# **1 Introduction**

Electric power systems emerged in the second half of the 19th century, primarily in the United Kingdom and the United States. Initially, commercial power plants were owned by private investors and provided electricity to small service areas, mainly lighting for local businesses, streets, and government buildings. By the mid-20th century, vertically integrated and often state-owned monopoly companies became the organization of choice. Vertically integrated power utilities were widely seen as the appropriate market structure due to the unique technical characteristics of electricity. Developing nations embraced the model, and most of them created publicly owned national power utilities.

Although integrated power monopolies supported unprecedented economic growth in the second half of the 20th century, the power sector’s performance was at times inadequate. Over the past forty years, both advanced and developing countries have looked for alternatives to integrated monopolies through sector reforms that introduced market-type mechanisms to their power systems. An increasing number of developing countries embraced liberalization and market mechanisms to mobilize private investment in power generation and, to some extent, in networks.

Due to a range of unique features of electricity, power markets are among the most challenging to create. The design of the power market determines how the sector can address complex economic, social, environmental, and engineering challenges to deliver sustainable and reliable electricity at least cost to consumers. This is no simple task, as supply and demand must be balanced every second, multiple resource and network constraints must be satisfied, and the market must send the correct price signals to motivate efficient generation and investment in the sector over time.

There is significant heterogeneity in electricity market structures adopted by countries globally. No “onetype fits all” blueprint exists, for any solution to function well, the country, political and economic context matters. At this juncture, the experimentation continues. However, valuable lessons can be drawn from past and current experience of countries under different power market design options.

This paper undertakes a comprehensive stock-take of the evolution of the power market structure in every economy in the world between 1989 and 2024. We rely on a new unique database, the “Global Power Market Structures Database<sup>1</sup> ” developed by one of the co-authors of this paper. The database examines all 230 global economies, documenting the changes in the power market structure for every year between 1989 and 2024. The database’s objective is to present different designs pursued by countries globally in structuring their power markets. To the best of our knowledge this is the first such database and this is the first paper to analyze power markets in such a comprehensive global manner.

The paper is structured as follows: Section 2 provides a global overview of each power market structure; we also delve into the different design options adopted by countries globally within each structure. Section 3 presents the global experience of countries transitioning between different market structures, highlighting both enablers and challenges countries faced during these transformations. Section 4 discusses the experience of countries that experimented with different designs within their respective power market structure. Section 5 contains our conclusions and distills the key policy recommendations for each power market structure based on 35 years of global experience.

> 1 <u>Global Power Market Structures Database</u> (Akcura 2024).

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