De-regulation and privatization
The electrical energy supply sector has undergone dramatic changes since the beginning of the 1990s. De-regulation, or privatization, has been adopted throughout the world as a new market-oriented approach. Before privatization, power systems were generally owned by national governments and operated as vertically integrated organizations including generation, transmission and distribution. Privatized structures vary considerably, with the power system being split geographically and/or vertically into separate companies. Competition between generators is always possible, and energy supply contracts to end-users can be open to competition, but the transmission and dis- tribution networks are an inherent monopoly with access and charging for their use overseen by a government regulator. The private companies have access to capital at prevailing interest rates, avoiding government spending restriction (or encouragement) that is a feature of government-owned utilities. It is generally believed that competition can drive energy efficiency up and electricity prices down. However, there is still some debate about how effectively market forces alone can stimulate the correct level of planning and construction of new generation and other plant at a level which ensures satisfactory security of supply for the longer term. This difficulty is exacerbated by the technical inability to store significant quantities of electrical energy. An area of doubt is therefore whether short-term electricity price fluctuations provide a sufficient economic signal to drive the long-term decision of a private company to build new plant, based on their analysis of risk and reward. If a de-regulated system does fail to provide the level of energy supply security expected by modern communities it might not always be clear where the ‘obligation to supply’ rests.