Restructured Electricity Markets: Competition and Regulation with Environmental and Development Goals

Before the nineties, electricity markets all around the world were dominated by vertically-integrated, monopolistic utilities. During the eighties/nineties, many countries initiated a process of privatization and liberalization of the electricity sector.

An abundant literature had studied this new scenario with the presence of private companies using different approaches and methodologies. However, starting in the 2000s when many countries consolidated the liberalization reforms, two new concerns appeared. First, due to the mismatch between long-run and short-run costs in competitive markets, in many countries there was a problem of underinvestment in capacity. Second, there are also environmental concerns. These two concerns have arisen also in many developing countries, where the electricity sectors are (typically) publicly-owned and controlled by vertically-integrated monopolies. In these countries, these two concerns have worsened for two main reasons. First, due to the lack of political, economic and social stability, investment in capacity is (even) less profitable. Second, because generating electricity using “green” technologies is often more expensive than generating electricity from fossil. The goal of this research project is to delve into multiple aspects of electricity markets, with a specific emphasis on the challenges of the liberalization process regarding regulatory issues, and having in mind the aforementioned environmental goals. Moreover, this project aims to study these issues also in developing countries, in the light of the well-known Sustainable Development goals (proposed by the United Nations).

Contributors: Raúl Bajo Buenestado (NCID)

Financing: Fundación Ramón Areces