Why Did British Electricity Prices Fall after 1998?
In an attempt to reduce high electricity prices in England and Wales, the government and regulator forced the largest generators to divest some plant in the late 1990s, and introduced New Electricity Trading Arrangements in March 2001. We use a supply function model to simulate prices from April 1997 to March 2004, and find no change in the relationship between our simulations and actual prices over this period. This implies that while the reduction in concentration has had a significant impact on short-term wholesale electricity prices, the switch from a centralised to a decentralised market has not.
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