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Regulatory Challenges to European Electricity Liberalisation

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  • Newbery, D.

Abstract

The European Commission proposed to reform the Electricity and Gas Directives to improve access to transmission, increase cross-border capacity, and fully open the electricity and gas markets. The California electricity crisis has weakened support for liberalisation, removed the commitment to full market opening, and raised concerns over supply security. Providing adequate reserve capacity is risky in a competitive wholesale electricity market without suitable contracts, and unattractive to oligopolists unless they face a credible entry threat from IPPs. Ending the domestic franchise could remove the counterparty for the contracts required for adequate investment to sustain competitive pricing. Gas liberalisation is key to making electricity markets contestable and reducing pressures on scarce electricity interconnection capacity. Environmental concerns increase uncertainty and further deter entry, while raising other policy issues that need to be addressed. Compared to the US, much of the EU lacks the necessary legislative and regulatory power to mitigate generator market power. Unless markets are made more contestable, transmission capacity expanded and adequate generation capacity ensured, liberalisation may lead to higher prices.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0230.

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Length: 23
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:cam:camdae:0230

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Competition; regulation; electricity; contracts; market power;

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References

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  1. Richard Green & Tanga McDaniel, 1998. "Competition in electricity supply: will ‘1998’ Be worth it?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(3), pages 273-293, August.
  2. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 365-388.
  3. David M. Newbery, 2002. "Privatization, Restructuring, and Regulation of Network Utilities," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640481, December.
  4. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
  5. David M Newbery, 2002. "Regulating Unbundled Network Utilities," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 23-41.
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Cited by:
  1. Neuhoff, K. & de Vries, L., 2004. "'Insufficient Incentives for Investment in Electricity Generation’," Cambridge Working Papers in Economics 0428, Faculty of Economics, University of Cambridge.
  2. Machiel Mulder & Victoria Shestalova & Mark Lijesen, 2005. "Vertical separation of the energy-distribution industry; an assessment of several options for unbundling," CPB Document 84, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Singh, Anoop, 2010. "Towards a competitive market for electricity and consumer choice in the Indian power sector," Energy Policy, Elsevier, vol. 38(8), pages 4196-4208, August.
  4. Auriol, Emmanuelle & Blanc, Aymeric, 2009. "Capture and corruption in public utilities: The cases of water and electricity in Sub-Saharan Africa," Utilities Policy, Elsevier, vol. 17(2), pages 203-216, June.
  5. Tooraj Jamasb & Michael Pollitt, 2006. "Electricity Market Liberalisation and Integration in the European Union," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 4(2), pages 16-23, 07.
  6. L.J. de Vries & R.A. Hakvoort, 2004. "The Question of Generation Adequacy in Liberalised Electricity Markets," Working Papers 2004.120, Fondazione Eni Enrico Mattei.

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