The British Model in Britain: Failing slowly

In 1990, Britain reorganised its electricity industry to run on competitive lines. The British reforms are widely regarded as successful and the model used provides the basis for reforms of electricity industries worldwide. The main reason for this perception of success is major reductions in the real price of electricity with no reduction in service quality. This paper examines whether the reputation of the British reforms is justified. It concludes that the reputation is not justified and that serious fundamental problems are beginning to emerge. The central question is: have the British reforms resulted in the creation of efficient wholesale and retail markets? On this criterion, the reforms have failed. The wholesale market is dominated by obscure long-term contracts, privileged access to the market and self-dealing within integrated generator/retailers, leaving the spot markets with minimal liquidity and unreliable prices. The failure to develop an efficient wholesale market places the onus on consumers to impose competitive forces on electricity companies by switching regularly. Small consumers will not do this and they are paying too much for their power. For the future, there is a serious risk that the electricity industry will become a weakly regulated oligopoly with a veneer of competition.