Liberalising Electricity Markets Beyond Public Service Obligations: Lessons for Developing States


In sequence with potable water, electricity is the next indispensable commodity of strategic, social, and economic importance within modern societies. Lauded as a key enabler for both economic and non-economic activities within nations, there is intimate correlation between access to electricity and the socio-economic advancement of a nation, due, specifically, to the catalytic effect of the former on the latter. Access to affordable, reliable and sustainable electricity by all segments of society is therefore essential as it enhances social equity and cohesion, amongst other benefits.

Historically and organically, the task of supplying electricity fell within the remit of the State, executed mainly through a vertically-integrated State-owned monopoly. Under such model, a number of developed States including the UK assured their nationals equal access to affordable electricity, based on the principle of universality. Governments exercised oversight over energy markets through policy frameworks which established regulators, as well as through relevant primary and secondary legislation.

Notwithstanding all the gains derived from the vertically-integrated monopoly model however, such model was labelled inefficient and was, amongst other shortcomings, criticised for supplying electricity at prices that were below the cost of production. In an effort to enhance efficiencies and improve access to affordable and reliable energy inter alia, nations across the globe, albeit not all of them and not at once, initiated the gradual process of liberalising their respective electricity markets. Liberalisation is a process that has opened up the supply-side of the market to competition in numerous countries, either partially or fully. By the same token, liberalisation granted the demand-side of the market some degree of choice – to choose a preferred supplier under the new market structure. As such, it heralded a new paradigm shift within electricity markets, foremost by introducing competition and stimulating efficiencies.

Despite the ovation surrounding liberalisation, particularly from private investors, the role and relevance of subsidised energy as a Public Service Obligation under competitive electricity markets became contestable, as both ends of the market embroil in a tug-of-war arguing either for or against the maintenance of Public Service Obligations under the new market model. Accordingly, this has brought into sharp focus the need to reconcile competition with entrenched public policy objectives.

This dissertation aims to analyse the concept of Public Service Obligations within the context of liberalised electricity markets, particularly following a transition from the classical, monopoly market model to a highly competitive market structure, operating predominantly at cost-recovery. In its conclusion, the dissertation will draw lessons from a policy and regulatory perspective, which developing States can use as a blueprint when contemplating reforms of their respective electricity markets.