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What Future(s) for Liberalized Electricity Markets: Efficient, Equitable or Innovative?

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  • David M. Newbery

Abstract

Well-designed electricity liberalization has delivered efficiency gains, but political risks of decarbonizing the sector have undermined investment incentives in energy-only markets, while poorly designed regulated tariffs have increased the cost of accommodating renewables. The paper sets out principles from theory and public economics to guide market design, capacity remuneration, renewables support and regulatory tariff setting, with an illustration from a high capital cost low variable cost electricity system. Such characteristics are likely to become more prevalent with increasing renewables penetration, where poor regulation is already threatening current utility business models. The appendix develops and applies a method for determining the subsidy justified by learning spillovers from solar PV.

Suggested Citation

  • David M. Newbery, 2018. "What Future(s) for Liberalized Electricity Markets: Efficient, Equitable or Innovative?," The Energy Journal, , vol. 39(1), pages 1-28, January.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:1:p:1-28
    DOI: 10.5547/01956574.39.1.dnew
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    2. David Newbery and Michael Grubb, 2015. "Security of Supply, the Role of Interconnectors and Option Values : insights from the GB Capacity Auction," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
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