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What future(s) for liberalized electricity markets: efficient, equitable or innovative?

Author

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  • David M Newbery

    (Energy Policy Research Group, Faculty of Economics, University of Cambridge)

Abstract

Well-designed electricity liberalization has delivered effciency gains, but political risks of decarbonizing the sector have undermined investment incentives in en-ergy-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 justifed by learning spillovers from solar PV.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • David M Newbery, 2017. "What future(s) for liberalized electricity markets: efficient, equitable or innovative?," Working Papers EPRG 1705, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1705
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    Citations

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    Cited by:

    1. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    2. Piotr F Borowski, 2019. "Adaptation strategy on regulated markets of power companies in Poland," Energy & Environment, , vol. 30(1), pages 3-26, February.
    3. Defeuilley, Christophe, 2019. "Energy transition and the future(s) of the electricity sector," Utilities Policy, Elsevier, vol. 57(C), pages 97-105.
    4. Parlane, Sarah & Ryan, Lisa, 2020. "Optimal contracts for renewable electricity," Energy Economics, Elsevier, vol. 91(C).
    5. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    6. Lebeau, Alexis & Petitet, Marie & Quemin, Simon & Saguan, Marcelo, 2024. "Long-term issues with the Energy-Only Market design in the context of deep decarbonization," Energy Economics, Elsevier, vol. 132(C).
    7. Bell, William Paul & Zheng, Xuemei, 2018. "Inclusive growth and climate change adaptation and mitigation in Australia and China : Removing barriers to solving wicked problems," MPRA Paper 84509, University Library of Munich, Germany.
    8. Chyong, C. & Pollitt, M. & Cruise, R., 2019. "Can wholesale electricity prices support “subsidy-free” generation investment in Europe?," Cambridge Working Papers in Economics 1955, Faculty of Economics, University of Cambridge.
    9. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    10. Newbery, David, 2018. "Evaluating the case for supporting renewable electricity," Energy Policy, Elsevier, vol. 120(C), pages 684-696.
    11. Nepal, Rabindra & Sofe, Ronald & Jamasb, Tooraj & Ramiah, Vikash, 2023. "Independent power producers and deregulation in an island based small electricity system: The case of Papua New Guinea," Energy Policy, Elsevier, vol. 172(C).
    12. Irena Milstein & Asher Tishler & Chi-Keung Woo, 2024. "Carbon-free Electricity Supply in a Cournot Wholesale Market: Israel," The Energy Journal, , vol. 45(2), pages 1-21, March.
    13. Hannesson, Rögnvaldur, 2019. "How much do European households pay for green energy?," Energy Policy, Elsevier, vol. 131(C), pages 235-239.
    14. Finn Roar Aune & Rolf Golombek, 2021. "Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?," The Energy Journal, , vol. 42(3), pages 225-264, May.
    15. Diaz-Rainey, Ivan & Sise, Greg, 2018. "Green Energy Finance in Australia and New Zealand," ADBI Working Papers 840, Asian Development Bank Institute.
    16. Luis R. Boscán, 2020. "European Union retail electricity markets in the Green Transition: The quest for adequate design," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 9(1), January.
    17. Geoffrey Mabea, 2023. "Simulating Generalised Locational Marginal Pricing for Power Markets in East Africa," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 450-460, September.

    More about this item

    Keywords

    Electricity market design; tariffs; renewables support; utilities;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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