english version
twenty years of liberalization and restructuring have taught us that creating well-functioning, competitive wholesale and retail markets for electricity is very challenging, both technically and politically, and cannot be applied everywhere
wed “independent power producers” to trade freely in the power system and sell wholesale power anywhere to any vertically integrated utility or distribution company. This entailed open access to the transmission network. Selling to end consumers, or “retail competition,” was not allowed, however. This area of the market was liberalized years later, at the discretion of individual state regulators. Other countries such as the UK, Norway, Argentina, New Zealand or Australia got off to a later start but carried liberalization through to completion much more swiftly. Similar transformations in developing countries were driven by a number of factors. After years of large investment projects and subsidised rates, which were often insufficient to recover costs, state-owned electricity companies in many countries lacked the resources to continue investing. As a result, they resorted to independent producers, private companies keen on entering the generation business. Plant construction and operation was often tendered. Several electric power systems are presently organized around these arrangements today. The massive entry of independent power producers in the electricity industry in the 1990s and the early twenty-first century was favored by an environment of declining interest rates, controlled inflation, liberalization of capital movements and development of financial markets. The present prevalence of private investors in the electricity industry, hitherto mostly controlled by state-owned companies, has brought fundamental change to the perception of risk and investment priorities. Finally, the new regulatory paradigm, announced by the pioneer reform in Chile in 1981, restarted its implementation in the early 1990s and swept the world. The jury is still out regarding how beneficial the liberalization has been for consumers and electricity providers. The objective of the reform was to create new governance arrangements that could provide long-term benefits to consumers. Electric utilities were
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restructured; the potentially competitive activities of generation and retailing were unbundled from the network activities of transmission and distribution, which remained under regulatory control while offering open access. Independent system operators were given the responsibility of running the power system securely and guaranteeing the provision of ancillary services. Competitive wholesale and retail markets were created to improve efficiency and responsiveness to consumer preferences. Consumers had the freedom to choose suppliers. Incentive regulation was introduced in the network activities to improve their efficiency. Independent regulatory agencies were created to monitor market behavior and implement the regulation of the diverse activities. And the role and political influence of governments was reduced. Twenty years of liberalization and restructuring have taught us that creating well-functioning, competitive wholesale and retail markets for electricity is very challenging, both technically and politically, and cannot be applied everywhere. Where properly implemented, wholesale markets have led to improved performance and have attracted significant investments. Despite some failures and implementation difficulties, the general trend in most liberalized power sectors is to proceed with the process of reforms. Experience has shown that regulatory reform only delivers efficiency and benefits to consumers if the regulation is well designed. And that achieving an orthodox regulation requires a firm political commitment to the reform. The numerous failures have had multiple causes. Most of the time, failures happened because of inadequate structure of the power sector to accommodate competition at wholesale or retail levels, because of excessive horizontal concentration in the competitive activities, insufficient unbundling of competitive and regulated activities or lack of volume to hold competition, or lack of a suitable institutional framework. In other cases, the problem was an incorrect allocation of risk in the regu-
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