Excess Entry in the Deregulated Queensland Power Market

Paul Simshauser ()

Economic Analysis and Policy, 2001, vol. 31, issue 1, 73-92

Abstract: When Queensland's electricity industry was deregulated in 1998, it faced supply shortfalls. Since then, a substantial number of new capacity proponents have emerged. If all proposed projects were to proceed as planned, reserve plant margin would rise from an acceptable 30 per cent to about 100 per cent, representing excessive oversupply. Incumbents appeared to follow strategies typically associated with the theory of barriers to entry, viz. limit pricing and creating excess capacity. However, it would seem that such strategies have failed, with new entrants continuing to emerge. The mix of plant entering the market is likely to comprise predominantly low-cost, inflexible baseload plant. The initial consequences are likely to be intense supply-side price competition, which will provide windfall gains to consumers, while producers (viz. debtholders and bondholders) incur extensive losses, at least until a number of incumbent plants and adjoining mines are closed down, which will have its own welfare implications.

Keywords: Electricity; Entry; Pricing (search for similar items in EconPapers)
JEL-codes: L11 L94 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (4)

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