Electricity Markets and Energy Security: Friends or Foes?
AbstractFor a host of economic, geopolitical, and environmental reasons, the security of energy supplies has moved to the forefront of U.S. policy concerns. Here, I address the extent to which the U.S. electricity sector is affected by these factors and, in turn, whether increased electricity competition exacerbates them. After defining four dimensions of energy security that might pertain to electricity, I examine the role of global energy markets on that sector. Oil is currently used to generate only a small fraction of U.S. electricity supplies, although as recently as the late 1970s it generated about one-sixth of the total. Oil markets can affect electricity indirectly via substitution with natural gas. Competition in electricity markets should improve energy security by adding redundancy, but competition is threatened by unanticipated price increases, peak-load management, and risks associated with separating competitive generation from regulated transmission and distribution. Other complications include residential aversion to competition, residual market power, and the aspiration to reduce demand through conservation policies. The central security issue has been and remains the degree of conflict between competition and central control necessary to maintain reliability of the grid.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-07-46.
Date of creation: 12 Nov 2007
Date of revision:
electricity markets; electricity market restructuring; energy policy; energy security;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-15 (All new papers)
- NEP-COM-2008-03-15 (Industrial Competition)
- NEP-ENE-2008-03-15 (Energy Economics)
- NEP-IND-2008-03-15 (Industrial Organization)
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- Chester, Lynne, 2010. "Conceptualising energy security and making explicit its polysemic nature," Energy Policy, Elsevier, vol. 38(2), pages 887-895, February.
- Brennan, Timothy J. & Palmer, Karen, 2012.
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dp-12-10, Resources For the Future.
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