Innovation by Regulation: Smart Electricity Grids in the UK and Italy

Beatriz Couto Ribeiro*, Tooraj Jamasb

*Corresponding author for this work

Research output: Working paperResearch

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Abstract

With the rise of renewable and distributed energy sources, electricity distribution and transmission utilities are facing increasing demand by regulators to innovate and adopt new technologies and transit to smart grids. However, these regulated natural monopolies often lack economic incentives to develop and adopt new technologies. To overcome this barrier, some regulatory authorities have introduced the so-called "innovation-stimuli" regulations to foster experimentation, technological adoption, and innovative solutions. We analyze and compare the effectiveness of two different innovation-stimuli regulations, the cost-pass through and WACC approaches, in the UK and Italy, respectively. To assess the impact of these different regulations on innovation, we use synthetic control (SC) and synthetic difference-in-differences (SDID) methods, which constitute causal inference techniques for small-n case study design and, for the first time, are employed to assess the impact of regulations on innovation outputs. Our panel data encompasses 13 European countries covering 1995 to 2013 and used smart grid projects and patent applications as dependent variables. Differently from what one might expect, not every innovation-stimuli regulation effectively supports innovation outputs. Meanwhile, cost-pass-through significantly and positively affected patent applications in the UK. In Italy, WACC did not affect patent applications, and European Commission-funded projects mostly drove the increases in smart-grid projects.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School, CBS
Number of pages44
Publication statusPublished - 2024
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number07-2024
SeriesCSEI Working Paper
Number05-2024

Keywords

  • Innovation
  • Electricity sector
  • Regulation

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