Electricity has been essential for many years for the development of many technologies, but also for the comfort and ease of daily activities for all of us. Because of the importance of electricity, it is necessary that the electrical service be of excellent quality, and that it does not have sudden interruptions. This is one reason why electricity can be privatized, and the most efficient provider will be able to benefit society. In this article, I will share on reasons why this should be so.
Here are some of the main reasons why the privatization of the electricity sector is necessary:
#1 More reasonable tariff rate
Electricity should be privatized because that would probably mean better rates for the general public. With more competition, providers will not dare to charge exorbitant rates for electricity, and even throw the consumer a few sweet deals.
This would happen because there would be more companies in the business. When more companies come into a business, there is more competition. More competition generally means lower prices. So, privatization of electricity would be very beneficial!
However, competitive energy production could also increase demand for low-cost energy sources, such as coal, and other ways of generating this energy. This could increase pollution which contributes to negative externalities for society.
Furthermore, it would not be something we could control, as it is a private company. Although it could be subject to different controls and regulations.
Hence, consumers must also hold providers accountable to produce sustainable electricity.
#2 Public electricity is related to power cuts
This is something that happens in many countries where the electricity sector is public. For instance, Venezuela suffers from constant electricity service failures and this is simply because the national provider does not have sufficient capacity to generate electricity.
This would not happen in private industry, as privatization seeks to improve the quality of service and deliver competitive rates.
However, the converse is also true. If there ends up only one private provider of electricity, it could become a monopoly, and electricity prices would be free to rise if the provider required it so. This would bring about difficulties and instability to society.
#3 Better quality, stability and development
As mentioned above, the main objective of privatization is to meet the needs of all people, where the best provider offers the best quality of service.
Starting with infrastructure, it is necessary to invest in the electricity sector, to improve quality, so that such investment directly benefits all people. By improving the infrastructure, the stability of the electricity service will improve, and electricity cuts sanctions will not be needed, since there is a greater capacity for electricity generation.
However, it might not be easy for a private company to create the infrastructure needed for setting up an electricity network in the country. Also, the private company might not want to do it either, as other competitors could tap on the network for free after that. Here, the government and private companies can work together to set up an electricity grid first.
Privatization is indeed a double-edged sword for utilities such as electricity, which is usually in the realm of the government. Concerns come from mainly due to the negative consequences that this action could generate, such as if a private company were to end up controlling a country’s electricity.
However, privatization of electricity could work in some countries, such as if there is an electricity network already present from the national provider. For instance, in Singapore, the current national provider, Singapore Power will face competition from other private providers in an electricity open market. SP tariff is likely to be lowered as a result.
It is also optimal that with privatization, at least few companies should be in the market, as this would prevent one firm from easily controlling the market. Society will also enjoy the benefit of lowered electricity prices, competitive rates, and quality electricity for all.