Reliability and Competitive Electricity Markets

Paul Joskow and Jean Tirole

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

Abstract: Deregulation of the electricity sector has resulted in conflict between the economic aims of creating competitive wholesale and retail markets, and an engineering focus on reliability of supply. The paper starts by deriving the optimal prices and investment program when there are price-insensitive retail consumers, and their load serving entities can choose any level of rationing they prefer contingent on real time prices. It then examines the assumptions required for a competitive wholesale and retail market to achieve this optimal price and investment program. The paper analyses the implications of relaxing several of these assumptions. First, it analyses the interrelationships between regulator-imposed price caps, capacity obligations, and system operator procurement, dispatch and compensation arrangements. It goes on to explore the implications of potential network collapses, the concomitant need for operating reserve requirements and whether market prices will provide incentives for investments consistent with these reserve requirements.

Keywords: electricity; regulation; incentives (search for similar items in EconPapers)
JEL-codes: L33 L51 L98 (search for similar items in EconPapers)
Pages: 51
Date: 2004-10
New Economics Papers: this item is included in nep-com, nep-ind, nep-lam and nep-reg
Note: CMI, IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Reliability and competitive electricity markets (2007)
Working Paper: Reliability and Competitive Electricity Markets (2007)
Working Paper: Reliability and Competitive Electricity Markets (2004)
Working Paper: Reliability and Competitive Electricity Markets (2004)
Working Paper: Reliability and Competitive Electricity Markets (2004)
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