Working Paper: CEPR ID: DP3010
Authors: Richard Green
Abstract: 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.
Keywords: electricity markets; hedging contracts
JEL Codes: L94
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Abolition of centralized spot markets (D49) | Market power issues in England and Wales (L43) |
| Market power issues in England and Wales (L43) | Inappropriate pricing and regulatory blockages (D49) |
| Market power (L11) | Prices above competitive levels (D49) |
| Absence of hedging contracts (G13) | Market power problems in California (L97) |
| Market power problems and tightening demand-supply balance (D43) | Crisis in California (H12) |
| Lack of hedging contracts (G13) | Inability to mitigate rising spot prices (D49) |
| Market structure (centralized auction without hedges) (D44) | Failures observed in electricity markets (L94) |