Are markets reducing the cost of electricity generation relative to command-and-control regulated
dispatch? This study from the University of Chicago answers this question.
The study finds that markets reduce the cost of generating electricity by about $3 billion per year through increased efficiencies and coordination both within and across areas.
By using the lowest-cost plants 10% more often, markets reduce the costs from using uneconomical units by 20% per year. Additionally, the cost reductions from trading electricity across regions increases by 20% per year.
The report concludes: “As policymakers are faced with the question of whether the de-regulation of electricity markets should be expanded or scaled back, these findings suggest the benefits realized by more efficient allocation of output though market-based dispatch have far outweighed any imperfections in the market system.” 1/26/2017