Incentive regulation and distribution network performance: a Dutch case study (2000-2024)

Abstract

This paper examines the long-term effects of incentive regulation on the financial and operational performance of Dutch electricity distribution system operators (DSOs) over the period 2000 to 2024. We construct a consistent proxy for regulated revenues to analyse cost drivers, productivity, and capital intensity across seven regulatory periods. Revenue per connection for the distribution business decreased by 0.6 percent per year between 2000 and 2024, masking a structural break around 2016. Overall distribution productivity improved by 2.6 percent per year before 2016 but declined by 4.1 percent per year thereafter, coinciding with increased investments and costs related to the energy transition. Using a counterfactual benchmark, we estimate cumulative efficiency gains from incentive regulation of €4.0 billion (€451 per connection). Our findings suggest that while yardstick regulation effectively delivers cost efficiency in stable environments, it becomes less suited to periods of rapid network expansion.