Are deregulation and integrated resource planning compatible? Experience from the United States and Norway with market approaches to utility planning

Dan W. York, MSB Energy Associates, Inc.

Abstract

Integrated resource planning (IRP) and deregulation are the foci of policy changes occurring in the electric utility industry worldwide. However, at some levels there are fundamemal conflicts between these approaches to resource allocation. IRP requires a certain degree of centralized decision-making and regulatory oversight. Deregulation promotes competition, which relies on decentralized decision-making by individuals.

This paper focuses on the compatibility of deregulation with the practice of IRP. The paper explores the question, "Can market approaches provide sufficient incentives to achieve optimal investment in demand- and supply-side energy resources from a societal perspective?" Deregulation in the U.S. has occurred to date only at the power generation level, although recent national legislation will introduce third-party transmission access for wholesale customers. Non-utility generation has grown rapidly in the U.S. as a result of deregulation, providing a cost-effective alternative to utility generation in many cases.

Norway has recently deregulated its electricity market at both the wholesale and retail levels. Deregulation in Norway has yielded cost savings for electricity supply, but the resulting market structure and conditions provide little incentive for investment in demand-side resources. The experiences with deregulation in the U.S. and Norway suggest that while market approaches can be effective for directing supply-side invest-ments, achieving similar results on the demand-side is more problematic.

Deregulation alone is not a solution to the problems of utility phuming. IRP still requires some degree of regulation to ensure that sufficient incentives exist to achieve an optimal mix of investment in demand-side as well as supply-side energy resources.