The Danish electricity distribution sector is currently benchmarked using a unit cost model. This model is annually used by the regulator when determining individual level of cost efficiency and thereby whether revenue caps should be decreased or not. The unit cost model suffers both input and model inadequacies making its quality far below what is used in countries which Denmark is normally compared to. The client needed a new benchmark model which could be used to determine the efficiency potential in the Danish DSO sector.
We studied the newest benchmarking approaches applied in other countries as well as cost drivers identified by researchers and foreign regulators as being key. Furthermore, we conducted a separate Danish study identifying key local external factors which are key. Based on this, new DEA and SFA benchmarking models were developed and estimated identifying static short and long run efficiency potentials. Furthermore dynamic models were developed providing estimates of catch-up periods.
The client gained estimates of efficiency potentials in the Danish DSO sector. Furthermore, the client gained a detailed insight into how future market developments will affect DSO’s and thereby which future cost drivers will be needed to maintain a high quality benchmarking model.
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