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International Handbook on the Economics of Energy

Edited by Joanne Evans and Lester C. Hunt

As an essential component for economic growth, energy has a significant impact on the global economy. The need to meet growing energy demand has prompted cutting-edge innovation in clean technology in an attempt to realise environmental and cost objectives, whilst ensuring the security of energy supply. This Handbook offers a comprehensive review of the economics of energy, including contributions from a distinguished array of international specialists. It provides a thorough discussion of the major research issues in this topical field of economics.
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Chapter 23: The Market Structure of the Power Transmission and Distribution Industry in the Developed World

Lullit Getachew


Lullit Getachew 1 Introduction Power industries of developed countries have been undergoing tremendous changes in the last 30 years. Institutional, market and technological developments have rendered the once natural monopoly activities of generation and retailing, or supply as it is called in some jurisdictions, competitive. As a result, policy makers have been quite keen on restructuring the industry by separating the monopoly activities of distribution and transmission from the competitive sectors. The former remain regulated but have undergone changes due to the structural transformation of the industries in which they operate. Although the pace of restructuring has proceeded at different rates and in different ways, in developed countries, there is a widely held view that some sort of separation between transmission and generation, and distribution and retailing is needed in order to foster competition in the power market. We study the various ways in which such separations have been instituted in the same developed economies that we focused on in the previous chapter; namely, the US, Canada, Western European countries, Japan, Australia and New Zealand. There is consensus that access to the wires of these businesses ought to be on an equal, transparent and fair basis. We also discuss arrangements that have been provided to accommodate this. As we shall see in Section 2, the transmission sector’s restructuring has resulted in fairly varied providers. These range from stand-alone transmission companies to those that still are part of the vertically integrated utility (VIU) model. We also explore the variation and evolution...

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