Ownership unbundling of distribution network operators (DNO) and the commercial activities in the electricity supply industry will distort and may impede efficient investment in distributed generation (DG). DG is electricity generation connected to the distribution network and typically involves renewable energy sources and combined heat and power. Three arguments were examined in detail. First, the unbundled network operator may have poor incentives to connect new DG. Secondly, in the face of deep network impact, shallow connection charging distorts investment signals. Thirdly, the split between network and DG exacerbates coordination and information problems leading to flawed investment.
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