Will California come to Europe? A Numerical Simulation

Byline: Mark Lijesen (1), Hein Mannaerts (2), Machiel Mulder (2) Keywords: electricity; liberalization; service reliability Abstract: We discuss under what conditions California's electricity crisis may happen in Western European countries, taking The Netherlands as an example. We use a simulation model containing the electricity generation and distribution sector. We simulate exogenous events, such as a sudden shift in demand levels, a sharp rise in world fuel prices and a cutback in foreign supply. We use the model to investigate whether supply remains secured under different regulatory regimes. Our results suggest a trade-off between controlled prices and security of supply. Europe's electricity supply security is vulnerable if prices are not allowed to reflect scarcity. If prices are unrestricted however, they will reach oligopoly levels. Author Affiliation: (1) Department of energy and raw materials, CPB, Netherlands Bureau for Economic Policy Research, USA (2) Department of energy and raw materials, CPB, Netherlands Bureau for Economic Policy Research, USA Article History: Registration Date: 12/10/2004