Electricity industry reforms in smaller European countries and the Nordic experience

Abstract

Under its 1996 Electricity Directive, revised and strengthened in 2003, the European Commission requires Member States to reform their electricity industries along competitive lines. While the provisions of the Directive seem strong, there are ways countries can meet them without introducing real competition. A particular problem is the lack of will amongst Member States and the Commission to reduce the market power of dominant companies. Amongst the countries with small electrical systems, outside the Nordic region, national systems are still usually dominated by one or two integrated companies. However, in the Nordic region, reforms seem to have been successful, merging the four countries' systems into one market. This apparent success is based on a combination of several factors specific to the region, such as the dominance of hydro-electric power and public ownership. In one key respect, stimulation of new capacity, the reforms are still unproven. Hong Kong is now considering the future of its electricity industry after current arrangements expire in 2008 and there is pressure to move to a competitive model. Experience from small electricity systems in Europe suggests that it would be unjustifiably risky to abandon the proven monopoly model in favour of an unproven competitive model.