Regulation in small island states
Small island states have led the world in establishing ambitious renewable energy targets over the last decade. This has made the electricity sector a dynamic sector in small island economies, with considerable investment in new generation capacity, much of it donor-funded.
Achievement of renewable energy targets has been one objective on which reform of the power sector has been advocated in recent years, as I detail in a recent chapter published in the Handbook of Small States. These reforms draw on what is considered international ‘best practice’ and follow on from an earlier and quite different set of reforms aimed at liberalising the sector.
The first wave of reform, in the 1980s, achieved mixed success globally. The introduction of competition and private sector involvement in a traditionally state-dominated sector was advocated for on efficiency and performance grounds and in light of the poor performance and reach of state-owned utilities.
A second, more recent, wave of reform has instead focused on regulatory oversight, mainly to encourage new investment through appropriate pricing in the sector. ‘Best practice’ in this second wave of reform has been framed around independent price regulation — both in the case of retail and feed-in tariffs.
There has been ongoing debate regarding the appropriateness of such reforms in small island states, which face the dual challenges of small scale and isolation from other networks. Both attributes raise the cost of generation and make energy security (including the integration of renewable technologies) more complicated.
Historically, the power sectors of most small island states were developed as vertically integrated monopolies, as occurred across most of the world. In a majority of small island states, the state either controlled or had a share in this monopoly — this was seen as a means to achieve government objectives without the need …read more