Increasing Competition in the British Electricity Spot Market

This paper models the effect of three policies that could increase the amount of competition in the electricity spot market in England and Wales. It uses a linear supply function model with asymmetric firms. The paper finds that the regulator's chosen policy, partial divestiture, should lead to a substantial reduction in deadweight losses. Splitting up the dominant firms would have more effect but is unlikely to be politically feasible, while encouraging competitive entry 'in advance of need' would tend to reduce welfare. Copyright 1996 by Blackwell Publishing Ltd.