Lessons from Liberalised Electricity Markets

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In ever more globalised and automated economies, the role of electricity is increasingly important as a driver for economic prosperity. Reliable and affordable supply of electricity is essential for the competitiveness of global industrial product markets and a necessary ingredient in the daily workings of modern societies. At the same time, environmental impacts of energy usage are one of the most difficult global policy challenges. Reliable access to affordable electricity supply with acceptable environmental impacts is only achieved with comprehensive and carefully balanced policy actions to establish the necessary incentive-based framework. To that end, liberalisation of electricity markets is a development path and policy option that has been implemented or considered in all IEA member countries. Through competition in liberalised markets incentives are created to drive for more efficient operation of electricity systems and more efficient investment decisions in terms of timing, sizing, siting and choice of technology. Even if liberalised markets leave critical policy challenges un-resolved, the transparency created by competition tends to improve the framework for targeted policy actions to address issues such as environmental quality and reliability. After up to ten years’ experience with liberalised electricity markets and even longer in some cases important lessons can now be drawn from some pioneering countries and regions. Theoretical principles for successful liberalisation can now be augmented with more qualified policy prescriptions based on real-world experience. Liberalisation has shown itself not to be a single event, but rather a long process that requires ongoing government commitment.