Everything about Electricity Liberalization totally explained
Electricity liberalization refers to the
liberalization of
electricity markets. As electricity supply is a
natural monopoly, this entails complex and costly systems of
regulation to enforce a system of
competition.
The standard model for electricity liberalization is the "British model", after the British system which began in the late
1980s with the privatization and vertical de-integration of the
UK electricity industry. At a cost of over $3bn, a system of competition was developed to auction spare capacity through a central system. The risks involved for both
generators and
distributors have led to vertical re-integration.
Liberalization of electricity tends to substantially benefit large consumers (mainly industrial users), but benefits for domestic consumers compared with a public monopoly or a regulated private monopoly are questionable. There are also doubts over whether the system can ensure long-term security of supply through providing sufficient incentives to begin building generation capacity in time for when it's needed.
In the
European Union, electricity markets are governed by a Europe-wide
directive on liberalization. In
2003, the
European Commission introduced a new Electricity Directive (EC/2003/54/EC) with much stronger requirements on competition.
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