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The Electricity Market’s Design: An Unnecessarily Distorting and Costly Mechanism to Overcome

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  • Joaquim Vergés-Jaime

Abstract

The particular rules established for the wholesale electricity market in the EU, UK, United States, and other OECD countries have led to distorted results, especially since the end of 2020, in the way of erratic skyrocketing prices and extraordinary profits for power companies. This is because of the peculiar pricing design established, which is surmised to respond to the “marginal cost pricing” proposition (MCP) of mainstream economics. It is argued here that the present pricing design, besides challenging economic common sense, entails misapplying the MCP proposition itself; that basic features of the sector make, however, such a proposition scarcely relevant; and how the assumption of old economics myths about the sector makes the present market operation unnecessarily cumbersome. Consequently, elements for a more rational alternative market design and workings will be presented.

Suggested Citation

  • Joaquim Vergés-Jaime, 2025. "The Electricity Market’s Design: An Unnecessarily Distorting and Costly Mechanism to Overcome," Journal of Economic Issues, Taylor & Francis Journals, vol. 59(1), pages 304-323, January.
    • Handle: RePEc:mes:jeciss:v:59:y:2025:i:1:p:304-323
    DOI: 10.1080/00213624.2025.2455670
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