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Depends on if you have a regulated or open electricity market. You describe a regulated market. On the other hand, Europe by and large operates on a marginal p
by Gwypaas 4y ago
Depends on if you have a regulated or open electricity market. You describe a regulated market.
On the other hand, Europe by and large operates on a marginal pricing open market with utilities providing the transmission grid and stabilization services.
In that market the investors take the losses. Unless huge state subsidies are brought out like Hinkley Point C leading to the government guaranteeing a strike price of $150/MWh over 35 years.
- fnordpiglet 4y agoRealistically consumer still pay for the utility as the marginal pricing must provide revenues sufficient and in excess of capital and operating costs, and a sufficient risk premium to investors. If consumers don’t like it, they won’t get the services. There’s an argument that a market model is more efficient, but there’s an equally plausible argument that utility models provide more stable pricing - and that end users of utility services prefer stability over efficiency. Thanks for the info though I wasn’t aware Europe was structured this way, but it does explain why costs have been so volatile.
- fsckboy 4y ago> Depends on if you have a regulated or open electricity market. You describe a regulated market. what's being described is a regulated natural monopoly, standard economics. No economist would recommend unregulated natural monopolies. marginal pricing would not pay for a transmission grid, and utility investors would not agree to build or maintain a grid without it being paid for. Marginal pricing refers to the cost of electricity given the grid, where there is no extra amount covering the cost of extra grid capacity.