Network Regulation under Climate Policy Review

Climate change policy, in particular in Europe, will a¤ect the energy sector through the exposure
to massive penetration of distributed energy resources or decentralized generation into electricity
distribution and transmission grids. As the prerequisites for infrastructure regulation still prevail in
the future, the question arises whether the current regulatory model is still valid. In this paper, we
chararcterize some of the e¤ects of climate change policy on the network tasks, assets and costs and
contrast this with the assumptions implicit or explicit in current economic network regulation. The
resulting challenge is identi ed as the change in the direction of higher asymmetry of information
and higher capital intensity, combined with ambiguities in terms of task separation. Methodolog-
ically, we argue that this may require a mobilization of the litterature related to delegated and
hierarchical systems, e.g. team performance, as the externalities are joint products from multiple
independent stages where individual regulation may introduce distortions. To provide guidance, we
present a model of investment provision under regulation between a distribution system operator
(DSO) and a potential investor-generation. The results from the model con rm the hypothesis
that network regulation should nd a focal point, should integrate externalities in the performance
assessment and should avoid wide delegation of contracting-billing for climate change technologies.