Vertical separation is believed to have positive effects in energy sectors where certain phases of the value chain operate under a natural monopoly. This paper discusses whether unbundling is necessary in the South African electricity and piped gas sectors to encourage entry and increase competition based on the experiences of other nations. Despite positive results in some instances, unbundling does not always result in higher levels of competition and benefits for consumers. In fact, in some cases, vertical separation has resulted in energy sectors that are worse off.
Is vertical separation a prerequisite to enhancing competition in the South African energy industry?