In a new blog, John Rhys sets out his view that we may be seeing the end of market fundamentalism in the GB energy sector.
Following the complex and innovative restructuring of the UK power sector in 1990, in which all investment choice was driven by a “liberalised” structure of markets and governance, the wheel has turned full circle.
This is because the UK government has resumed its role as the prime decision maker on new generation investment, and because nothing substantial is built without a long-term contractual commitment on off-take that only government or a regulated monopoly can provide. Government has become the de facto “central buyer”.
This is in the context of governments around the world dealing with massive market failures, or potential failures, in critical parts of the economy and society. For power, the new situation simply follows the logic of a return to a more planned and coordinated power sector by explicitly extending this role to transmission. Since transmission investment is frequently an alternative to additional generation capacity (most obviously with international interconnection), this seems entirely logical.
To understand how and why, even with successive governments as the most enthusiastic promoters of theoretical “free market” philosophies, we have got to this position, we need to look at some of the basics of power sector and infrastructure economics, and also the challenge facing us with regard to climate change, and the climate policy imperatives.
Read more here.