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Electricity supply security: Cost efficiency of providing security and diversified consumer level

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Keywords
  • H4 - Publicly Provided Goods
  • Q41 - Demand And Supply
  • L94 - Electric Utilities

Abstract

Security of supply in electricity is questioned in liberalised markets as it is often characterised as a public good. We examine if this can be modified allowing for creation of security markets, which can be justified by welfare gains. From a welfare perspective it is possible that security levels are too high and obtained with too high costs. An efficiency improvement might be to adjust the effort so that marginal cost for securing supply are at similar levels in generation capacity and in network maintenance. Secondarily, a consumer defined level of security might improve welfare. Finally, different willingness to pay among customers and construction of advanced markets might increase welfare further.

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