POWER MARKETS AND MARKET POWER

Privatization was intended to make the English bulk electricity market sufficiently competitive to avoid the need for regulation, but two generators set the spot price over 90% of the time though they supply less than 60% of total electricity generated. Their market power depends on their share of non-baseload plant, and agreed divestiture here should increase competition. The paper argues that the contract market, which makes entry contestable, will ensure that long-run average prices are kept at the competitive entry level, with increased competition mainly increasing medium-run volatility and short-run economic efficiency.