An institutional perspective on electricity industry reforms
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This research develops an institutional perspective on electricity reform, with specific emphasis on understanding the reasons for the disparity between expectations from reform and its actual outcomes, and (hence) for identifying ways to reduce this disparity. The backdrop for this research is as follows. There is a significant, and global, disparity between expected and actual outcomes of reform. The discussion about the reasons for this disparity and how to reduce it has primarily been confined to the economic aspects of electricity reform, particularly its structural (market design) and implementational (role of government) aspects. This perspective (i.e., exclusively economic) – this research contends – is deficient because it is unappreciative of the influence of socio-economic and political factors (that define the role of electricity in wider socio-economic context of human lives) on shaping the contours of electricity reform including its direction, depth, and pace. This research is accordingly founded on the premise that real understanding of the reasons for the disparity and ways to reduce it could only be developed from an institutional perspective on electricity reform that recognises the influence of socio-political-cultural factors on shaping the reform program. The approach employed in this research is a combination of two approaches, namely, an amended combined institutional approach (as proposed by North 1990 and 2005), and an approach for analysing political power structures. The combined institutional approach analyses how changes in the configuration of the electricity industry (i.e., its structure, ownership, and regulation) are influenced by the underlying formal and informal institutions. It also analyses how these institutions in turn are shaped by the pursuit of interests of diverse socio-political players driven by a range of cultural, socio-economic and political considerations and beliefs. The approach for analysing political power structures examines the capacity of these socio-political players to influence each other, in order to pursue their interests. The case-in-point context for this research is provided by 15 selected developed and developing countries, covering a wide spectrum of cultural, socio-economic and political characteristics. This selection constitutes a sound base for understanding the influence of institutions on shaping electricity reform, and for generalizing the insights gained from this research The analyses in this research suggest that the configuration of the electricity industry is shaped by the underlying formal (e.g., legislation, socio-economic structure, and developmental-orientation) and informal (e.g., norms, ideologies, and beliefs) institutions. The contours of these institutions in turn are shaped by dominant political interests of the time. These interests are well entrenched in the underlying political power structures. These political power structures typically change slowly; they thus have a lasting grip on the shape and direction of electricity reform. This viewpoint on electricity reform therefore suggests that electricity reform is merely a process of serving dominant political interests of the time. By implication, it also suggests that these political interests translate into the overall objectives of electricity reform. Contemporary analysis of electricity reform, which tends to view reform almost exclusively from an economic perspective, may therefore be inappropriate means to achieve the overall objectives of the electricity industry, and hence incapable of preventing the ever widening disparity between expectations from reform and its actual outcomes. This research accordingly suggests that prerequisites for reducing this disparity are: i) appreciating the influence of underlying political interests on shaping the contours of reform; and ii) adopting more flexible approaches to reform that are able to accommodate conflicting interests in a balanced manner.
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