The strength of the article diminishes as a result of the focus of the authors on the environmental consequences of a liberalized electricity market. I do realize that this is perhaps a small part of the point the authors try to make, but with regard to the consequence for the environment its quite pivotal.

Authors state that liberalized electricity markets contribute to a decline of the environment as a result of congestion management through the use of coal fired power plants. However, I would like to state that a liberalized electricity market (at best) contributes to the environment, since plants which are used for congestion management are gas fired power plants. According to a study from the Dutch Technical University in Delft for the Ministry of Economic Affairs in 2009, the startup time of a coal plant is at least six hours. This lead-time is too long in order to execute a satisfactory congestion management. Gas fired power plants of Steam and Gas fired power plants have a startup time of, respectively, less than one hour and two hours. Moreover, electricity derived from wind can be 100% online is less than one minute.

Above stated figures display that deregulation of the electricity market may have drawbacks, as pointed out in the article by Beneyto and Vantyghem , but is not detrimental to the environment per se. This may be regarded as a foot note to some, but with the continuously increasing attention to the environment in Europe and throughout the world, I deem this relevant.

First, if creating truly competitive wholesale markets is a challenge in places like Europe and California that enjoy the flexibility of significant gas generation capacity, it is that much more difficult in countries without much gas generation (like China) and in countries with winter peaks where much of the gas capacity is in combined heat and power plants that are not going to be shut down in response to electricity price movements (like Russia).

Second, the good advice to consider a broad set of options for structuring electricity markets applies fully to other infrastructure sectors as well. In freight rail, for example, the restructuring model urged by pro-market reformers has tended to include at least third party access but usually gone all the way to full vertical separation. We have seen in the Americas — not just the US and Canada but also Argentina, Brazil, and especially Mexico as well — that restructuring that focuses on creating competition among vertically integrated freight rail enterprises may be a quite viable pro-market alternative — able to simultaneously avoid the costs of monopoly supply and the costs of vertical separation.

However, it is important to avoid being labelled as “anti-competition” and “anti-market”. This is the stock response of those who have expended enormous intellectual effort to apply their belief in the virtues of full competition in electricity and natural gas. It makes sense to recognise that the PJM market seems to work and that effective, and efficiency-generating, competition exists at the wholesale level in the US natual gas market. (The so-called “competition” we see in the EU and other markets is not generating these efficiencies and, by definition, is not competition.)

As a result, it is also important to understand the specific institutional, regulatory and administrative arrangements that have generated these outcomes in the US and to see to what extent they may be replicated in other jurisdictions.
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Finally, i believe it is not sufficient to focus exclusively on the shortcomings of the current market liberalisation process in the EU and elsewhere – important and all as this is. It will be necessary to expend effort to identify viable and efficiency-generating alternatives to the current “conventional wisdom”. I would be more than pleased to associate with other like-minded people in this effort.

Having seen a bit of the California design process up close and the internal workings of FERC, I would say that ideology and hopes for an advantageous position in a poorly designed market have been the major drivers of deregulation.

Had the process been driven by solid economic analysis, I think we would have found room for more competition in the procurement of power from private generators, but this would have been done by the old regulated utilities. Also trade between utilities would have continued to expand.

But almost all of the complexity serves no real purpose, and when the potential gains from ideal markets are calculated they prove to be quite small. Likely they are swamped by the cost of the increased risk premiums, which will be inevitable in even the best electricity markets for decades to come. [Yes, I agree, someday demand will be so elastic that competition could work efficiently, and engineers will no longer need to worry about reliability.]

Enormous amounts of intellectual energy have been poured into designing markets that can work in real time when the demand side of the market is not priced in real time. And most of this energy has been expended by people who do not well understand basic economics. I have had two of the top people in this field argue that hedging cannot reduce risk–only shift it. They did not know why farmers sell wheat futures to bakers. This matters since their arguments are based on risk shifting. Many others have argued that risk is a benefit. One of them (a professor at a top university) has argued that more risk should be imposed on consumers, so that generators can sell them insurance. This is just a protection racket. One honest owner of a generator in Australia explained how he had actually done this and it worked quite well. Truly, the emperor has no clothes.