Security of electricity supply after liberalization: implications of the experience of UK market reform

Abstract

The UK is one of the pioneers of electricity liberalization. In the 1990s it implemented ownership unbundling and then from 1998 carried out the liberalization of retail supply. The share of renewable energy has since increased and the government is pursuing policies aiming at the decarbonization of the economy. As part of this policy, the number of coal-fired plants has been reduced. At the same time, the older nuclear plants are being closed and while there are plans to replace these, new nuclear power station building is facing difficulties because of high costs and the uncertainties caused by Brexit. Alternative tactics for Small Modular Reactors are being considered and consulted on at present. Liberalization has allowed customers to select their retail suppliers, but since 2004 they have seen retail prices rise with increasing wholesale costs and enhanced environmental and social standards. The market has also remained oligopolistic, requiring continued monitoring by regulatory agencies to protect end-users. Japan, on the other hand, started its reform of the electricity wholesale market in 1995 and that of the retail supply market in 2000, but to avoid disruption the liberalization process has been gentler. The huge earthquake and tsunami in the Tohoku region in 2011 complicated the situation with the serious problems it brought for nuclear power plants. The government has announced plans for diversifying the generation mix but has not yet developed concrete policies to this end. Also, unlike the UK which is linked to neighboring countries with cross-border interconnectors, Japan is geographically isolated. To achieve security of electricity supply, the construction of a Smart Grid and cross-border interconnections are essential in the near future. In addition, a Price Cap (Tariff Cap) will be indispensable to protect consumers.