thumb|upright|Many liberalisation programmes entail the separation of corporate responsibility between power distribution and generation
Energy liberalisation refers to the liberalisation of energy markets, with specific reference to electricity generation markets, by bringing greater competition into electricity and gas markets in the interest of creating more competitive markets and reductions in price by privatisation. As the supply of electricity is a natural monopoly, this entails complex and costly systems of regulation to enforce a system of competition. It was implemented under the Thatcher years as part of a mass privatisation campaign of many of the industries nationalised by previous Labour governments in the preceding decades. The risks involved for both generators and distributors have led to vertical re-integration.
Benefits of liberalisation
Proponents of liberalisation assert that the main benefit comes from the increased competition afforded to the market. This would increase the availability and distribution of energy in supply situations by building transparent price signals and diversifying the production of electricity between gas-turbine technologies to nuclear energy. It would also lead to the elimination of unnecessary overhead supply in formerly nationalised markets, allowing for capital resources to be utilised more effectively on things such as network infrastructure instead of maintaining idle power stations.
The creation of pooled energy sources per the British model and other systems adopted in Chile and Texas have led to greater demand price-response, allowing for the more efficient use of electricity and increasing the response of consumers to prices so fewer costs are afforded to them. There are also doubts over whether the system can ensure long-term security of supply through providing sufficient incentives to begin building generation capacity in time for when it is needed, an issue which has started to plague Britain in the mid-2010s as spare capacity has decreased significantly to just over 1.2 percent in 2015.
Furthermore, the experience of electricity liberalisation in developing countries has proven problematic, as many large multinationals withdrew support for power plant construction projects in the start of the 21st century, leaving countries such as Argentina, Colombia, Chile, and Uganda to pick up the bill for the expansion of their electric networks. The privatisation of electricity favoured by liberal economists mirroring the British model have also led to increased expenditure on advertising and power switching incentives for consumers. It was replaced by Directive 2009/72/EC of 13 July 2009, following a proposal by the European Parliament and the European Council in 2007 concerning separation of supply and generation or production activities.
An analysis of PSIRU states that it seems that the European Commission's liberalisation directives were motivated more about taking control of electricity from national governments, creating large European electricity companies that can compete strongly in the world market and destroying nationally owned monopoly companies, rather than a belief in the market.