A long term theme in this blog has been the exploration of markets and governance in the power sector. For most of the last 30 years the dominant paradigm, largely controlling public debate, has been an idealised model of competitive markets, private ownership, and the complete absence of any form of state planning. The UK was for a long time seen as the exemplar, the model that Brussels encouraged other EU countries to pursue, and a model that was promoted by the World Bank in its work in developing economies.
The reality has been somewhat different. In practice many EU countries, most notably France, were extremely reluctant to follow the UK model. The World Bank has become much more sceptical of the value of its privatisation mantra. There have been catastrophic failures in some of the exemplars of this neoliberal model, such as ERCOT in Texas. In the UK, although lip service has continued to be paid to the market ideal, the pendulum has swung back to more and more emphasis on state coordination and almost every aspect of investment decision taking in generation has been heavily influenced by government, whether through guaranteed feed-in tariffs or underwriting of long term contracts.
There are many reasons for this gradual reversion to a historical norm, in which the sector is dominated by vertically integrated and regulated monopolies, public or private, and requiring careful coordination. These include:
· the imperatives for a low carbon economy, and the absence of adequate market signals to drive that
· the fact that low carbon generation is not really compatible with the kind of market rules that were appropriate to fossil generation
· the close coordination required in low carbon systems to ensure both a balanced mix of investment and efficient and reliable operation
· conventional financing issues around infrastructure and long-lived assets
· perceived failures of reliance purely on markets to deliver acceptable outcomes
The result, however, has been the rise of state coordination and the decline of reliance on markets. This theme is explored in a recent piece by myself and Jose Maria Valenzuela, which, for the next 50 days or so, can be reached via the link below.
Jose has injected a social science perspective, and we combined partly as a result of our mutual collaboration in the Oxford Martin School Integrate programme. An interesting reminder for economists was the observation that monetarism persisted for so long because early failures were interpreted as success. Similar factors were evident in the energy sector.
https://authors.elsevier.com/a/1g6Qe7tZ6ZxRYB
Energy Research & Social Science. December 2022,
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