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Strengths and Weaknesses of the British Market Model

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  • Newbery, D.

Abstract

The UK privatized the electricity supply industry from 1989 in the expectation that private ownership and incentive regulation would invest and operate sufficiently more efficiently to offset the higher cost of private finance. This was achieved in the first two decades, assisted by spare capacity, contract-based entry of new efficient and cheap CCGTs, and regulatory pressure on transmission and distribution companies. The climate change imperative to decarbonize requires massive durable and very capital-intensive investment that casts doubt on the liberalised financing model. In the past 30 years, much has been learned about mitigating market power, the failings of an energy-only market, and the potential distortions of poorly designed prices for renewables and tariffs for networks. Innovation has been successfully stimulated though competitions. Efficiency, falling renewable costs and the carbon tax have almost completely driven coal out of the system.

Suggested Citation

  • Newbery, D., 2019. "Strengths and Weaknesses of the British Market Model," Cambridge Working Papers in Economics 1917, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1917
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1917.pdf
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    References listed on IDEAS

    as
    1. Green, Richard J & Joanne Evans, 2003. "Why did British electricity prices fall after 1998?," Royal Economic Society Annual Conference 2003 92, Royal Economic Society.
    2. Michael G. Pollitt & Lewis Dale, 2018. "Restructuring the Chinese Electricity Supply Sector – How industrial electricity prices are determined in a liberalized power market: lessons from Great Britain," Working Papers EPRG 1839, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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    More about this item

    Keywords

    British electricity supply; reforms; financing; renewables; tariffs; nuclear;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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