Political Economy of Regional Political Economy of Regional Power Markets Power Markets Testing Testing Times in the Nordic Power Times in the Nordic Power Market Market by by Kjell Roland Kjell Roland Energy Lecture May 11, 2005 Energy Lecture May 11, 2005 ECON
44
Embed
Political Economy of Regional Power Marketssiteresources.worldbank.org/.../Resources/4114199-1244488556798/NordicPowerMarket.pdfPolitical Economy of Regional Power Markets Testing
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Political Economy of Regional Political Economy of Regional Power MarketsPower Markets
TestingTesting Times in the Nordic Power Times in the Nordic Power MarketMarket
bybyKjell RolandKjell Roland
Energy Lecture May 11, 2005Energy Lecture May 11, 2005
ECON
AgendaAgenda
TheThe unique Scandinavian storyunique Scandinavian story
Regulation by Regulation by court court or by or by common sensecommon sense
Restructuring Restructuring and and company strategiescompany strategies
InvestingInvesting to to secure supplysecure supply
An overstretched An overstretched policy policy agendaagenda
Future of Scandinavia Electricity IndustryFuture of Scandinavia Electricity Industry
The unique Scandinavian storyThe unique Scandinavian story
1991 1996 1995
1998
199619981999-2000
Unleashing competitionUnleashing competitionWhole sale to end user price pass through
Back to square one!• Vertical integration • Gas & Power - if possible• Across borders to diversify
regulation risks• Energy Intensive Industry: The
complete U-turn
AgendaAgenda
TheThe unique Scandinavian storyunique Scandinavian story
Regulation by Regulation by court court or by or by common sensecommon sense
Restructuring Restructuring and and company strategiescompany strategies
InvestingInvesting to to secure supplysecure supply
An overstretched An overstretched policy policy agendaagenda
Future ofFuture of ScandinaviaScandinavia Electricity IndustryElectricity Industry
InvestmentInvestment and and continuitycontinuity ofof supplysupply
IsIs therethere a problem?a problem?
Liberalization with surplus capacity works – but when surplus capacity has eroded …
• Will a pure energy market ensure efficient investment– or are special mechanisms needed?
• Will volatile and high prices attract political/regulatory interventions that distort market price signals?
• Is electricity different from other commodities?– Long lead-times in new capacity– Environmental externalities– Balance market in real-time– Physical constraints & interdependence
PricesPrices-- towards towards full full costscosts? ? Text book perception: Market based prices gravitate around full costs
Textbook expectations Time
Pric
e
Source: ECON
Historical prices
Assumed trend towardslong run marginal cost
Assumed long run marginal cost
... or ... or commodity price cyclescommodity price cyclesStrong cyclical price patternsInvestment booms and busts
Commoditymarket
Price
Time
Cost of new capa-city
Turn in business cycleSurplus capacityInvestment
boom
Investmentbust
Turn in business cycle Capacity deficit
Investmentbust
Investmentboom
Market Market priceprice & & investment costinvestment costInvestment in CCGT unprofitable in Scandinavia • CCGT was profitable in UK, but prices have declined
Political economy of the Political economy of the Nordic regionNordic region
Present Nordic Challenges: • Energy/environment policy hard to move beyond nation
states• - and politics wants far more than what is feasible, (some)
politicians understand but are not able to cope. NIMBY between governments the easy way out
• Investment in capacity – politically controlled in detail, and no commercial options attractive at the present
• Peak capacity – how to modify a pure energy market• Energy intensive industries down the drain?• Co-ordination of regulators and TSO’s – not easy
• US – the mother of regulation of infrastructure industries, so far not the star performer• The EU IEM benchmark report: not much competition 15 years after the first White Paper• European Energy Intensive industries and households: what happend to those who promissed increasing efficiency and lower prices?• Security of supplies - not provided by the market but needs to be regulated into the market
Liberalisation: Liberalisation: What have we learned?What have we learned?
Not just another commodity• Competition in electricity – not a natural point
of gravity, but a very demanding regulatory and policy proposition
• Reliability and security of supply – a must far more important than market
• Policy agenda complicated and inconsistent, and market based electricity not on top of agenda any more
• Market based electricity - not a unique/ well defined animal, but varies between countries and over time
InsightsInsights: system design: system design• Pragmatic, adaptable and flexible
regulatory regime - no perfect solution exist but avoid the US legalistic approach
• Investment – the Nordpool set up overemphasise operational efficiency in a mature system, more attention needs to be paid to secure investment and bying down investors risks
• Regional co-operation between vertically integrated unbundled government owned utilities much easier to set up and far more robust than the energy only Nordpool in an unbundled environment
TheThe questionquestion is not market is not market -- orornot market,not market, but what kindbut what kind of of -- and and how muchhow much marketmarket