Discussion Papers

Christine Müller

New regulatory approaches towards investments: a revision of international experiences
IRIN working paper for working package: Advancing incentive regulation with respect to smart grids

No. 353 / April 2011

Summary

This paper presents and evaluates international case studies of countries pioneering increased regulatory measures towards (dynamic efficient) investment. Therefore it analyses international experiences from regulatory regimes that already have a long history of incentive regulation and recently revised or plan to revise their regulatory framework to further stimulate investments and innovation in a smart grids context. The pertinent examples in this context are the United Kingdom (UK), Italy, Norway and the Netherlands.

The case studies show that the analysed countries adopt more or less intense measures to increase the regulatory provision for investments and dynamic efficiency. The UK can be considered as pioneer in pursuing this path by changing the priorities from a regulatory focus on cost-efficiency to a holistic innovation and output-oriented approach with a forward looking, long-term value for money perspective, albeit still lacking regulatory practice. A less holistic but rather more straightforward solution has been implemented in Italy where the regulator may increase the rate of return for specific investments. In the Netherlands, revised approaches towards investments and innovation are still under discussion. The intensity of the debate however suggests the importance of this issue. Norway has corrected the time-lag problem with capital expenditure.

The approaches taken in the UK, Italy and Norway as well as the current discussions in the Netherlands are encouraging steps towards a more investment friendly regulatory approach in a smart grids context. In order to make sure that the overarching climate targets are transformed into regulatory functionalities in order to facilitate the paradigm shift towards smart grids it is crucial that other countries become alert, initiate the regulatory debate and follow their examples. A thorough assessment as to what extent the instruments implemented in the countries of reference would be appropriate in the German regulatory context should help in pursuing this path.

Discussion Paper is available for download.

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