DP3010 Failing Electricity Markets: Should we Shoot the Pools?

Author(s): Richard Green

Publication Date: October 2001

Keyword(s): electricity markets , hedging contracts

JEL(s): L94

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP3010.asp

This Paper discusses the electricity reforms in California and in England and Wales. In both cases, a centralized spot market played a major role, and both markets have now been abolished. This Paper argues that their disappearance is not evidence that future electricity restructuring should avoid the use of spot markets. Instead, the problems in England and Wales were largely due to market power. In California, problems arising from market power and a tightening demand-supply balance were turned into a disaster because the spot market had not been backed up by hedging contracts.