Have we given up on competitive electricity markets?

Electricity market designs are very complex and have been getting more labyrinthine as a result of a dynamic policy environment in support of certain technologies. Policies differ, sometimes significantly, across jurisdictions and lead to a cycle of conflicts with attendant attempts to fix the market.

This current state of affairs poses an existential threat to competitive electricity markets. The fixes to energy and capacity markets are contentious and unsatisfactory to many market players. The financial health of merchant generators, especially those who do not receive any subsidies, are increasingly uncertain. Financial markets are looking at state subsidies and mandates to allocate capital to mitigate the risks associated with policy uncertainty. Industry surveys demonstrate the increasing concerns in the utility sector regarding policy and market uncertainty. All of these are pushing the industry away from the principles of competition and toward more planning.

The graphic below is an attempt to visualize the struggle between the least-cost achievement of societal objectives via competitive markets and the steamroller of uncoordinated policy. For details, see my recently published book at https://store.beg.utexas.edu/special-books/3777-us0007-net-social-cost-of-electricity.html.