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What future(s) for liberalized electricity markets: efficient, equitable or innovative?

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  • Newbery, D.

Abstract

Well-designed electricity liberalization has delivered efficiency gains, but political risks of decarbonizing the sector have undermined investment incentives in energy-only markets, while poorly designed regulated tariffs have increased the cost of accommodating renewables. The paper sets out principles from theory and public economics to guide market design, capacity remuneration, renewables support and regulatory tariff setting, illustrating their application in a hypothetical high capital cost low variable cost electricity system in "Andia" that resembles Peru. Such characteristics are likely to become more prevalent with increasing renewables penetration, where poor regulation is already threatening current utility business models. The appendix develops and applies a method for determining the subsidy justified by learning spillovers from solar PV.

Suggested Citation

  • Newbery, D., 2017. "What future(s) for liberalized electricity markets: efficient, equitable or innovative?," Cambridge Working Papers in Economics 1714, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1714
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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