UNBUNDLING, NETWORK ACCESS AND
DISTRIBUTED GENERATION “ AN ANALYSIS OF
FRINGE FIRMS FACING A MONOPOLIST
ABSTRACT
This paper provides an analytical examination on the welfare enhancing effects of
unbundling in the context of distributed generation. A simple analytical model is
developed of a vertically integrated monopolist providing network access, while
facing a competitive fringe of distributed generators in the electricity market. The
monopolist maximises profit by setting the power price and the network access
charge paid by the fringe. This is compared to the case of effective unbundling: the
monopolist solely obtains revenue from electricity sales and incurs an access
charge for the usage of the network that is now operated by an independent system
operator. Thereafter, extensions to the simple model will be discussed, reflecting
some of the specificities in the policy context of distributed generation. This in-
cludes the impact of deep and shallow connection charges, and the adoption of
feed-in tariffs.