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The Question of Generation Adequacy in Liberalised Electricity Markets. INDES Working Paper No, 5. 1 March 2004

Vries, L.J. de and Hakvoort, R.J. (2004) The Question of Generation Adequacy in Liberalised Electricity Markets. INDES Working Paper No, 5. 1 March 2004. [Working Paper]

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    Abstract

    This paper presents an overview of the reasons why unregulated markets for the production of electricity cannot be expected to invest sufficiently in generation capacity on a continuous basis. Although it can be shown that periodic price spikes should provide generation companies with sufficient investment incentives in theory, there are a number of probable causes of market failure. A likely result is the development of investment cycles that may affect the adequacy of capacity. The experience in California shows the great social costs associated with an episode of scarce generation capacity. Another disadvantage is that generation companies can manipulate price spikes. This would result in large transfers of income from consumers to producers and reduce the operational reliability of electricity supply during these price spikes. We end this paper by outlining several methods that have been proposed to stabilise the market, which provide better incentives to generation companies and consumers alike.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > energy policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > INDES Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 23 May 2009
    Page Range: p. 20
    Last Modified: 15 Feb 2011 18:12
    URI: http://aei.pitt.edu/id/eprint/11086

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