The Economics of Electricity Markets

The Economics of Electricity Markets

Theory and Policy

The Loyola de Palacio Series on European Energy Policy

Edited by Pippo Ranci and Guido Cervigni

The Economics of Electricity Markets provides a cutting-edge analysis of the critical issues involved in the design and operation of electricity markets, as well as an assessment of alternative institutional arrangements that have either been implemented or are under discussion in Europe and the US.

Chapter 1: Introduction

Pippo Ranci and Guido Cervigni

Subjects: economics and finance, energy economics, industrial economics


Over the last 20 years great efforts have been made in all the advanced economies to introduce the market into the electricity industry, which had traditionally been dominated by a monopoly integrated horizontally – typically on a national scale – and vertically, from production to supply to the end users. The reasons for this development are many, and exist in different combinations in different countries. First, some of the conditions that justified the adoption of monopolistic models no longer held. Liberalisation policies were typically developed and implemented in a situation of relative maturity of the sector, that is, when the phase of major investments required for provision of electricity to the population as a whole had essentially been completed. This suggests that recipes for liberalisation drawn from the experiences of industrialised countries should not be transposed to developing countries without an in-depth understanding of the specific situation.