Electricity Deregulation – An overview

Deregulation and privatisation in the power sector is now reaching a stage around the world when it is possible to discern some patterns and factors emerging, based on experience rather than hypothesis about what ought to happen. Some outcomes have been good but some have been bad, notably in North America, and market liberalisation has advocates and critics.

The momentum towards liberalisation of the electricity supply industry continues around the world but it proceeds at varying paces. As a region, only the EU is moving systematically in a co-ordinated manner, while other markets are developing new structures on an individual country basis. In February 2006 the European Commission published a critical report drawing attention to a number of aspects in which progress towards liberalisation is considered unsatisfactory.

The countries of the EU, with the United Kingdom and Scandinavia at the forefront, have been leaders in creating the sea change which liberalisation of the energy markets is bringing. In July 2007 the final stage was reached for most EU countries in which electricity markets have been fully opened to all customers. A number of countries have negotiated ‘derogations’ in which they have delayed or reduced the scope of the change, due to special circumstances in their markets. One of the main reasons for this is the small size of a market, which only justifies the existence of one generator or very few, thus making competition unfeasible. In practice there are many imperfections in the new European structure, due either to original structural conditions or failures in implementing new rules. The EU Commission has been monitoring progress and is implementing new rules. It may be many years before the optimum situation is reached.

In February 2006, the European Commission published a report in which it analysed and criticised progress toward energy liberalisation in the EU and in which it named specific aspects of electricity and gas compliance with EU Directives. This also applied to the ten Accession States. The problems are not just the result of incomplete implementation of the existing 2003 Directives, but also the result of built-in structural and regulatory problems not yet addressed. Even in member states where the current legislation is being fully implemented, problems remain to be solved.