Abstract

This paper presents an overview of the reasons why unregulated markets for production of electricity cannot be expected to invest sufficiently in generation capacity on a continuous basis. Although it can be shown that periodic price spikes should provide generation companies with sufficient investment incentives in theory, there are a number of probable causes for market failure. A likely result is the development investment cycles that may affect the adequacy of capacity. The experience in California shows the great social costs associated with an episode of scarce generation ...