The Trouble With Electricity Markets: Understanding California's Restructuring Disaster | Zendy

Severin Borenstein | Zendy

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The Trouble With Electricity Markets: Understanding California's Restructuring Disaster

Author(s) -

Severin Borenstein

Publication year - 2002

Publication title -

the journal of economic perspectives

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 9.614

H-Index - 196

eISSN - 1944-7965

pISSN - 0895-3309

DOI - 10.1257/0895330027175

Subject(s) - electricity , restructuring , electricity market , electricity retailing , economic shortage , economics , supply and demand , mains electricity , production (economics) , supply , business , natural resource economics , electricity price , market economy , industrial organization , commerce , power (physics) , microeconomics , finance , engineering , linguistics , philosophy , physics , quantum mechanics , government (linguistics) , electrical engineering

In June 2000, after two years of fairly smooth operation, California's deregulated wholesale electricity market began producing extremely high prices and threats of supply shortages. The upheaval demonstrated dramatically why most current electricity markets are extremely volatile: demand is difficult to forecast and exhibits virtually no price responsiveness, while supply faces strict production constraints and prohibitive storage costs. This structure leads to periods of surplus and of shortage, the latter exacerbated by sellers' ability to exercise market power. Electricity markets can function much more smoothly, however, if they are designed to support price-responsive demand and long-term wholesale contracts for electricity.

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