The interdependencies of electricity market regulation and electricity supply security

This paper assesses the effects of the introduction of electricity market regulation on the reliability of the electricity system in Europe. In particular, the implemented regulatory schemes, which differ substantially across 19 member states of the European Union (EU), are analysed with regards to their effects on annual power outage durations for the period from 1999 to 2010. In general, the trend of electricity supply security in these years has been positive (decreasing annual interruption durations) with less improvements in recent years. Applying different regression models, rate-of-return regulation schemes are found to be beneficial to electricity supply security when compared to output-based regulation. Furthermore, statistic evidence suggests that incentive (or cost-) based regulation has led to lower levels of electricity supply security in Europe. This however strongly depends on the assessment models and assumptions applied as is demonstrated in a model comparison approach. In addition to the analysis of regulation's effects, we evaluate the empiric evidence of reverse causation in regulation. The question if lobbying activities can potentially influence electricity market regulation resulting in altered levels of supply security is relevant for policy making.