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Boom and Bust in Power Plant Construction: Lessons from the California Electricity Crisis

Boom and Bust in Power Plant Construction: Lessons from the California Electricity Crisis This article argues that competitive electricity markets are prone to the same cycles of boom and bust that appear in commodity markets and in a specialized industry like real estate. The article then demonstrates how boom and bust might appear in the western electricity system using computer simulation. A “business as usual” simulation shows that the west might be at the crest of a building boom and on the verge of a bust in wholesale prices. Without fundamental changes in the wholesale markets, the next construction boom would come too late to prevent a decline in reserve margins and the reappearance of price spikes. If we continue with the current market structure, we run the risk of exposing the western electricity markets to another round of reliability alerts and price spikes. The article concludes with suggestions for alternative market structures in California and a discussion of whether these suggestions apply to other countries engaged in electricity restructuring. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png "Journal of Industry, Competition and Trade" Springer Journals

Boom and Bust in Power Plant Construction: Lessons from the California Electricity Crisis

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References (24)

Publisher
Springer Journals
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Economic Policy; R & D/Technology Policy; European Integration; Microeconomics; International Economics
ISSN
1566-1679
eISSN
1573-7012
DOI
10.1023/A:1020826920972
Publisher site
See Article on Publisher Site

Abstract

This article argues that competitive electricity markets are prone to the same cycles of boom and bust that appear in commodity markets and in a specialized industry like real estate. The article then demonstrates how boom and bust might appear in the western electricity system using computer simulation. A “business as usual” simulation shows that the west might be at the crest of a building boom and on the verge of a bust in wholesale prices. Without fundamental changes in the wholesale markets, the next construction boom would come too late to prevent a decline in reserve margins and the reappearance of price spikes. If we continue with the current market structure, we run the risk of exposing the western electricity markets to another round of reliability alerts and price spikes. The article concludes with suggestions for alternative market structures in California and a discussion of whether these suggestions apply to other countries engaged in electricity restructuring.

Journal

"Journal of Industry, Competition and Trade" – Springer Journals

Published: Oct 12, 2004

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