UK Dereg Rethink?

Thatcher-era Britain provided the inspiration for the global effort to deregulate electricity markets, including Maryland’s 1999 reforms. Now the Brits are having a rethink.

When transmission, generation and distribution were broken up and privatized, a regulator called “Ofgem” was put in charge:

Energy experts said that the regulator’s proposals represented an “extraordinary volte-face”. Ofgem has been one of the biggest advocates of a liberalised energy market, arguing that companies could be left to build enough new power stations and low-carbon forms of generation to guarantee energy supplies and reduce carbon emissions.

But only a fraction of the estimated £200bn investment needed by 2020 has been made, because volatile energy prices, and the short-term supply contracts that have characterised liberalisation, have made spending such huge sums too risky.

Now Ofgem is recommending that energy companies receive guaranteed rates of return on the new plants they build.

Ogem’s consultation paper identifies a number of challenges that liberalization may not be able to meet such as needed new investment in generation and controlling carbon emissions.  The report acknowledges a key defect in the deregulation model:
Short term price signals at times of system stress do not fully reflect the value that customers place on supply security which may mean that the incentives to make additional peak energy supplies available and to invest in peaking capacity are not strong enough. (Page 2)
Perhaps Maryland could learn a lesson — or two — here.

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