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The Dynamic Efficiency Gains from Introducing Capacity Payments in the National Electricity Market

  • Paul Simshauser

"Australia's National Electricity Market (NEM) has been a beacon for governments around the world considering power industry reform. However, while the energy-only NEM has served Australia well since 1998, deep structural supply-side faults exist. Competitive energy-only markets do not have a stable equilibrium solution unless reliability constraints are violated, market power is exercised, or scarcity pricing operates unabated. But the political economy of electricity means none of this is likely. This research finds that by reducing the NEM price cap and introducing a 'capacity payments pool', a tractable and politically acceptable equilibrium can be established to facilitate timely plant entry." Copyright (c)2008 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

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Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.

Volume (Year): 41 (2008)
Issue (Month): 4 (December)
Pages: 349-370

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Handle: RePEc:bla:ausecr:v:41:y:2008:i:4:p:349-370
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  1. Roques Fabien A. & Newbery David M. & Nuttall William J., 2005. "Investment Incentives and Electricity Market Design: the British Experience," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-36, June.
  2. repec:eap:articl:v:31:y:2001:i:1:p:73-92 is not listed on IDEAS
  3. Brennan, Donna & Melanie, Jane, 1998. "Market power in the Australian power market," Energy Economics, Elsevier, vol. 20(2), pages 121-133, April.
  4. Bushnell, James, 2005. "Electricity Resource Adequacy: Matching Policies and Goals," The Electricity Journal, Elsevier, vol. 18(8), pages 11-21, October.
  5. Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
  6. Alan Moran, 2008. "The emergence of Australia's electricity market," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 29(1/2), pages 88-108.
  7. John Foster & Melvin J. Hinich & Phillip Wild, 2008. "Randomly Modulated Periodic Signals in Australias National Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 105-130.
  8. Paul Simshauser, 2006. "The Emergence of Structural Faults on the Supply Side in Deregulated 'Energy Only' Electricity Markets," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 130-146, 06.
  9. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  10. Anderson, Edward J. & Hu, Xinin & Winchester, Donald, 2007. "Forward contracts in electricity markets: The Australian experience," Energy Policy, Elsevier, vol. 35(5), pages 3089-3103, May.
  11. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
  12. repec:eap:articl:v:35:y:2005:i:1-2:p:23-43 is not listed on IDEAS
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