TY - JOUR
T1 - Electricity market reform failures
T2 - UK, Norway, Alberta and California
AU - Woo, Chi Keung
AU - Lloyd, Debra
AU - Tishler, Asher
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2003/9
Y1 - 2003/9
N2 - An analysis of electricity market reforms already taken place in the UK, Norway, Alberta (Canada) and California (USA) leads to our overall conclusion that the introduction of a competitive generation market, of itself, has failed to deliver reliable service at low and stable prices . The market reform failures are attributed to market power abuse by few dominant sellers (especially at times of transmission congestion), poor market design that invites strategic bidding by suppliers, the lack of customer response to price spikes, capacity shortage caused by demand growth not matched by new capacity, and thin trading of forward and futures contracts that are critical for price discovery and risk management. The paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices. The policy implication is that an electric market reform can be extremely risky, and may lead to a disastrous outcome. Thus, it is imprudent to implement such a reform in countries with limited sites for new generation and no indigenous fuels (e.g., Israel and Hong Kong). These countries should therefore consider introducing performance-based regulation that can immediately benefit electricity consumers in terms of lower prices, more stable prices, improved reliability, more choices, while encouraging the electric sector to pursue efficient operation and investment.
AB - An analysis of electricity market reforms already taken place in the UK, Norway, Alberta (Canada) and California (USA) leads to our overall conclusion that the introduction of a competitive generation market, of itself, has failed to deliver reliable service at low and stable prices . The market reform failures are attributed to market power abuse by few dominant sellers (especially at times of transmission congestion), poor market design that invites strategic bidding by suppliers, the lack of customer response to price spikes, capacity shortage caused by demand growth not matched by new capacity, and thin trading of forward and futures contracts that are critical for price discovery and risk management. The paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices. The policy implication is that an electric market reform can be extremely risky, and may lead to a disastrous outcome. Thus, it is imprudent to implement such a reform in countries with limited sites for new generation and no indigenous fuels (e.g., Israel and Hong Kong). These countries should therefore consider introducing performance-based regulation that can immediately benefit electricity consumers in terms of lower prices, more stable prices, improved reliability, more choices, while encouraging the electric sector to pursue efficient operation and investment.
KW - Electricity market reform
KW - Performance-based-regulation
KW - Reform failures
UR - http://www.scopus.com/inward/record.url?scp=0037412003&partnerID=8YFLogxK
U2 - 10.1016/S0301-4215(02)00211-2
DO - 10.1016/S0301-4215(02)00211-2
M3 - Journal article
AN - SCOPUS:0037412003
SN - 0301-4215
VL - 31
SP - 1103
EP - 1115
JO - Energy Policy
JF - Energy Policy
IS - 11
ER -