Deep-ISOs and Network Investment

Abstract

Further unbundling measures are currently implemented in the European energy markets. One option is the “deep independent system operator” (deep-ISO). An ISO splits the system operator from transmission ownership, which can remain integrated with generation assets, if so desired. This construction avoids violation of constitutional law, but does not address the “strategic-investment-withholding” argument. Therefore, a deep-ISO receives the competence for transmission investment decision making and can if necessary order a transmission owner to make the investment. This construction creates an uneasy governance split between decision-maker and risk-bearer. In this paper, we discuss the scope of the deep-ISO and the role of third parties in decentralised transmission investment, in particular “tendered transmission investment”, to address the above mentioned governance problem.