Managing Uncertain Reform through “Flexible Institution”: Electricity Sector Liberalization in France
The liberalization of the electricity sector in France (implementation of a wholesale market, opening to competitors) is an interesting example of this paradox (Reverdy, 2014). This reform has met a strong contradiction between the demand coming from economic actors for political intervention on the market organization (to ensure economic continuity through price stability) and the constraint for institutional continuity and coherence.
This strong contradiction comes from the uncertainties associated with the electricity market price. The high sensitivity of the market price is due to the investment costs and implementation delays and the non-storable nature of electricity. The adoption of the spot market can have very significant effects on the margins of economic actors, producers and industrial customers, redistributing losses and incomes. In France, the wholesale price increased (200 % between 2004 and 2008) in the context of a relative stabilization of average production costs. The electricity market functioned as an amplifier of economic variations. Convergence towards an equilibrium price was not guaranteed. So, the price increase produced a political crisis and a contestation of the liberal reform by French industrial customers. The French government faced a dilemma between institutional stability (not changing the rules and the adopted market model) and economic stability (moratorium of the reform, political control of the price).