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Excess Entry in the Deregulated Queensland Power Market

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  • Simshauser, Paul

    (Stanwell Corp Ltd., Queensland)

Abstract

When Queensland's electricity industry was deregulated in 1998, it faced supply shortfalls. Since then, a substantial number of new capacity proponents have emerged. If all proposed projects were to proceed as planned, reserve plant margin would rise from an acceptable 30 per cent to about 100 per cent, representing excessive oversupply. Incumbents appeared to follow strategies typically associated with the theory of barriers to entry, viz. limit pricing and creating excess capacity. However, it would seem that such strategies have failed, with new entrants continuing to emerge. The mix of plant entering the market is likely to comprise predominantly low-cost, inflexible baseload plant. The initial consequences are likely to be intense supply-side price competition, which will provide windfall gains to consumers, while producers (viz. debtholders and bondholders) incur extensive losses, at least until a number of incumbent plants and adjoining mines are closed down, which will have its own welfare implications.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 31 (2001)
Issue (Month): 1 (March)
Pages: 73-92

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Handle: RePEc:eap:articl:v:31:y:2001:i:1:p:73-92

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Related research

Keywords: Electricity; Entry; Pricing;

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References

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  1. Chaton, Corrine & Doucet, Joseph A., 1999. "Uncertainty and Investment in Electricity Generation: the Case of Hydro-Québec," Cahiers de recherche 9914, Université Laval - Département d'économique.
  2. Wenders, John T, 1971. "Excess Capacity as a Barrier to Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 20(1), pages 14-19, November.
  3. Wenders, John T, 1971. "Collusion and Entry," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1258-77, Nov.-Dec..
  4. Newbery, D. M., 1997. "Competition, Contracts and Entry in the Electricity Spot Market," Cambridge Working Papers in Economics 9707, Faculty of Economics, University of Cambridge.
  5. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
  7. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215.
  8. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  9. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, January.
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Citations

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Cited by:
  1. Simhauser, Paul, 2005. "The Gains from the Microeconomic Reform of the Power Generation Industry in East-Coast Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 35(1-2), pages 23-43, March/Sep.
  2. Paul Simshauser, 2008. "The Dynamic Efficiency Gains from Introducing Capacity Payments in the National Electricity Market," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(4), pages 349-370, December.

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