Renovation strategies and economic regulation in electricity distribution

Many countries have adopted economic regulation to the electricity distribution. Economic regulation plays a significant role when long-term decisions are determined. The regulatory model sets the framework for the network planning process. It does not give strict instructions for the planning process but aims to ensure the development of the network. This paper elaborates on the influence of the incentive regulation on the electricity distribution and especially on renovation programs, which are among the main functions of the network operators in the coming years. The backgrounds of the electricity distribution network owners are very diverse, which makes the aims of the ownership different. For instance, maximising the return or profit, a strict reliability target or a tight investment schedule may reflect the objectives of the owner. Alternatively, a distribution company owned by a municipality typically wants to provide low-cost electricity for the customers, and to this end, the costs of the company should be minimised. Among others, these objectives have to be taken into account in strategic planning. Traditional distribution network planning that minimises the total costs including capital, operational and interruption costs leads to a different result, compared with planning based on maximising the profit of the owner.