Competition and natural monopoly. The case for generation

Traditionally, economic theory has considered the generation, transport and distribution of electricity to be a natural monopoly, primarily as a result of the economies of scale associated with the electricity industry. Recently, and partly as a consequence of the deregulation trends within Europe, this paradigm of a natural monopoly in electricity generation has come under question. Some examples and references are used to support the existence of economies of scale and scope of electricity generation, and for this, and in accordance with economic theory, can be argued the existence of natural monopoly. Competition in generation is discussed, with the aim of lowering the cost of electricity that can be achieved by other means than the competition between generators over the bidding price. The advantages and disadvantages of the new generation are considered, such as gas in combined cycle, cogeneration systems and renewables. (R.P.)