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Regulatory Challenges to European Electricity Liberalisation

David M Newbery ()

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

Abstract: The European Commission proposed to reform the Electricity and Gas Directives to improve access to transmission, increase cross-border capacity, and fully open the electricity and gas markets. The California electricity crisis has weakened support for liberalisation, removed the commitment to full market opening, and raised concerns over supply security. Providing adequate reserve capacity is risky in a competitive wholesale electricity market without suitable contracts, and unattractive to oligopolists unless they face a credible entry threat from IPPs. Ending the domestic franchise could remove the counterparty for the contracts required for adequate investment to sustain competitive pricing. Gas liberalisation is key to making electricity markets contestable and reducing pressures on scarce electricity interconnection capacity. Environmental concerns increase uncertainty and further deter entry, while raising other policy issues that need to be addressed. Compared to the US, much of the EU lacks the necessary legislative and regulatory power to mitigate generator market power. Unless markets are made more contestable, transmission capacity expanded and adequate generation capacity ensured, liberalisation may lead to higher prices.

Keywords: Competition; regulation; electricity; contracts; market power (search for similar items in EconPapers)
JEL-codes: K23 L51 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-eec, nep-ene, nep-law and nep-rmg
Date: 2002-10
Note: CMI IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

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