Electricity Reform : Power Generation Costs and Investment

This booklet considers the impact of electricity market reform on power generation costs and investment. Governments throughout the OECD are restructuring their electricity supply industries, reducing the direct role of the state and introducing competition. These changes are designed to increase the economic efficiency of electricity supply and to lower prices for consumers. Maintaining adequate investment in new generation capacity is another important objective. The study concludes that market reform is likely to lead to reduced generation costs. Reformed systems should also preserve system reliability and adequacy of investment. Although the introduction of competition in electricity supply is relatively new, preliminary results show that reform brings pressure to reduce investment and operating costs. The increased transparency of public policy objectives and costs, combined with the fact that greater risks are allocated to investors is an important factor in reducing costs. If the new competitive market is effectively regulated and if it allows customers to make their own choices about supply and reliability, adequate investment will continue and security of supply can be maintained. This is one in a series of short publications by the IEA on energy market reforms.