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Faculty of Economics

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Newbery, D.

What future(s) for liberalized electricity markets: efficient, equitable or innovative?


Abstract: Well-designed electricity liberalization has delivered efficiency gains, but political risks of decarbonizing the sector have undermined investment incentives in energy-only markets, while poorly designed regulated tariffs have increased the cost of accommodating renewables. The paper sets out principles from theory and public economics to guide market design, capacity remuneration, renewables support and regulatory tariff setting, illustrating their application in a hypothetical high capital cost low variable cost electricity system in "Andia" that resembles Peru. Such characteristics are likely to become more prevalent with increasing renewables penetration, where poor regulation is already threatening current utility business models. The appendix develops and applies a method for determining the subsidy justified by learning spillovers from solar PV.

Keywords: Electricity market design, tariffs, renewables support, utilities

JEL Codes: D44 L51 L94 Q40 Q48 Q51

Author links: David Newbery  


EPRG Paper Link: 1705

Open Access Link: