Competition Issues in the Electricity Sector Electricity markets are prone to the exercise of market power due to a combination of factors including: inelastic demand lack of extensive practical storage of electricity transmission congestion transmission loop flows and capacity constraints coupled with diversity in the marginal costs of different types of generators. The level of market power can vary rapidly in time according to changes in transmission congestion and fluctuating load levels. Given the propensity of the electricity market to market power horizontal structural separation (or divestiture) of the generation market is a key policy tool. Some structural separation has been carried out but on a relatively limited scale. But congestion segments electricity markets and contributes to the exercise of generator market power. This effect can provide the incentive for building new generation capacity. So a balance must be found between providing an...