Developing incentives for innovation by network companies: insights from Germany

FSR Insights continues to look at “Innovation in Energy”

In this FSR Insights, prof. Gert Brunekreeft will present his recent perspectives on incentive regulation for network companies, exploring in particular how specific innovation’s external or internal effects may call for different regulatory tools. Brunekreeft will also focus on regulatory tools promoting experiments and discuss the recent German experience (see his contributions here and here).- Watch the recorded session 

Innovation in energy networks is a non-negotiable ingredient for the energy transition. The shift to an energy mix dominated by renewable energy sources and the gradual electrification of final uses already challenge the traditional approach to grid planning and operation today. Network companies, either at the transmission or distribution level, must innovate to ensure cost containment, security of supply, and timely service delivery to their users.

However, network companies are heavily regulated businesses that react to the incentives and constraints introduced by regulators and policy-makers. Ensuring a regulatory framework conducive to innovation has been a long-standing focus of discussion. Countries in Europe and elsewhere have adopted different approaches to regulatory experimentation in energy, and a growing amount of evidence is now available on their efficacy (see, among others, Schittekatte et al., 2021).

Innovation is not a monolith; on the contrary, different types of innovation exist and are characterised by different features. Understanding these distinctions is crucial when selecting and designing regulatory tools to drive innovation in network companies. Brunekreeft will elaborate on this, discussing a market facilitation incentive mechanism, a digitalisation budget that applies sharing factors, and three alternative ways to enable risk-taking by network companies.

Filippo Bovera from Politecnico di Milano and Ellen Beckstedde from FSR will talk about prof. Brunekreeft’s contribution before opening the floor to questions from the audience.

Keynote speaker

Prof. Gert Brunekreeft | Constructor University Bremen

Discussants

Filippo Bovera | Politecnico di Milano

Ellen Beckstedde | FSR

FSR Insights is an online series hosted by Marzia Sesini and Nicolò Rossetto (FSR).