Reported in The Daily Telegraph by Jon Swaine 22 Dec 2008, Steve Holliday, National Grid chief executive, said that Britain faces a severe shortage in power generation due to crumbling coal and nuclear plants being taken out of service and that the Government needs to cause the investment of Pounds 100 billion in new power plant.

This is the legacy of the deluded economic “thinking” of the Thatcher era which instituted the not widely admired market for electricity which was supposed to use market signals of supply and demand to cause an optimal delivery of the cheapest sources of power.

The nebulous market concept, beloved of economists was supposed to replace the collected wisdom and expertise of highly trained and experienced planning engineers and their years of technical and engineering knowledge with the simple interplay of market forces.

It doesn’t take much thought to see that markets, whilst maybe good for soft drinks and cans of beans, cannot deliver optimal solutions in the area of electricity supply – it is in the interests of participants to ensure there is always incipient shortage of generation assets since this puts the price up due to scarcity. Why would a participant want to build a plant if it knows it will lower the price of its output, and that its competitors (in name only) might build the same plant and cause a yet further lowering of price? The timing mismatch of build cycles and market cycles will always create a discontinuity – ie the likelihood of blackouts unless managed by intelligent central planning.

The same stupid over application of this discredited market theory is now expected (by people imbued with the same kind of thinking which produced the credit crunch) to deliver the urgently needed solutions to global warming and peak oil – instead it is pretty obvious to many people that a rational choice needs to be made (the “picking of winners” so detested by economists) and imposed by governments rather than left to the irrational caprice of markets.