Market Reforms in Electricity Sector: Pros and Cons

Until the 1980s, the electricity industry was typically organized as vertically integrated monopolies. A combination of technological, economic and ideological prerequisites has led to the fact that, starting from the 1980-90s, market reforms in the electric power industry have become the world norm. It was expected that the introduction of market relations in the industry would lead to an increase in its efficiency and, accordingly, to an increase in the social welfare. However, in practice, reforms were often accompanied by problems at all stages of their implementation, and assessments of the results of reforms in various countries do not always provide an unambiguous picture of success. The paper summarizes the experience of reforming the electricity sector in terms of comparing the results expected from theoretical considerations with the problems that arise in the process of reforming and the practical results of the reforms. We have analyzed a large body of literature that has studied the results of market reforms in the electricity sector as a whole or their individual stages in different countries and at different stages of reform completion. Research demonstrates that in order to improve public welfare as a result of the reform, it is necessary to ensure an effective and flexible regulatory policy in the post-reform industry. One of the most problematic aspects of the reforms is the need to ensure that long-term investments in the electricity sector are attracted in volumes sufficient to ensure the reliable functioning of all segments of the industry in the new conditions. Another problem that often arises is the distribution of benefits from the reform, a signi­ficant part of which goes to companies in the industry and the state, while the benefits often do not reach consumers. An important conclusion of our work is that there are no unequivocal arguments in favor of eliminating the state from participating in the work of the electricity sector even after the introduction of market principles in its individual segments.