Electricity distribution: Incentives promote investments

The rapid expansion of distributed electricity generation and the new functions that distribution system operators (DSOs) are called to perform will require €400 billion in Europe by 2020. However the capacity of incentive regulation, introduced in the electricity sectors across Europe, to foster investments of this size is still to be proven. Astrid Cullman and Maria Nieswand from the German Institute for Economic Research shed light on this question by analysing the investment behaviour of 109 DSOs in Germany, finding that the investment rate is higher after the implementation of incentive regulation in 2009 and that the design of the incentive scheme influences the investment decisions of the firms.