NCPA - National Center for Policy Analysis

Europe's Deregulated Electricity Markets

September 24, 2001

As states in the U.S. launch their own electricity deregulation schemes -- with varying degrees of success -- European countries that began earlier to scuttle bureaucratic regulation in favor of market models are beginning to reap benefits.

  • In Britain, former Prime Minister Margaret Thatcher initiated electric power deregulation in 1988 and it took about a decade to generate sufficient competition to lower power rates.
  • Unlike California, overcapacity had been a problem because new plants were built to utilize North Sea natural gas -- replacing coal-fired plants on which the industry was originally built.
  • Observers report that with privatization, the design of new plants was increasingly influenced by economic, rather than political, factors.
  • Prices of electricity have fallen 15 percent just since March -- and they continue to fall as markets, not regulators, set prices.

On the Continent, the electricity industry was run for decades by engineers who were patronized by politicians. The result was a hugely overbuilt system with rows of underused power plants and legions of unnecessary staff -- paid for by sky-high regulated rates.

But since deregulation, electricity rates have fallen in most European markets -- especially in Germany.

Source: Geoffrey T. Smith, "Lessons from Across the Seas," September 17, 2001.

 

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