The electricity crises of California, Brazil and Chile: lessons to the Chilean market

Abstract

Many countries have deregulated their electricity markets, boosting competition and participation of private enterprises in generation. The recent electricity crises of Chile, California and Brazil, and the problems that other countries have faced, have interrupted the development of these reforms. In this paper the fundamentals of each market are analyzed, as well as each deregulated legislation. The authors also studied the crises, and the influence on them of each legislation. They found that besides circumstantial situations in each case, there are common aspects in the three crises. In all of them they found that the price signals in shortage situations were wrong, and that the performance of the regulators was deficient. They conclude that a deregulated electricity market will not work properly in a scarcity situation if consumers are isolated from the real cost of energy, and if it does not have independent regulators, that are not influenced by short-term political interests. Finally, based on the study, they propose improvements to the Chilean electricity legislation.