The role of centralised coordination in electricity markets

It is well accepted that markets are the most effective arena for organising productive activities. In the liberalisation of electricity sectors the role for government was envisioned as that of the “night watchman” that intervenes in the market only when the latter fails to allocate scare resources efficiently or when the operation of the market leads to a net welfare loss. In practice, however, due to the presence of various market imperfections and design issues, the post-liberalisation era has been accompanied by a rise in the intervention of governments in the market. This has been exacerbated by decarbonisation policies rising higher up the agenda of policy makers. This paper asks two simple but fundamental questions: what is the role of centralised coordination (reflecting government decisions) in electricity markets?  What interventions are justified and how should they be designed and implemented?

By: Rahmat Poudineh

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