Simulating the Danish Electricity Reform

Abstract:

A reform of the Danish electricity sector was decided in the spring 1999. One main purpose of the reform was to increase the efficiency in the electricity sector by introducing competition where possible and to regulate where necessary. Another main purpose was to ensure reductions in emissions of CO2 from electricity production. In this paper I carry out an analysis that reveals several weaknesses in the reform. Some elements are either not necessary, other are not sufficient for achieving the targets. These elements create a risk of inefficiencies and that the purposes of the reform will not be met. Simulations of the reform with the Elephant model show that some of the less appealing elements will indeed imply inefficiencies, especially in achieving the environmental target. Several elements of the reform have not yet been developed in details. These details can have a large influence on the result.