INTEGRATING TRANSACTION COST THEORY AND MARKET DESIGN Reversing the discriminating alignment hypothesis to design for the Dutch electricity market and PV prosumers

PV prosumers could have a significant contribution to the 20/20/20 goals, but the Dutch electricity system is not equipped for this. The current net metering policy has an uncertain future and net metering takes away the time dependent, system critical, component of the balance of demand and supply for prosumers. An integrated transaction cost theory and market design method is used to analyze the problems in the sector and design market design options to mitigate those problems. This is done by exploring whether the reversed discriminating alignment hypothesis could be applied to this research: instead of matching governance structures to transactions attributes, turning this around and change transaction attributes to match the already defined governance structure of the electricity market. Technical and contractual solutions were found that adapt the individual transaction attributes to let them match with the governance structure of the market. The individual solutions were then composed into three market design options. The market design options are evaluated by means of their impact on the problems that resulted from the transaction cost analysis. The results are compared to the requirements following from interviews in field research. The market design option called ‘It’s all in the bundle’, making use of real time tariffs to steer demand, in house storage and an exclusive contract with one supplier with a bundle structure, turned out to be the preferred market design option. Future research should, first, take the direction of further developing the integrated transaction cost theory and market design method and could explore if this integration is also possible with other theories. Secondly it should be defined, in both theoretical and practical sense, what the possibilities, constraints and complexities following from the reverse discriminating alignment hypothesis are, that were not described by Williamson. Lastly the resulting market design should be fine-tuned by taking into account more system features such as consumer acceptance and production costs and complementing this research with other theoretical perspectives.