What causes electricity markets to fail, and how can these failures be prevented? Ea Energy Analyses explored this question for South Africa, which is designing a new wholesale electricity market as part of the ongoing reform and unbundling of Eskom. Common electricity market failures include weak competition, abuse of market power, insufficient investment incentives, capacity shortages, difficulties integrating renewable energy into the grid, weak regulatory and institutional frameworks, and political and regulatory uncertainty.
To draw practical lessons for South Africa, Ea analysed a set of international cases from both developed and developing economies — including the United States, India, Mexico, Vietnam, and the European Union — selected to capture variation in market structure, institutions, and energy mix, and to cover different types of market failure.
For each case, Ea examined the structural and institutional conditions behind the failure, its impact on electricity prices, security of supply, and market stability, the regulatory and policy responses, and how effective those responses proved to be. The analysis drew on academic literature, market reports, and official government documents.
Ea Energy Analyses carried out the project in collaboration with Hans-Arild Bredesen.
