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Strengths and Weaknesses of the British Market Model

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  • David Newbery

    (University of Cambridge)

Abstract

The state-owned CEGB was unbundled and privatised with a centrally dispatched pool and capacity payments in 1990, followed by massive gas entry under long-term contracts, undermined by retail competition from 1998. Although socially beneficial, flawed restructuring to a fossil duopoly raised concerns over market power, leading to reform in 2001 to a self-dispatched energy-only market.Confused policies caused impending capacity shortages, another market reform in 2011 that changed renewables support and introduced capacity auctions. Transmission pricing designed for central fossil generation proved unsuitable for decentralised generation, dramatically revealed in early capacity auctions. Fortunate conditions (spare capacity, cheap CCGTs) made the CEGB well-placed to benefit from private ownership and avoid many downside costs. Incentive regulation encouraged efficiency without damaging investment or quality, and, with lags, has responded to the challenges of decentralised renewables and capacity adequacy, but financing new nuclear has been costly and needs further reform.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • David Newbery, 2019. "Strengths and Weaknesses of the British Market Model," Working Papers EPRG1907, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1907
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    References listed on IDEAS

    as
    1. Michael Grubb & David Newbery, 2018. "UK Electricity Market Reform and the Energy Transition:Emerging Lessons," The Energy Journal, , vol. 39(6), pages 1-26, November.
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    6. David M. Newbery, 2012. "Reforming Competitive Electricity Markets to Meet Environmental Targets," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    7. Chi Kong Chyong, Bowei Guo, and David Newbery, 2020. "The Impact of a Carbon Tax on the CO2 Emissions Reduction of Wind," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    8. Preetum Domah & Michael G. Pollitt, 2001. "The restructuring and privatisation of the electricity distribution and supply businesses in England," Fiscal Studies, Institute for Fiscal Studies, vol. 22(1), pages 107-146, March.
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    11. Green, Richard J & Joanne Evans, 2003. "Why did British electricity prices fall after 1998?," Royal Economic Society Annual Conference 2003 92, Royal Economic Society.
    12. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
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    Cited by:

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    3. Gohdes, Nicholas, 2023. "Unhedged risk in hybrid energy markets: Optimising the revenue mix of Australian solar," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1363-1380.

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    More about this item

    Keywords

    British electricity supply; reforms; financing; renewables; tariffs; nuclear;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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