Network Regulation and Support Schemes: - How Policy Interactions Affect the Integration of Distributed Generation

At present, there exists no explicit European policy framework on distributed generation. Various Directives encompass distributed generation; inherently, their implementation is to the discretion of the Member States. The latter have adopted different kinds of support schemes, ranging from feed-in tariffs to market-based quota systems, and network regulation approaches, comprising rate-of-return and incentive regulation. National regulation and the vertical structure of the electricity sector shape the incentives of market agents, notably of distributed generators and network operators. This article seeks to investigate the interactions between the policy dimensions of support schemes and network regulation and how they affect the deployment of distributed generation. Firstly, a conceptual analysis examines how the incentives of the different market agents are affected. In particular, it will be shown that there frequently exists a trade-off between the creation of incentives for distributed generators and for distribution system operators to facilitate the integration of distributed generation. Secondly, the interaction of these policy dimensions is analyzed, including case studies based on five EU Member States from the IMPROGRES project. An important question that will be discussed is in which regulatory segment, i.e., network access regulation or support schemes, locational signals can be included.