Blackouts: Do liberalisation and privatisation increase the risk?

Steve Thomas and David Hall
PSIRU, University of Greenwich
December 2003

Electricity blackouts can be serious events that cause human suffering and economic disruption. Even in the best-run systems, there will be a risk of black-outs because of human error and extreme weather conditions. However, it is important to designate a security standard that strikes a good balance between security and cost and that this standard is maintained. For example, in Britain, the standard for generation is that there should be enough generating capacity that there should only be blackouts due to shortage of generation in 8 winters per 100 years. There is no performance standard for the networks despite the fact that blackouts due to network failure are much more common than those due to generation shortage.

The traditional, publicly-owned, monopoly cost-plus system was generally effective at meeting the required security standard. Because, for private companies, profit was regulated and for publicly owned companies, profitability was not the key objective, there was no incentive not to spend enough money on investment and maintenance to ensure the designated standard was met. Companies could be given a duty to ensure the security of the network and to ensure there was enough generation capacity.