International Handbook of Network Industries
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International Handbook of Network Industries

The Liberalization of Infrastructure

Edited by Matthias Finger and Rolf W. Künneke

This extensive, state-of-the-art Handbook provides a comprehensive overview of the various experiences of liberalization across different sectors, regions and disciplines.
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Chapter 10: The Liberalization of Electricity Markets

Jean-Michel Glachant and Yannick Perez


1 Jean-Michel Glachant and Yannick Perez INTRODUCTION The competitive reform of electricity industries has recently experienced a wide expansion worldwide, with over 200 new instances of sectoral deregulation between 1990 and 2008 (Newbery, 2000; Glachant and Finon, 2003; World Bank, 2006; Sioshansi and Pfaffenberger, 2006; Glachant and Lévêque, 2009). Nonetheless, subsequent to the California electricity crisis (2000 – 2001), there has been an increasing dissatisfaction with regards to the limitations, and in some cases the failures, of these new ways of framing electricity industries (Kessides, 2004; Joskow, 2006b). We are witnessing a slowdown or, in some cases, a blocking of the reforms, as if the progression of competition policy in electricity industries had a cyclical component. Previously, the unique characteristics of electricity industries appeared to set them apart from most other industries, deemed ‘competitive’. These electricity industries notably feature: significant economies of scale or scope (extending to natural monopolies); far-reaching externalities (positive or negative) in production or consumption; and extensive vertical and horizontal integration (either under a single corporate umbrella or in the form of long-term ad hoc contracts (Brousseau and Glachant, 2002, 2008)). Within this very specific framework, the successful introduction of competitive mechanisms, substituting for administered regulation or internal corporate management hierarchies, along with the creation of open markets either upstream or downstream of the formerly integrated networks, created both disruptions and innovations in equal measure (Joskow and Schmalensee, 1983; Baumol and Sidak, 1994). The purpose of this chapter is to present, discuss and offer the road...

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