Power grid

Natural monopoly

Natural monopolies mostly tend to be public infrastructure companies, where high fixed costs for the development of a basic structure are offset by comparatively low operating costs; examples are transport routes and telephone, energy and water supply networks. A distinction must be made between natural monopolies and other types of monopolies such as artificial monopolies, cartels and legal monopolies. The term “natural monopoly” is not uniformly defined in the economy. Therefore, any market constellation in which a single economic entity can produce a product at a lower cost than two or more separate economic entities is often referred to as natural monopoly.

When the European electricity market was deregulated, “unbundling” became another important issue for power supply companies. For example, electricity and gas companies are required to separate generation from transmission/distribution. In this process, the grid monopoly is maintained as a natural monopoly and regulated by the state. However, in the interest of a competitive liberalised electricity market, the company owning the grid must enable competitors to transport the actual products at conditions defined by the regulatory authority.