Panel expects three challenges for competitive electricity markets
Deregulating the electricity industry could reduce overall costs, but only if policymakers ensure that a few large firms do not control prices in the new markets, says a group of leading energy analysts in a new report.
The report, issued May 6 by the Stanford-based Energy Modeling Forum, is intended to advise legislators and others involved in creating new rules for electricity markets in various states, regions and countries. The 50-member group focused on the potential impact of regulatory changes that would affect how electricity is produced and transmitted to final customers. Discussion emphasized three key problems: control of market prices by industry participants, making transmission capacity more available and the environmental pollutants that are released by fossil fuels used for electricity generation.
The report warns that the rules should take into account that:
- In any market there will be
opportunities for one firm or a group of large firms to sustain
prices above the least-cost level. Such efforts are particularly
difficult to uncover when prices are volatile, as one would expect
with a more competitive industry.
- Consumers in one area could pay
substantially more for electricity than consumers only a few miles
away. This is because electricity prices should reflect not just
the differences in the costs of generating power but also the costs
of transmitting it. Transmission costs include the expenses of
power lost as heat through the wires and the added costs of trying
to use congested lines.
- If more coal is used and nuclear power plants are replaced, air quality could be degraded. If such an environmental impact occurs, it may not be long term, the report indicates. Some members of the forum expect net improvements in the environment if new natural gas plants are built and new renewable technologies introduced.
The conclusions are the result of 18 months of work by members of the Energy Modeling Forum, a group of energy analysts and advisers from academia, government and the energy industry who use computer models to understand important energy and environmental problems. Rather than trying to predict what future prices will be, the group used models to help them anticipate potential problems that may arise in the restructuring process.
"None of these problems are
insurmountable, but they do need to be addressed in designing
competitive markets," said Hillard Huntington, executive director
of the forum. SR