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Can electricity companies be too big to fail?

Author

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  • Larsen, Erik R.
  • van Ackere, Ann
  • Osorio, Sebastian

Abstract

The 2008 financial crisis has drawn attention to the concept of “too big to fail” companies, more recently relabelled "system-critical" institutions, referring to situations where the actual or near-bankruptcy of a company threatens the future of a service essential to the functioning of society. But such instances are not limited to the financial sector. We argue that if policymakers and regulators are not vigilant, a similar situation could occur in the electricity sector. So far this industry has only experienced occasional problems, but we can observe several precursory signals indicating that these problems might become more frequent. These include a tendency to globalisation in the absence of a supra-national regulator and the disruption caused by large amounts of renewable energies, resulting in companies being stranded with loss-making thermal generators. Still, these units are essential for the electricity supply security. We discuss several cases illustrating these trends. We conclude with a discussion of how electricity regulators and policymakers should approach the “too big to fail” problem, focussing both on preventive measures that can be taken to keep such a situation from occurring and on proactive actions aimed at avoiding a crisis once a system-critical company seems at risk of collapsing.

Suggested Citation

  • Larsen, Erik R. & van Ackere, Ann & Osorio, Sebastian, 2018. "Can electricity companies be too big to fail?," Energy Policy, Elsevier, vol. 119(C), pages 696-703.
    • Handle: RePEc:eee:enepol:v:119:y:2018:i:c:p:696-703
    DOI: 10.1016/j.enpol.2018.05.010
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    Cited by:

    1. Lan Guo & Ling Yang, 2023. "The Corporate Economic Influence and Corporate Social Responsibility: Evidence from China," Sustainability, MDPI, vol. 15(13), pages 1-22, July.
    2. Marrero-Trujillo, Verónica & Arias-Gaviria, Jessica & Arango-Aramburo, Santiago & Larsen, Erik R., 2023. "Gamification model for communicating and evaluating renewable energy planning," Utilities Policy, Elsevier, vol. 84(C).
    3. Arias-Gaviria, Jessica & Arango-Aramburo, Santiago & Lamadrid L, Alberto J., 2022. "The effects of high penetrations of renewable energy sources in cycles for electricity markets: An experimental analysis," Energy Policy, Elsevier, vol. 166(C).
    4. Loi, Tian Sheng Allan & Jindal, Gautam, 2019. "Electricity market deregulation in Singapore – Initial assessment of wholesale prices," Energy Policy, Elsevier, vol. 127(C), pages 1-10.
    5. Arango-Aramburo, Santiago & Bernal-García, Sebastián & Larsen, Erik R., 2021. "Renewable energy sources and the cycles in deregulated electricity markets," Energy, Elsevier, vol. 223(C).

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