Market failure in generation investment? The Dutch perspective

Abstract

This paper considers the long-term effects of liberalisation upon investment in generation capacity. The analysis starts with a review of the question whether liberalised electricity markets may not provide sufficient incentive to invest in generation capacity. A theoretical analysis of investment in generation capacity is followed by an assessment of practical factors which impact investment. While in theory markets provide an optimal amount of generating capacity, in practice the investment equilibrium may be easily disrupted. The analysis is concluded by a review of a number of solutions. The paper concludes with a description of how generation investment is being monitored in the Netherlands.