Economic Policy Making for Energy Markets

Challenges

• Have MBAs/social scientists and engineers work together

• Engineer: I want to build the best gadget• Economists: Only build it of the benefits

outweigh the costs• Acknowledgement: EPRG

Economic Challenge

• Design/engineer a social system (i.e. policies) such that individual decisions will produce the desired outcome (e.g. reduce CO2 emissions).

• Examples of systems:– European emissions trading– Feed-in tariffs– Network regulation (my topic)

Energy Policy Objectives

• Reliable/consistent policy (security of supply)– In South Africa bad policies led to insecure supply

• Low carbon (allow wind farms to connect to network)

• Low cost (competition between generators)• Reliable energy (provide a return for

investment).

UK Challenge

• Consistent policy:– Politicians want particular system (markets) AND

particular outcome (more renewables) which leads to investment uncertainty.

– Devise policies that take advantage of UK renewables potential.