ELECTRICITY SECTOR REFORM EXPERIENCE IN THE CONTEXT OF ECONOMIC THEORY

Abstract

History of reforms in the electricity sector spans over 40 years and a large number of countries. Following acquired experience and its analysis, changes were seen both in approaches to reforms’ organization in practice and in the theoretical underpinning of various elements of reforms. The paper aims at analyzing the main elements of electricity sector reforms in the context of their theoretical grounding, theoretically expected results and those achieved in practice as well as evolution of electricity sector reform approaches accounting for acquired experience. In their paper the authors provide classification of electricity sector reform models and of relevant research literature, and analyze reform experience in different segments of the electricity sector, namely: privatization and introduction of competition in generation; wholesale markets and their role in preventing market power abuse; ways to ensure appropriate investments in generation; various legal forms of system operators in energy transmission; and importance and questions of effective work of retail electricity markets. A separate section deals with the influence of renewables on optimal structure of the electricity sector. The analysis demonstrates a multiplicity of approaches to reforms of the electricity sector. Though the main elements of reforms (split of the sector into segments based on activities, restructuring and introduction of competition in generation, and creation of an independent system operator) were similar in many countries, realization of these elements in practice, their sequence and resulting organizational structures of the sector differed substantially. Thus, there is no unique most effective reform scheme-on the contrary, each country had its very own reform. The studied experience also suggests that electricity reform in any country has no end since social and technological changes demand constant reconsideration of the main principles of electricity markets, functioning in search of more effective and efficient mechanisms of management in all segments of the electricity sector.