Skip to main content
Article thumbnail
Location of Repository

Reliability and Competitive Electricity Markets

By Paul Joskow and Jean Tirole

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

Topics: Classification-JEL: L33, L51, L98, electricity, regulation, incentives
Publisher: Faculty of Economics
Year: 2006
OAI identifier: oai:www.repository.cam.ac.uk:1810/131576
Provided by: Apollo

Suggested articles


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.