Electric power industry financing

Jose Antonio Vanderhorst-Silverio | Jul 30, 2013

        

The Spanish electricity crisis is an outstanding example of the failure of the state institution to provide the necessary incentives for electric power industry financing. As can be seen in the post Great electricity service, industry restructuring in the United States and elsewhere has led to a “Doom Cycle,” which is, for example, the result of an unfair short term capital financing of central generation. The state institution privatizes central generation benefits while socializing the risks of the customers.

The source of the Spanish “rates deficit” is exactly the privatization of the benefit to central generators. That crisis gets now worldwide visibility by the state having extended short term financial capital also to distributed generation. Now El País editorial Promoting renewable energy is trying to feed into the “Doom Loop” by saying to the state institution that they “… must revise proposed legislation that discourages home solar power.”

To get out of the “Doom Cycle,” governments must restructure away commercial activities from the state institution into the market institution. They can do it by changing the electricity law to enable long term production capital financing, by opening the retail market to business model innovations, for example, on the internet infrastructure, as described in the mentioned post. The incentives will come from fair central and distributed generation competition with equal risks and benefits.

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