The Danish Electricity Reform - Success or Failure?

The European market directive from 1996 was only reluctantly implemented in Denmark in 1999. This is not different from a number of other member countries. However, the approach to liberalisation was more radical than in other reluctant countries. We address three tenets in standard market implementation: market power, restructuring and regulation of the network monopoly. Even if the Danish market reform gets very good marks in the EU benchmarking, there has been major problems in all three areas. As for market power the Danish Competition Authority has accused the two large generators of abuse. Restructuring of the sector has been prevented by lengthy discussions on (the real ud) ownership. The most spectacular problem arose in the implementation of new incentive regulation of the distribution system operators. A combination of income caps and benchmarking was obviously mal-functioning and had to be abandoned in 2004. In the article we furthermore address the remedies recently introduced to cure the malaises.