End of Monopoly:Competition in Electric Markets-Comparative Studies

Electricity has over the last 50 years been recognised as a natural monopoly, with almost universal operation as a vertically integrated state owned enterprise or as a private firm with public regulation. Since the 1980’s combined cycle gas turbine and smart metering technology have ushered in very powerful forces which have increasingly led to separation of the industry into a competitive generation and a retail supply sector and a regulated network natural monopoly sector. Whilst privatisation has been seen as a necessary condition efficiecy improvements it is competition which has provided the necessary incentive for increased efficiency gians and the maximisation of consumer welfare. The result is that new institutional forms; single buyer, wholesale bulk electricity market and retail competition have transformed the industry’s landscape There are however, strong vertical economies which continue to present problems of market power, despite physical separation. Governments however are now presented with new institutional policy options to better shape the future of the industry.