A Cross-country Comparison
Edited by Jean-Michael Glachant and Dominique Finon
Chapter 3: Reforming the Reform in the Electricity Industry: Lessons from the British Experience
Carine Staropoli The Electricity Pool of England and Wales, created in 1990, was one of the ﬁrst organized wholesale electricity markets, and has performed satisfactorily in some, but not all respects. Its main achievements include maintenance of security and quality of supply, ease of entry by new generators and the introduction of competition in supply. However, it soon became the focal point of the criticisms aimed at electricity deregulation in England and Wales, and in October 1997 the Minister for Science, Energy and Industry asked the Director-General of Electricity Supplies to consider how a review of electricity trading arrangements might be undertaken. The design of the Pool has been an issue since the very beginning; those who designed it knew that they had not designed the perfect market, if indeed one exists. The main area of concern has been the Pool’s inability to prevent market power abuse, and many diﬀerent forms of strategic behaviour have been observed, revealing that it is relatively easy to game the rules of the Pool. The dominant heat generators (also the incumbents), namely National Power and PowerGen, were found to have used their positions of market power to increase Pool prices by signiﬁcant amounts in certain periods, when other market conditions and cost trends should have taken them downwards instead. In addition some generators, sometimes even small ones, have exploited ‘local market power’ in the congested areas,1 others have manipulated their forward contractual positions (especially by undercontracting in forward markets) in order...
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