Working Paper: CEPR ID: DP1814
Authors: Richard Green; Tanga McDaniel
Abstract: Starting in 1998, the electricity market in England and Wales will be opened up to full competition, and all consumers will be allowed to choose their electricity supplier. This promises to result in lower prices, but there will be additional transactions costs exceeding £100 million a year for the first five years. Relative to a counterfactual without competition, there are likely to be large transfers from electricity companies (and the coal industry) to consumers, but the companies lose more than consumers gain. This conclusion might be reversed, if competitive pressure leads to significant additional cost savings in the future.
Keywords: electricity; regulation; restructuring; competition
JEL Codes: L94
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition (L13) | Lower prices for consumers (D49) |
| Competition (L13) | Cost savings for the industry (L99) |
| Lower prices for consumers (D49) | Consumer surplus increases (D11) |
| Competition (L13) | Losses for RECs, generators, and coal industry (L94) |
| Transaction costs (D23) | Net benefits of competition (L13) |
| Yardstick regulation (L51) | Better welfare outcomes (I31) |
| Competition (L13) | Need for careful monitoring (E63) |