gas producing countries faces the challenge of restructuring and regulations, making industry conduct revaluation inevitable. The main concern in restructuring the natural gas industry in these economies is how to break previously vertically integrated companies into separate business entities under an appropriate market structure along the gas value chain. There are two schools of thoughts on how to restructure the natural gas industry. The traditional school of thought favours a vertically integrated structure and the liberal school of thought advocates for competitive-based structures encompassing different regulatory reforms including ownership unbundling. The natural gas industry in Ghana, though nascent, is growing due mainly to rising demand for electricity, at about 5.8% annually. Currently GNPC owns the upstream gas, midstream infrastructures and champions final gas delivery to downstream consumers. Gas price harmonization, easing contractual agreements, maintaining the survival of GNGC, and energy security reasons are among the policy factors that seem to favour a state-owned vertically integrated structure. The aim of this paper is to examine and determine the industry structure that is optimal to sustain Ghana energy supply mix. The paper offers two natural gas industry structure models to describe the effect of unbundling infrastructure ownership of natural gas along its value chain on energy supply mix in Ghana. The paper suggests maintaining the aggregating role of GNPC is appropriate. However, the paper recommends unbundling infrastructure ownership from upstream natural gas owners. Thus, the Gas Processing Plants and Ghana National Gas Company (GNGC) transmission pipelines need an independent entity to operate the GNGC transmission pipeline as the National Gas Transmission Utility (NGTU) with open access allow IPPs equal access to natural gas at the market hubs.

Ownership Unbundling and Monopoly Privileges in Electricity Transmission

ABSTRACTThis paper discusses how mandatory ownership unbundling and government-granted monopoly privileges in electricity transmission affect electricity prices. Aprioristic mathematical modeling taking into account potential competition is used. The models considered show that consumers can benefit from the regulation of the transmission monopoly only if the monopoly is subsidized or its costs are much lower than the maximum possible revenue. It is shown that potential competition and the absence of monopoly privileges in electricity transmission can decrease prices even when entry barriers are high. It is shown that mandatory ownership unbundling can nearly eliminate the effect of potential competition in transmission.

Ownership unbundling in electricity distribution: The Russian experience

Russia is the first and thus far only country that has separated ownership of electricity distribution and transmission and then, a few years later, reunified these services under one company. We examine the impact of these changes on the quality of service in electricity networks and the operating costs of electricity distribution companies. We find no evidence that ownership unbundling increased the service quality in electricity networks. Furthermore, our results indicate that ownership unbundling resulted in higher operating costs for electricity distribution companies. This study thus contributes to discussion on the importance of the balance of structural remedies and transparent independent regulation in the development of competitive energy markets in emerging market economies.

Ownership unbundling of natural gas transmission networks in China

Abstract The vertically integrated operation system of natural gas transmission has led to lagging pipeline network construction, low transmission network utilization rates, and high consumer prices in China. This paper proposes a combination of multi-agent and input-output models to outline natural gas transmission regime programs and examines the effects of mandatory separation of transmission networks from production and services, based on available data from 2014 to 2016. Three scenarios are set up including the basic condition (BAU) and two types of reforms, namely ownership unbundling (STRIP) and internal reform at company level (INTREF). Then a set of evaluation indicators are established, namely profit changes of three large oil companies, investment in pipeline networks, and user prices, as well as total output, added value, and price changes in related industries. The results show that, by 2030, the relative change rate of investment for STRIP will increase by 93.45% while the change in INTREF is −33.49%. Moreover, natural gas price under STRIP will decrease 27.12%, which is a decrease almost three times that under INTREF. It can be concluded that STRIP is more conducive to promoting the efficiency of natural gas transmission compared with INTREF. However, it may be time consuming for natural gas companies to introduce competitive social capital and gradually diversify their investments.

Regulatory and ownership determinants of unbundling regime choice for European electricity transmission utilities

One of the fundamental provisions of the European electricity directives is the so-called unbundling of structures and functions. Vertical disintegration with Full Unbundling (ownership unbundling or independent system operation) is considered an important step toward electricity market restructuring. While Full Unbundling (FU) models appear to be the most prevalent, several European countries adhered solely to less stringent forms of unbundling. Using a dataset of the 35 major electricity transmission utilities in Europe, this study provides an econometric analysis to understand the individual effect of regulation and ownership structure on the decision to adopt more stringent unbundling regimes. The overall results show that incentive-based or hybrid regulatory schemes and private ownership, are associated with a higher probability that a country will opt for FU.

A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices

We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006 created one of the world’s largest energy companies. We perform an econometric analysis, based on Difference-in-Difference techniques on the market for trading on the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analysis shows a price decline after the merger. This decline suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, the remedies may have done more than simply mitigate the potential anticompetitive effects of the merger; they may have effectively created competition.

Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies

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 present, ownership unbundling is the predominant form of unbundling in Europe. From a policy perspective, a successful unbundling regime would require that the benefits of increased competition in power generation would at least offset the associated efficiency losses from vertical divestiture. Since evidence on this topic is scarce, 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 unique firm-level panel data of European electricity utilities. Our results confirm the presence of substantial EVI of 14% for the median sized integrated utility. Moreover, EVI tend to increase with firm size.

A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices

We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006 created one of the world’s largest energy companies. We perform an econometric analysis, based on Difference-in-Difference techniques on the market for trading on the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analysis shows a price decline after the merger. This decline suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, the remedies may have done more than simply mitigate the potential anticompetitive effects of the merger; they may have effectively created competition.

REFORMING OF THE INFRASTRUCTURE BRANCHES OF ECONOMICS ACCORDING TO REQUIREMENTS NEEDED FOR EROPEAN INTEGRATION

Urgency of the research is specified by the potential of infrastructure sectors to multiply the negative effects of natural monopoly in the economy, as well as by the commitment of their reforming to minimize those effects that is coming out from the EU Association Agreement. Target setting. Determination of the European vector of economic development brings up to date the need for delineation of the actually ways of infrastructure sectors reforming. Actual scientific researches and issues analysis. Among the researches of this problem are R. Pittman, J. Tirole, I. Borovyk, A. Ignatiuk, H. Fyliuk. Uninvestigated parts of general matters defining. There is a lack of researches of the tools of competition penetration into the infrastructure sectors under the modern institutional challenges of European integration. The research objective. This article determines the existing approaches to infrastructure sectors reforming in the context of the 3d Energy package, as well as draws the optimal way of such a reform. The statement of basic materials. The article brings the comparative analysis of the variety of models of infrastructure sectors’ reforming, which are in the use in the EU. It also assesses their adequacy to the Ukrainian environment and to the institutional requirements of the obligations incurred by Ukraine. It determines the current state and the perspectives of the Ukrainian infrastructure sectors development. Conclusions. The article defines that the most effective model of infrastructure sectors’ development is the full ownership unbundling. On the interim stage of the reform, the models of an independent operator (ISO and ITO models) may be used to gear the Ukrainian regulatory system to the requirements of the model of full ownership unbundling.

Security of Gas Supply and Energy Market Regulation: Outlook and Implications in the EU

The introduction of liberalisation and concepts such as third-party access, network ownership unbundling and competition in the EU’s internal energy market following the first, second and third sets of EU legislative packages and directives had the effect of requiring Member States to significantly alter the regulatory and organisational structures of their energy markets, including traditional ways of promoting energy security. Consequently, state-owned or controlled vertically-integrated operators or centrally administered energy markets now have to meet the demands of open access and competition. There is also a shift away from traditional long-term gas supply contracts, towards more short-term spot-markets and trading hubs. Although, long-term supply arrangements could be seen as a means of achieving security of supply, it can also become an instrument which ‘locks-in’ ex ante investments in commercial arrangements with supplier(s) whose broader geopolitical and economic interests may be incompatible with the peculiar interests of the consuming state(s) or purchaser undertaking(s). Geopolitical conflicts relating to external suppliers, import dependency, declining regional gas production and the interconnectedness of gas and electricity markets, competitiveness of gas utilisation in the energy mix are some essential factors affecting the reliability and security of energy supply. This paper aims to examine some of the key regulatory and policy issues affecting the security of gas supply in the evolving EU internal energy market. It focuses on the dynamics of securing the availability and reliability of gas for electricity generation from a legal and regulatory perspective.

Revisiting electricity liberalization and quality of service: empirical evidence from New Zealand

ABSTRACTWhat effect does the firm structure have on the quality of service delivered by networks and infrastructure industries? We answer this question by empirically assessing the impacts of complete vertical separation, such as ownership unbundling, on the quality of service delivered by a liberalized network industry. Electricity distribution utilities in New Zealand are considered for this purpose and are analysed using panel-data econometrics. The results show robust evidence that ownership unbundling contributed to a fall in the duration and frequency of supply interruptions in electricity distribution. However, the results also show that unbundling has no effect on reducing distribution network losses. These results, overall, highlight the nonsimple impacts of ownership unbundling on the quality of electricity distribution. We suggest that the quality of service may largely improve when considered in the economic regulation of electricity networks than completely relying on specific reform measures such as ownership unbundling.

MERGERS AND ACQUISITIONS IN EUROPEAN AND NORTH AMERICAN ENERGY MARKETS: EMPIRICAL ANALYSIS OF LEGAL AND OWNERSHIP UNBUNDLING

Competition and antitrust law aims to prevent companies from engaging in anti-competitive behavior and to promote and protect market competition. In this context, mergers and acquisitions (M&As) are under particular scrutiny, since they are often assumed to be motivated by possible market power increases, thus adversely affecting market efficiency. With a view to recent efforts within the European Union to increase the effectiveness of competition law in the energy sector (that is, legal and ownership unbundling as policy tools geared towards forcing corporations into demerging transactions), an event study approach is applied in this article to evaluate the market response to the announcement of mergers and acquisitions in EU and U.S. energy markets and to determine whether or not the hypothesis that M&As result in increased market power of the joined companies actually holds true. Findings indicate that increases in market power are not the main motive for energy market M&As. The results thus oppose the general adequacy of legal and ownership unbundling as veritable competition law instruments against market imperfections and failures, but indicate that unbundling can indeed be a viable policy solution if implemented on a case-by-case basis.

Regulatory Objectives and the Intensity of Unbundling in Electricity Markets

Despite the positive effect electricity grids separated from generation and supply by ownership are expected to have on the level of competition in the non-network activities, several EU member states still adhere to a solely legally unbundled transmission grid. This choice might be induced by regulators focusing on objectives other than the promotion of consumer interests: theoretically analyzing the decisions an authority takes on both the unbundling regime and the grid charge when it supervises a network monopolist providing a downstream Cournot duopoly with capacity, we find an agency pursuing consumer-oriented goals to always implement Ownership Unbundling. For a regulator acting in the interests of the industry or the government, though, results suggest the authority to be indifferent between Legal and Ownership Unbundling; minor potential drawbacks of a network separated by ownership for the agency or the companies might then tip the scales and cause the regulator to adhere to Legal Unbundling.