The Need for Revaluation of the Model Structure for Electricity Liberalization

Abstract

The question about an appropriate structure for the electricity industry has been extensively discussed in scientific literature and experts studies. Since the beginning of electricity liberalization, it was apparent for its promoters that such a structure (in this paper referred to as the model structure or ideal structural model) for the electricity sector should involve a separation of its four sub-sectors, i.e., generation, transmission, distribution, and supply. With the exception of transmission, each sub-sector should consist of many stand-alone type companies. Given the high degree of vertical and horizontal integration of the electricity sectors, their procompetitive restructuring (i.e., de-integration) became a standard component of electricity sector reform packages. This paper provides a concise review of the origins and justification of the initial model structure for electricity liberalization, as well as an overview of the restructuring developments in the early years of electricity liberalization. Some attention is also devoted to the EU’s unbundling initiatives. The core part of this paper discusses the first signs indicating the crisis of the initial structural canon. The paper concludes with some comments referring to the modified form for a model structure that is emerging. It involves vertical integration of generation and supply and allows a higher degree of horizontal concentration of the electricity competitive markets.