The politics of electricity

During the last years of the nineteenth century, when the technology was in its infancy, the generation of electricity was seen as one more opportunity for entrepreneurs and joint stock companies to make money. After all, electricity was not unique. There were other means of delivering energy; district heating was already common in the USA and in some European cities while hydraulic power was sold commercially in cities such as London.

As a consequence the early history of the electricity industry was one of small, privately owned companies. Gradually, however, the distribution of electricity rendered most other ways of distributing energy across a network obsolete.

In the twentieth century, as the primacy of electricity became obvious, the distribution of electricity gradually became seen as a public service. Like water, sewage and later gas supply, electricity was needed to operate a modern civilisation. In much of the world, the electricity industry was absorbed by government and became publicly owned. In countries such as the USA where this did not happen, legislation was introduced to govern the supply.

In the late twentieth century, political ideologies changed. Government ownership of industry, including the electricity industry, began to be seen as unnecessary and uneconomic. A move began to convert publicly owned utilities into privately held companies. Alongside this, utility legislation was relaxed to open electricity markets to competition.

By the beginning of the twenty-first century this had become a global phenomenon. A few centralised governments still retained full control over their electricity industries but most paid at least lip service to the concept of liberalisation.

Liberalisation has resulted in both successes and failures. California recorded the most dramatic failure when liberalisation resulted in a virtual breakdown of its electricity supply system, with almost catastrophic consequences. The cost of electricity in California rose dramatically as a result. Elsewhere prices fell after liberalisation.

If state control of the electricity industry was seen to be overbearing and too rigid, a liberalised industry may have too much freedom. Economic rather than political considerations are paramount. This makes government policy more difficult to implement.

Renewable energy offers a good example. A government that wants to increase the proportion of electricity generated from renewable sources cannot simply pass an order down the line. It must use taxes and systems of allowances and penalties; generating companies may chose to pay the penalties if that is the most economically attractive option. In that case the desire of government is ignored.

It is impossible to predict whether modern-free market rules will continue to dominate the electricity industry. Life is full of ironies; instances of policies that are turned on their head by one generation and then turned again a generation later are far from rare. It would be hasty to assume that this will not happen in the utility industries.

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