Andrew Sweeting, September 2000
The England and Wales wholesale electricity market is about to undergo major reform (NETA). I describe and analyse the proposed arrangements, contrasting them with those currently in operation. I argue that while NETA will remove one or two of the Pool’s problems, particularly by eliminating capacity payments, there is no reason to expect that it will significantly improve outcomes. Market power could continue to be a problem and, despite NETA’s attempt to decentralise the market, the complex rules of the centralised phase operating close to real time are likely determine the level of wholesale electricity prices. Future arrangements for transmission are also considered. I argue that, if generators have local market power, these may exacerbate rather than reduce current problems.