Advancing Regulation with Respect to Dynamic Efficient Network Investments: Insights from the United Kingdom and Italy

Environmental policy targets considerably affect the energy sector and change its structure substantially. For the electricity distribution sector, the prospective key will be a technological upgrade towards an intelligent network infrastructure, commonly denominated as smart grids. Their development, however, will require an ample amount of investments. Being (natural) monopolies, network operators invest in a regulatory environment. Therefore, the crucial question is whether current regulation provides the right investment incentives to enable technological progress and dynamic efficiency in electricity networks. Hence, the discussion if there is a need of a realignment of the regulatory framework including reconfigured investment incentives is one of the key debates at stake. In order to enrich the discussion, this paper reviews pertinent international experiences to see what kind of approaches are taken to advance the regulatory framework. It refers to two examples, the United Kingdom and Italy.