The case itself offers a number of additional points of departure for this study, which has to do with the broader transformation of the electricity industry and the economy towards “de-regulation”, “competitive markets”
and “globalization”, in which we may see the electricity market reform as a specific representation. This offers the opportunity to extract insights from the study that are possibly relevant to industrial and economic “change-makers” involved in industrial and economic change projects. Hopefully being equipped with a toolbox of useful analytical concepts, my research strategy is to apply them to my empirical investigation in order to describe and link sequences of events and networks of actors in such a way as to be able to extract such insights in the form of middle range theories about transformations of economic systems in modern societies. Even though relatively modest, there is accordingly also an instrumentalist ambition attached to the study.
In June 1990 the Norwegian parliament approved a new energy law which came to represent the breakthrough for a radical change process in which what had been commonly perceived of as a corporate, mixed hierarchical and cooperative public electricity sector became turned into a competitive market system. The new law was implemented from January 1st 1991. For decades we had seen the electricity sector as a technically integrated natural monopoly, a public sector not-for-profit infrastructure system for the supply of a basic low priced welfare good to the population, to businesses, and especially the supply of cheap input to large scale energy intensive industries. All of a sudden, it became something different. Its very identity apparently changed.
The new legislation was followed by a multiplicity of rapid changes within the sector in terms of new regulatory systems, rapid expansion of organized trade in standardized electricity contracts, restructuring of electricity companies as well as of industrial structures, redistribution of governance roles, reinterpretations of property rights, new types of actors, expansion of international electricity trade etc. To those familiar with the apparent rigidities of the sector during its previous history, the unwillingness to change experienced by those who had been working hard to restructure the fragmented sector for more than 30 years, those who had been engaged in overturning the deadlocks forced by the power intensive industries on the issues of electricity pricing practices and energy exports; to all of those, changes were stunning – a complete and unexpected revolution. Despite incidents of severe real-life tests, the new system appears to be stable and in part enthusiastically embraced by many practitioners both among regulators and market actors.
During 1995/1996, Finland and Sweden also deregulated their electricity markets – largely in line with the Norwegian model – and joined the Norwegian Power Pool system. Since then, we talk about a Nordic model for electricity market deregulation rather than a Norwegian one; the world’s first transnational open competitive market for electricity trade. Through cables to Denmark and Poland, these countries are also trading in this market, and with planned cables to Germany and the Netherlands, more and also larger national electricity systems are being connected. From its immediate origins in the 1990 Norwegian electricity reform, we are seemingly watching a stepwise unification and transformation of national electricity systems in a movement from the north towards central Europe.
The Nordic model seems to have become rather popular by transnational policy institutions like the OECD and the European Commission as a both normative and pragmatic alternative to the British electricity market reform which was carried out in 1989 by the Thatcher government. The British and the Norwegian reform concepts were indeed very different. From a quick gaze, major differences can be traced back for instance to their very different starting points in the British nationalized system and the Norwegian fairly fragmented corporate system, to the different energy resource bases in the two systems and to the differences of the political regimes under which they came to remake their systems. The most eye-catching difference in reform approach was between the privatization or state sell-out approach of the British reform as opposed to the complete absence of privatization but more rapid and perhaps also more complete transformation to competitive market trade in the Norwegian case (Midttun, et al., 1997, Midttun & Thomas, 1998).
The EU Commission in the wake of the British and the Norwegian reforms pushed hard to achieve electricity market deregulation of the entire EU electricity sector, and presented several directives about third party access, common carrier principles and transparency of national tariffs etc. These initiatives met substantial opposition from France, but also from other nations and their electricity industries, and the controversy ended in a EU compromise in 1995 which opened for a restricted transnational trade between generators and large scale consumers. Initiatives for further electricity market deregulation thereby shifted to individual member states.
Following Sweden and Finland, initiatives have been taken lately by both the Danes15, the Dutch and the Spanish on the issue of general reforms. Various initiatives have also been taken in Germany. With the new social democratic/green federal government, uncertainty over where to go appears to be considerable, but through the introduction of trade exchanges and a stepwise increase in electricity trade across traditional supply monopolies, a market system also appears to be on its way in Germany. The result of all this has been that the EU process has regained momentum and that the directives presented by the EU Commission in the late 1980s and early 1990s are about to reach a general breakthrough.
A critical problem to national policy makers has to do with the issue of privatization. In Britain, privatization became possible because all relevant property rights were in the hands of the government. In countries like Germany, Denmark and the Netherlands, this is not the case. Property rights are divided within cooperative systems that are either autonomous or in the hands of lower level governments, or they are mixed in complex institutional arrangements. A privatization approach by the state accordingly involves a much more challenging task than just selling out ones own property. One has to force a sale of properties hold by others. Under the rule of the various constitutions, this is both cumbersome and politically risky, as it would directly confront the historically established power systems within the sector, the distribution of governance rights and financial returns.
