Commissions, which is the top regulatory body in the country, has been formallyconstituted.In view of this deregulation and unbundling, certain relevant questions relatingto the relationship among electricity generation, efficient supply, and quantities of output cannot be ignored. In other words, what is the appropriate number of firmsthat need to generate the required supply of electricity and what should be their output capacities? These questions derive from the fact that too many firms could lead to the creation of excess capacity and, if too few, there is a risk of abuse of market power that can develop under such scenarios. However, it has been found that duopoly is prone to the development of a high-degree of market power concentration. Recent empirical studies also have provided some evidence thatelectricity suppliers have exercised considerable market power concentration in both California in the United States and the United Kingdom.
This has beenattributed partly to poor market structure design. This study is germane because of the need to ensure production efficiency and allocation efficiency in the genera-tion segment of the Nigerian electricity industry. Indeed, many other countries areundergoing similar economic and public-policy decision making as that of Nigeria. Furthermore, this paper derives from the experiences of energy crises inleading reforming countries such as Italy in 2003, California in 2001, New Zea-land (Auckland) in 1998, and Chile from 1998 to 1999.
As P. C. Watts noted inhis conclusions:
Deregulation is a high risk choice. Those jurisdictions that have not yet deregulated electricitygeneration need to think long and hard before they go ahead. Those that have done so need tofigure out how to minimize the downside potential of the journey on which they haveembarked.
Again, it must be noted that the U.K. experience with restructuring of elec-tricity generation and mitigating possible market power dominance has demon-strated the complexity and challenges involved in introducing competition into thesector. J. R. Green and M. D. Newbery have demonstrated, for instance, that theinitial structure based on only two unequal competing electricity generators wasinefficient as both firms abused their market power; two equal competing firmscould have been more effective.
It is against such a backdrop that this paper seeksto examine the market structure in the restructuring of the Nigerian electricityindustry using partial equilibrium analysis.In the next section of this paper, we shall discuss some theoretical and em- pirical considerations. Thereafter, a review of extant literature is presented fromwhich Nigeria can learn best practices. Following the literature review section isthe methodology, while the result of the model and the broader implications of thestudy are presented next. The final section, which is the conclusion, is a pre-sentation of the way forward.THE JOURNAL OF ENERGY AND DEVELOPMENT210