In the last decade, the European Commission promoted a new regulatory framework aiming at a gradual liberalization of the energy markets. The introduction of competition among generators implies the need to separate generation from transmission and distribution activities. However, if savings can be reached by operating at different stages, vertical separation would increase the costs of providing power. This paper tests for the presence of economies from vertical integration on a sample of Italian local electric utilities and finds evidence of both multi-stage economies of scale and vertical economies. Even if the hypothesis of global subadditivity is not supported, our evidence suggests that a complete divestiture policy would entail efficiency losses.

Cost Savings from Generation and Distribution with an Application to Italian Electric Utilities

PIACENZA, Massimiliano;VANNONI, Davide
2005

Abstract

In the last decade, the European Commission promoted a new regulatory framework aiming at a gradual liberalization of the energy markets. The introduction of competition among generators implies the need to separate generation from transmission and distribution activities. However, if savings can be reached by operating at different stages, vertical separation would increase the costs of providing power. This paper tests for the presence of economies from vertical integration on a sample of Italian local electric utilities and finds evidence of both multi-stage economies of scale and vertical economies. Even if the hypothesis of global subadditivity is not supported, our evidence suggests that a complete divestiture policy would entail efficiency losses.
28(3)
289
308
Composite cost function; Electric utilities; Liberalization; Subadditivity; Vertical integration
FRAQUELLI G; PIACENZA M; VANNONI D.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/40617
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