Under these circumstances, attempts at constructing national electricity sector reforms on the basis of the British model, have mostly approached a dead end. The attention of economists and policy-makers has then moved towards the Nordic model, and as a consequence, many of the large electricity generators in Europe have established subsidiaries in Norway and Sweden to participate in the market and thereby gain experience and knowledge about the Nordic market system. Even the British are planning to
15 Jutland and Fyn joined the Nordic Power Pool from Juli 1st 1999.
adjust their trading system in the direction of the Nordic model. European electricity market deregulation seems to have entered a more pragmatic stage which suggests an incremental process where national electricity systems are being attached to the Nordic competitive market, where additional similar national trading institutions are created, where practitioners gain some experience and familiarity over time and where scientists, politicians and bureaucrats develop modes of deregulation which adjusts the specifics of their national historical systems to the theoretical concepts of competitive markets. This is not to say that privatization is unlikely to return to the agenda – only that the established power structures will demand that the creation of markets and market agencies comes first.
By representing an important element in this larger European process in terms of being its perhaps most important hotbed and possibly its most complete real life representation so far, the Norwegian electricity market reform becomes an interesting object of study. Recognizing the importance of early events, the Norwegian model is likely to exhibit something which is likely to substantially influence the emerging integrated electricity market system in at least the northern half of Europe. This might be called a European perspective or rationale for this study; to shed some light on the roots of and the preconditions for this apparently incremental European process, and to investigate those elements which were created to force the process as well as to shape a new competitive market system.
A second rationale for investigating into the Norwegian market reform, is more of a Norwegian perspective. After the wave of market reorientation and
“neo-liberal” economic revolutions across the world in the 1980’s and 1990’s, many sectors of the economy and of public administration have been changed – also in Norway. But the only case in which a Norwegian initiative seems to have created something which has propelled or substantially influenced large scale economic reforms in other countries, is the electricity market reform. In all other cases, large scale sector reforms in Norway appear to have been inspired from or “forced upon us” from abroad, where we might say that our actions have been responsive and also creative from time to time, but where our contributions are perhaps not too relevant to a larger audience. The Norwegian electricity market reform experiences however, are demanded from abroad. Not only from EU countries, but also from other continents, from Japan to Brazil and from institutions like the World Bank which is searching for possible new models for third world countries to take over from their previous advocacy for large scale vertically integrated systems. And we are setting out to advice people on these matters – being highly confident in the applicability of our model and our successful experiences. Looking back, it even appears to many of us to be the only rational way to organize an electricity system – an impression which
illustrates our tendency to fall into the retrospective fallacy that the actual outcome of our own latest change process represents the most obvious, the most likely and the most modern and rational alternative there is - which suggests that others would be better off if they did the same things, disregarding the character of their historically established systems.
I find that such links are not at all trivial – an insight which for instance can be extracted from the entire history of the Norwegian electricity system and its fairly “stubborn” objections to being transformed by strong normative models coming from other countries where they might have fitted very well.
Yes, even the success of the market reform itself can perhaps be traced back to resistance towards taking anybody else’s strong advice16. To give advice is accordingly neither simple nor necessarily rewarding, and it certainly requires a sufficient amount of humbleness. For a start, we should be careful and serious about understanding our own system and our own reform process properly, including its deep indebtedness to ideas and experiences, movements and events that are truly international, without which any Norwegian market reform would hardly have been thought of. We have to understand the specific historical pre-conditions for our own reform and the specific roles of those actors and those institutions which created and formatted its content and regulatory approach. Not to stop pouring out our pieces of advice to others, but in order to understand the complexity of their challenges and the vital importance of the specifics of history for the prospects of such reforms.
A third and final rationale for this kind of a study has to do with a general phenomenon which we might address as “the making of new competitive market systems”. Many such reforms have been carried out in various parts of the world. Some have been successes and others have not. At least some of the actual outcomes have provided negative surprises to their advocates and system designers, not at least in former Soviet Union and in parts of Eastern Europe. Many a grand plan has fallen apart, is found in ruin or has been taken control of by actors who have turned them into something of a very different character. Radical institutional reforms across the world which aimed at turning hierarchical or massively state regulated systems into well-functioning, efficient and stable competitive market systems, have proven both difficult and extremely complex with apparently unexpected and often unwanted outcomes. This should force us to raise questions and to investigate deeply into these “messy” processes of change, to understand their shaping and complex mediations, and to search out possible conditions
16 Various approaches and their controvercies are discussed in chapter 7.
for successful radical institutional changes. To see what is involved in the management of large innovative economic system reform projects.