Pool Reform and Competition in Electricity, forthcoming in M. Beesley (ed.), Lectures on Regulation Series VII, London, Institute of Economic Affairs

David M Newbery

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The market power of the incumbents means that average pool prices are set by the costs of entry. Reforms which raise entry costs will be proposed and should be resisted. Reforms to capacity payments may have little effect on prices, but could affect system security. The values of Value of Lost Load and Loss of Load Probability appear grossly incorrect, and if changed might affect reserve margins and allocation of investment. Transmission constraints and locational payments emerge as the most difficult and important cause for concern and least controlled by entry threats. Little reform is possible without primary legislation to change Pool governance radically.

Date: 1997-11
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