Security of supply in electricity markets: Improving cost efficiency of supplying security and possible welfare gains

In liberalised markets the ability to maintain security of electricity supply is questioned because security is characterised as a public good. We discuss if this property can be modified with changing technology. Furthermore, we examine if construction of markets for security can be justified by possible welfare gains.

From a welfare perspective it is possible that security levels are too high and obtained with too high costs. Adjusting the effort so that marginal cost for securing supply is at similar levels in generation capacity and in network maintenance could increase welfare even without the need to construct markets.

Secondarily, a consumer defined average level of security might improve welfare. Finally, different willingness to pay among customers and construction of advanced markets might increase welfare further. We argue that several cost and welfare improvements can be achieved without constructing complete markets for security. © 2012 Elsevier Ltd.

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