Question

How does vertical unbundling allow for deregulation of the electricity industry?

Answer 1

Electricity market consists of generation, transmission, distribution and retail sectors where structural reforms are done by separating all the core functions carried by power companies in order to increase competition, efficiency, transparency and smooth governance. The separation of core sectors of electricity is called vertical unbundling where many new competitors are allowed to enter the market in order to save the unfair pricing and inefficiency in the electricity market from the local monopolists making it an independent entity. The vertical unbundling allow deregulation of the electricity market with separating each segment of electricity industry which increases competition and benefits for consumers. Deregulation with the vertical bundling allow anyone to build power plants and generate electricity. Competition increases with the deregulation as many companies enter into the market providing same services which make the service efficient and cost effective for consumers. Production efficiency in generation of electricity increases with deregulation and helps government to provide electricity to public at affordable rate.