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Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA

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Author Info
Roques, F.
Newbery, D.M.
Nuttall, W.J.

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Abstract

Three years after the controversial change of the British market design from compulsory Pool with capacity payments to decentralised energy-only New Electricity Trading Arrangements (NETA) market framework, we compare the two designs in terms of investment incentives. We review the biases of the Pool capacity payments design, the drought of investment following the introduction of NETA, and the reaction of the market during the first “stress-test” of NETA during the winter 2003. In an energy-only market such as NETA, it is essential that price signals are right and the system operator has a crucial role in contracting ahead for reserve. We recommend that NETA adopt a single marginal imbalance price as dual imbalance pricing distorts price signals in times of scarcity. The lack of long-term contracting that causes hedging and financing difficulties for power projects can be compensated by vertical and horizontal reintegration at a cost of increased market power.

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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0459.

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Length: 51
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:cam:camdae:0459

Note: CMI, IO
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Web page: http://www.econ.cam.ac.uk/index.htm

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Related research
Keywords: investment; electricity; market design; capacity payments;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Newbery, David M., 1998. "The regulator's review of the English Electricity Pool," Utilities Policy, Elsevier, vol. 7(3), pages 129-141, November. [Downloadable!] (restricted)
  2. Hung-po Chao, 1983. "Peak Load Pricing and Capacity Planning with Demand and Supply Uncertainty," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 179-190, Spring. [Downloadable!] (restricted)
  3. Green, R., 2004. "Retail Competition and Electricity Contracts," Cambridge Working Papers in Economics 0406, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  4. Sweeting, A., 2004. "Market Power in the England and Wales Wholesale Electricity Market 1995-2000," Cambridge Working Papers in Economics 0455, Faculty of Economics, University of Cambridge. [Downloadable!]
  5. Shuttleworth, Graham, 1997. "Getting markets to clear," The Electricity Journal, Elsevier, vol. 10(3), pages 2-2, April. [Downloadable!] (restricted)
  6. Paul Joskow & Jean Tirole, 2004. "Reliability and Competitive Electricity Markets," Working Papers 0408, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
    Other versions:
  7. Joskow, Paul & Tirole, Jean, 2004. "Retail Electricity Competition," IDEI Working Papers 311, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  8. Green, R., 2004. "‘Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool’," Cambridge Working Papers in Economics 0425, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  9. Newbery, D.M. & Pollitt, M.G., 1996. "The Restructuring and Privatisation of the CEGB: Was It Worth It?," Cambridge Working Papers in Economics 9607, Faculty of Economics, University of Cambridge.
  10. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Newbery, D., 2006. "Market design," Cambridge Working Papers in Economics 0615, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. 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. [Downloadable!]
    Other versions:
  13. Ford, Andrew, 1999. "Cycles in competitive electricity markets: a simulation study of the western United States," Energy Policy, Elsevier, vol. 27(11), pages 637-658, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brunekreeft, G. & McDaniel, T., 2005. "Policy uncertainty and supply adaquacy in electric power markets," Discussion Paper 06, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
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This page was last updated on 2009-12-13.

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