Arpita Mukherjee Ramneet Goswami January 2009 - icrier

eforms. Although many nations have privatized their electricity industries since the 1990s
(or are currently undertaking such efforts), the UK’s electricity privatization effort has been
among the world's most ambitious and path-breaking. Several countries have followed the
UK experience as a policy guide in their own electricity restructuring, privatization, and
regulatory reforms. For instance, Norway, Argentina and Australia have adopted variations of
the UK model. Among other European nations, Hungary too adopted an ambitious
privatization program in 1991; the state-owned electricity companies were privatized and
foreign participation in electricity companies were allowed. Other countries to privatize
include the Czech Republic, Poland and Russia. In Asia, countries such as India, China,
Indonesia, Malaysia, Pakistan and Nepal introduced private participation in electricity mainly
through private financing of new generation capacity in the form of Independent Power
Producers (IPPs). 51
Liberalized markets have provided new opportunities for private-sector firms to
compete in the development and construction of energy infrastructure around the world. IPPs
are now an important means of expanding generation capacity, introducing competition into
the generation business, and transferring some risks from the public sector to the private
sector. It also provided opportunities for private sector firms to enter into wholesale
electricity trading arrangements, electricity pools, brokering of electricity, and other energy
products.
The liberalization experience shows that most countries are willing to introduce
competition in the generation and the distribution sector, while retaining some control over
the transmission network (infrastructure). On the other hand, post-liberalization, low-cost and
small-scale generation units were allowed to produce electricity closer to end-users to reduce
the reliance on transmission and distribution networks. Liberalization also resulted in a
growing convergence of petroleum-related activities and electricity-related activities, due to
significant improvements in the efficiency of gas-fired electricity generation units. Moreover,
in many countries such as the UK, natural gas deregulation was accompanied by deregulation
of electricity.
The privatization process brought about a shift from a market characterized by a few
service providers and captive customers to one with an array of choices and participants.
This, in turn, created a number of new opportunities in competitive segments of production
and marketing. In the UK, in the decade following electricity privatization, from seven
vertically integrated regional monopolies there were 42 generation companies and 29
licensed marketers. 52
Competition enabled consumers to choose their service providers on the basis of price
and quality. In the UK, competitive marketing was introduced in three stages: to large
consumers in 1990, to medium-sized consumers in 1994, and to domestic consumers in 1998.
By 2000, nearly 81 per cent of large consumers and 38 per cent of residential consumers had
switched to a new electricity marketer. 53
51
An IPP is a privately-owned power producer. IPPs are recognized as an important means of expanding
generation capacity, introducing competition into the generation business, and transferring some risks from
the public sector to the private sector. They are often the first private investors in a power market dominated
by state-owned power utilities and they can enter the wholesale power market under any of the market
structures.
52
UNCTAD (2003).
53
UNCTAD (2003).
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