Competition in Electricity Supply: Has the Energy Act Failed?

The UK's 1983 Energy Act attempted to establish a market in electricity by introducing competition from the private sector. However, entry has failed to occur. Two competing hypotheses attempt to explain this: 1. the efficiency hypothesis, which argues that little entry has occurred because the electricity industry is already extremely efficient, and 2. the entry barriers hypothesis, which argues that the conditions under which entry can take place largely have prevented entry. These 2 hypotheses are investigated. It is concluded that the Energy Act has failed to induce competition because the electricity supply industry's (ESI) productive efficiency deters electricity production at the small-scale level, and entry barriers due to the incumbent's dominant position are unlikely to encourage entry. The Energy Act leaves the incumbent ESI with effective control of price and entry conditions, which leads to the pricing conditions being set so that entry is discouraged.