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2012 | OriginalPaper | Chapter

2. Restructuring of Electricity Markets

Authors : Maria Kopsakangas-Savolainen, Rauli Svento

Published in: Modern Energy Markets

Publisher: Springer London

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Abstract

In this chapter we present and discuss the grounds and incentives of the deregulation and liberalization processes that have been carried out in many countries during the past few decades. We also assess the crucial factors which affect the potential successfulness of the deregulation and liberalization processes. We use the first international electricity market (Nordic power market) as an example to characterize and describe the restructuring process of the electricity industry. According to our assessment the success of deregulation and improved efficiency as a result of the restructuring process depends largely on six issues; on the number of active players; on the rules of bidding procedure in the wholesale market of electricity; on the organization and provided incentives of the demand-side management; on the neutral role of the transmission grid; on the mixture of production technologies; and finally on the ownership structure of the market participants.

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previous chapter Introduction
next chapter Modeling Energy Production System
Footnotes
1
Like, for example, nuclear power.
 
2
This is because power cannot be stored economically in significant quantities.
 
3
Averch and Johnson [4] analyze the effect of rate-of-return regulation in the USA. They show how it creates incentives to over-invest in relation to the social optimum. They also argue that the rate-of-return regulation provides no incentive to reduce costs.
 
4
Public ownership may be preferable when we deal with issues, such as coordination and restructuring, while private ownership may have comparative advantages considering the competition and self-centered objectives of the firm.
 
5
The costs of regulation may include direct costs and also the costs resulting from poorer incentives for efficient performance.
 
6
Deadweight losses may be due to the high prices, the social waste of entry-deterring activities, or the excessive entry caused by the high profits of incumbents (see, e.g., [39]).
 
7
At least in Norway, Sweden, and Finland.
 
8
The real-time dispatch refers to the real, implemented, sequence according to which different production units are utilized.
 
9
The merit order dispatch refers to the sequence, according to which different production units are utilized if cost minimization is used as a crucial argument. In other words, units are organized such that the unit that has the lowest marginal costs is utilized first, the unit that has the second lowest marginal costs is utilized next, and so on.
 
10
As in the British system.
 
11
Operated by the independent Nord Pool.
 
12
See Wolak [42] for evidence and more detailed discussion of volatile prices.
 
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Metadata
Title
Restructuring of Electricity Markets
Authors
Maria Kopsakangas-Savolainen
Rauli Svento
Copyright Year
2012
Publisher
Springer London
Book
Modern Energy Markets

Print ISBN: 978-1-4471-2971-4

Electronic ISBN: 978-1-4471-2972-1

Copyright Year: 2012

DOI
https://doi.org/10.1007/978-1-4471-2972-1_2