Regulatory effects on the investment strategies of electricity distribution companies

Abstract

In this paper, the dependences between the regulation model and investment strategies are analysed. Regulatory effects are analysed by theoretical analysis and with practical examples. The main aim of the analysis is to show out how companies might adapt to the regulatory environment when deciding their investment strategies.

Distribution network investment strategies in the new business environment

“…Effects of regulation are indicated with dashed lines. [11] A new investment increases the replacement value of the network and the present value of the network assets. A replacement investment, on the other hand, does not increase the replacement value of the network, but it decreases the age of the network and thereby it increases the present value of the network assets.…”

“…Investments impact also the operational costs and power quality, which may have an effect on the allowed income of the company either directly or through the efficiency benchmarking. The economical consequences of the investments are rather complex and they are strongly dependent on the regulatory model [11]. Depending on investment type, profitability of investment can be negative or positive.…”

“…The investment level in year 1999-2002 of Finnish electricity distribution companies compared to the straight-line depreciations calculated with the depreciation time of 35 years [11]. …”