Abstract
The authors produce a baseline scenario for long-run trends and short-run dynamics in domestic electricity markets based on trend analysis of energy input prices and then compare actual price paths in wholesale electricity markets for the early twenty-first century to the baseline. Deviations from the baseline scenario are explained in terms of market design, network externalities, and exogenous shocks to input and output markets. The authors’ key finding is that institutional design is far more important in the price discovery process than is often recognized and that the ‘financialization’ of domestic energy markets has had an unintended impact on wholesale electricity prices that may explain levels of perceived volatility and the absence of noticeable price trends affecting those markets.
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