Regulatory reform in the Spanish electricity industry: a missed opportunity for competition

The reform of the electricity industry in Spain was announced as a drastic move towards freer markets and more competition. We argue that the reform is better seen as a lost opportunity for the rapid introduction of competition within the Spanish electricity sector. Although the new legal framework introduced an innovative spot market mechanism, the pro-competitive potential of this innovation was wasted by a seriously flawed privatisation program, by allowing continued vertical integration between generation and distribution and by limiting the liberalisation of supply activities. Furthermore, the Spanish case provides a useful example of the pitfalls of regulatory reform in countries with a long tradition of detailed state intervention and opaque regulatory systems. We conclude by suggesting a number of measures that, in spite of previous irreversible policy mistakes, could still enhance the competitiveness of the Spanish electricity markets.