Problems and Progress
Edited by Colin Robinson
Chapter 4: Supply security in competitive electricity and natural gas markets
4. Supply security in competitive electricity and natural gas markets Paul L. Joskow INTRODUCTION Perhaps the most frequently expressed concern about electricity sector liberalisation reforms that I hear from government policy makers is that competitive electricity markets are not consistent with achieving acceptable levels of reliability or supply security. They point to rolling blackouts, voltage reductions and public appeals for emergency conservation in California, Ontario, Chile, New Zealand and Brazil, the network collapses in the eastern and western US, Italy and elsewhere, and what appears to be inadequate investment in new generation and transmission capacity to meet forecasts of ‘need’. This question is asked much less frequently with regard to liberalised natural gas markets. However, the decline in UK North Sea production and the expected increase in UK reliance on imports through interconnectors and liqueﬁed natural gas (LNG) shipments to meet future demand has led to similar questions being raised in the UK. Growing demand for natural gas, rapidly rising natural gas prices, disappointing supply responses in North America, and recent cold winter natural gas ‘shortage’ alerts in the northeastern US, are starting to raise similar questions in the US as well. The increasing use of natural gas to generate electricity has also led to increased interest in the implications for supply security of the resulting linkages between liberalised electricity and natural gas markets. Are there ‘supply security’ problems that result from the structure, behaviour and performance of liberalised electricity and natural gas markets, or the way that the...
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