There have always been certain sectors that are critical for the functioning of society. Examples include hospitals, gas, railways, electricity, etc. Such sectors used to be state-owned, or subject to strict regulation. But over the last decades many of these have been deregulated and privatized, with the creation of markets and competition (Newbery, 2002).
However, what happens when one or more key companies of these industries face bankruptcy, threatening the availability of the service? While this issue has received attention since the start of the privatization process, the discussion has remained very much theoretical, with occasional problems being solved on a case by case basis. The situation changed drastically in 2007/2008 when the USA mortgage crisis created a snowballing effect, causing a global collapse of the financial sector to become a realistic prospect.
During the decade following this crisis the financial sector was subject to a close scrutiny, with particular attention to the influence of individual financial institutions on the overall system. In addition to a general tightening of regulation and oversight, there was a focus on identifying system critical institution; these became the subject of careful monitoring, and were required to increase their capitalization to increase their solvency, so as to reduce the risk of a rerun of the financial crisis.
In this paper we address the following question: given the essential role of electricity in today’s society, is there a need for a similar critical evaluation of the electricity sector to ensure security of supply? While the electricity sector does not have the same global inter-connectedness as the financial sector, it has become increasingly connected. The failure of a major generator or distributor, leading to reduced access to electricity or even large-scale blackouts would have devastating effects, spreading well beyond national boundaries. As was the case in the financial sector, public intervention would be required to prevent such a disastrous event.