Electricity Markets and Energy Security: Friends or Foes?

28 Pages Posted: 13 Nov 2007 Last revised: 12 Nov 2014

See all articles by Tim Brennan

Tim Brennan

University of Maryland, Baltimore County - Department of Public Policy; Resources for the Future

Date Written: November 1, 2007

Abstract

For a host of economic, geopolitical, and environmental reasons, the security of energy supplies has moved to the forefront of U.S. policy concerns. Here, I address the extent to which the U.S. electricity sector is affected by these factors and, in turn, whether increased electricity competition exacerbates them. After defining four dimensions of energy security that might pertain to electricity, I examine the role of global energy markets on that sector. Oil is currently used to generate only a small fraction of U.S. electricity supplies, although as recently as the late 1970s it generated about one-sixth of the total. Oil markets can affect electricity indirectly via substitution with natural gas. Competition in electricity markets should improve energy security by adding redundancy, but competition is threatened by unanticipated price increases, peak-load management, and risks associated with separating competitive generation from regulated transmission and distribution. Other complications include residential aversion to competition, residual market power, and the aspiration to reduce demand through conservation policies. The central security issue has been and remains the degree of conflict between competition and central control necessary to maintain reliability of the grid.

Keywords: electricity markets, electricity market restructuring, energy policy, energy security

JEL Classification: L94, Q48, L51

Suggested Citation

Brennan, Tim, Electricity Markets and Energy Security: Friends or Foes? (November 1, 2007). RFF Discussion Paper No. 07-46, Available at SSRN: https://ssrn.com/abstract=1029378 or http://dx.doi.org/10.2139/ssrn.1029378

Tim Brennan (Contact Author)

University of Maryland, Baltimore County - Department of Public Policy ( email )

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