Electricity Sector Liberalisation and Innovation: An Analysis of the UK Patenting Activities

Liberalisation has had a marked effect on innovative activities in the electricity industry. R&D and patenting activities are generally regarded respectively as innovative inputs to and outputs from technological progress. Electricity reforms have resulted in a reduction in R&D spending in the sector. This paper examines the effect of the reforms on patenting activity in the UK electricity sector. The results indicate that electricity related patents in non-nuclear and renewable technologies have increased in the postliberalisation period. We attribute this trend to increased commercialisation of the sector. While this development is positive, we argue that a lasting decline in R&D will in the longer run reduce technological progress in the sector. In order to maintain the pace of innovation, we discuss the need for a framework for innovation systems that is commensurate with the incentive mechanisms of a liberalised sector.