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Hybrid Finance

A solution to high electricity prices in restructured states.

Fortnightly Magazine - September 2010

lower input costs encourage business investment and job growth.

The market hybrid approach combines the advantages of the lower-cost capital and strong regulatory oversight of rate-of-return regulation with the cost control and efficiency of competitive markets. Under a market hybrid approach, consumers and businesses would benefit from lower-priced electricity. The environment would benefit from cleaner energy production, and the economy would benefit from increased employment, output and growth.

 

Endnotes:

1. Natural gas prices have fallen recently as a result of demand curtailment caused by the recession, as well as the use of a new extraction technique known as hydraulic fracturing, which has increased supply. Demand is likely to rebound and hydraulic fracturing may be slowed because of environmental concerns. As in the past, natural gas prices are likely to fluctuate greatly over the 30 or more year life of a baseload plant. For this analysis, it’s important to note that natural gas prices are unlikely to fall enough such that the marginal cost of electricity from a gas plant would be lower than the marginal cost of electricity from a new baseload power plant.

2. Beyer, Mark C., “Pricing Electricity Using Technology,” Public Utilities Fortnightly , Volume 127, Number 1, Jan. 1, 1991.

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