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PRIVATIZATION AND LIBERALIZATION OF THE DOWNSTREAM ELECTRICITY MARKET

Who is responsible for an energy policy?
There are a number of reasons why the responsibility for (an) energy policy lies fundamentally with the government. Historically, most power and gas utility industries (as opposed to manufacturing systems) used to be wholly owned and controlled by governments. In countries like the United States and Germany, where the plants were usually privately owned, they were still operated according to the instructions of the state regulator. There is little or no difference between operating a state monopoly and operating a private sector monopoly under direct state regulation.

Starting point

Since state control is usually the starting point, structural problems in the transformation of monopoly markets into liberalized competitive markets can only be dealt with by the state. The government must implement the enabling act (usually legislation) to convert the existing structure to one required by the liberalization and/or privatization policies. The relationships großkunden erdgas vergleich of the newly created players must also be addressed by the government to set the ground rules of the new market. The government creates the policies which in turn are implemented to establish the new market structure and deals with all structural issues related to the introduction of competition and new entrants.

Structural issues requiring government responsibility for energy policy
These structural issues may include the issue of tariffs/prices, barriers to entry (access to the grids) due to the natural monopoly element in the downstream sector, availability of supply, etc. In addition, infrastructures for industry require medium and long-term coordination and guidelines for all stakeholders. Centralized policies and guidelines reduce uncertainty, while government policies make up for market imperfections. Governments play an appropriate role in setting national energy policy targets, but these should be kept to a minimum and applied in a way that is fair and easy to understand.

Governments have adopted various forms of privatization and liberalization in adopting energy policies to overhaul the electricity industry. The starting point for privatization and liberalization is quite similar in most of these countries. Important points to note in this regard include: The electricity industry has undergone some form of privatization in many countries. Private sector involvement in electricity (outside countries with regulated privately owned systems) generally began in the 1980s, leading to the introduction of some competition in the downstream energy industries.

Government move

Private sector involvement also marked the beginning of a government move to allow others to participate in shaping energy policy. However, this has proved controversial and led to intense debate in the United States, particularly given the failure of Enron (at the time of its collapse it was the world’s largest privately owned electric company) and the involvement of Enron executives in the work of the Department of Energy and the Vice President’s Task Force on Energy.

One of the reasons for helping others participate and shape energy policy is that governments, especially in developing countries, need the expertise of the private sector to shape energy policy effectively and efficiently. One of the reasons for rejecting the idea of others participating in energy policy-making is that finding an impartial energy politician outside of government can be difficult. This makes it difficult to reach a level playing field, which is necessary for the introduction of competition in the energy sector.

Privatization and Liberalization


Privatization and liberalization are key government policies to regulate the energy industry. As a starting point, it is important to understand what privatization is about before discussing the issue of liberalization.

What is privatization?


It is the act of selling existing state assets – nothing more, nothing less. It should be noted, however, that conceptually there is no need to break up state society, create competition or significantly adjust the regulatory structure. All that is required for privatization is a decision (and subsequent follow-up) to sell the state assets to a third party. Privatization does not require liberalization, although in practice most governments would include an element of liberalization in a privatization policy. The relocation of a company from the state to the private sector, despite regulation, tends to create problems in future adjustments of the sector.

Privatization without competition means that the state monopoly is replaced by a private monopoly. Privatization alone does not change the natural monopoly element in the downstream energy sector. Privatization in itself does not lead to competition. The privatization itself does not change the pricing structure of the industry. Private sector monopolies tend to be for-profit rather than service-oriented.

Any efficiencies will be driven by regulation, not markets. With the decision to privatize, the state is separated from the direct supply of energy. The sale means that someone else (a new entrant) is providing energy, and the role of government changes from service provider to creator of the legal environment that enables others to provide that service. The function of the state changes with privatization.

Privatization will require new legislation, if only to change the incumbent’s monopoly status. Typically, the incumbent is a state-owned company, in which case the law gives the government permission to sell and likely to restructure. The restructuring of a state-owned company (but keeping its ownership with the state) to meet the future challenges of liberalization is known as corporatization and is a much-discussed process. The debate essentially revolves around the nature of equal (or unequal) competition between public and private companies. The idea of corporatization is unchallengeable, that the state-owned company is prepared for possible future privatization by being run on the same basis as a private company. However, since state-owned companies and private companies have different goals, it can be difficult to equate the two.

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