When an economy proliferates, it looks for options to become more stable and sustainable. The huge U.S. energy market embraced deregulation more than a decade ago in the hope to offer consumers choices and lower energy rates. The competition facilitated it. Customers became happier. Deregulation caught up with states. They followed the suit, but, so far, none is completely deregulated.
We will discuss whether this was a wise approach later in this article.
What are Regulated and Deregulated Energy Markets?
A regulated market has utilities look after everything — from generation to supply. They own complete control over the pricing as well. The state public utility commissions in different states decide the prices. Utilities must abide by them. This limits consumer choice. Contrary to that, regulated markets see stable prices in long-term.
Deregulated markets, on the other hand, have grid operators and suppliers. Grid operators are responsible for ensuring consistent generation of power. The retail suppliers buy the electricity generated and sell it to end consumers. Prices are set by the suppliers. Consumers are gifted with the option to buy electricity from a supplier of their choice.
Is Deregulated Market Better than Regulated Energy Market?
The entire transition was made on the premise of making electricity more affordable for consumers. And, rightly so, as reported by NYSERDA, deregulated states, New York and Texas have seen consistently falling prices over the last decade.
While which of the two markets is better shall be a bone of contention among the proponents of each until tangible long-term effects are visible, deregulated markets certainly seem to have gained popularity in the U.S.
Consumer choice in a deregulated market affects electricity prices. This ability to choose suppliers grants them the power to bring about great changes. Since they are no longer compelled to buy from a single utility, they can show the door to suppliers charging invariably high. Electricity prices, therefore, stay under control to prevent a massive dissent among consumers. This also forces suppliers to think over and improve customer service and maintenance.
Not just that, deregulation brings about grid improvements, paving the way for green energy generation. Studies have confirmed that consumer choice significantly improves grid system. This is because utilities in regulated states do not necessarily have to worry about electricity generation but only supply. They can invest in advanced technology, contributing to low-carbon emission. Besides, since consumer interest sets the next steps for utilities, people demanding clean energy will force generation of energy from renewable sources.
by Ajay Narayan