Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA

Fabien Roques (), David M Newbery and William Nuttall

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

Abstract: Three years after the controversial change of the British market design from compulsory Pool with capacity payments to decentralised energy-only New Electricity Trading Arrangements (NETA) market framework, we compare the two designs in terms of investment incentives. We review the biases of the Pool capacity payments design, the drought of investment following the introduction of NETA, and the reaction of the market during the first “stress-test” of NETA during the winter 2003. In an energy-only market such as NETA, it is essential that price signals are right and the system operator has a crucial role in contracting ahead for reserve. We recommend that NETA adopt a single marginal imbalance price as dual imbalance pricing distorts price signals in times of scarcity. The lack of long-term contracting that causes hedging and financing difficulties for power projects can be compensated by vertical and horizontal reintegration at a cost of increased market power.

Keywords: investment; electricity; market design; capacity payments (search for similar items in EconPapers)
JEL-codes: D24 D43 D92 L94 (search for similar items in EconPapers)
Pages: 51
Date: 2004-10
Note: CMI, IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA (2004)
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