Did you know that the United States isn’t the first or only country in the world to introduce energy deregulation and competition into energy markets?
Energy Deregulation in International Markets
Regulations and guidelines for energy deregulation can differ between countries. For example, Europe is attempting to create an energy deregulated market with a seamlessly integrated grid. The United States on the other hand handles energy deregulated on a state-by-state basis. Some countries like Japan are only partially deregulated, while others have moved back and forth between deregulated, partially deregulated, and regulated models.
Despite these differences, there is one primary element that is the same no matter the country. This element is the fact that through energy deregulation, energy consumers gain the right to choose their energy provider or supplier. This type of choice benefits consumers by opening up electric/gas services to competition. When there’s competition, rates tend to go down in order for the competing companies to retain and gain customers.
Overview of Deregulation Outside of the US
Around the world, there are 57 overseas territories and dependencies and 193 nation states. Between each lies numerous electric systems and grids, all with their own technologies, regulations, and government oversight:
- England and Wales were the first European countries to deregulate.
- When it comes to energy deregulation on an international level, consumers tend to care more about customer service than the supply of gas and electricity itself.
- One driving force in deregulating markets across the globe comes from rising environmental concerns about current fossil fuels and their affects on the climate.
- “Unbundled, competitive energy markets” is a common term used within the global energy industry. Unbundled refers to generation, transmission and distribution transforming from one market to separate markets. This action is what creates competition.
- As countries begin to move towards energy deregulation, it is important for them to continue to develop their own resources. Energy deregulation makes it easier for competitors to enter multiple global markets.
- The United States is one of the largest countries to implement energy deregulation, with more than 6 million residential households switching providers in 2015.
- Ireland energy consumers have the highest switching rate amongst Europeans, with 303,187 customers switching in 2015.
- Portugal has the second highest rate of switching electricity suppliers in Europe.
- In Europe and many other countries, energy deregulation is more commonly known as energy liberalization.
North America Deregulation
Both Canada and the United States have provinces and states that are deregulated. Despite the fact that the two countries are close neighbors, there are many differences in the way both governments went about implementing energy deregulation.
In Canada, customers have the option to choose an electricity supplier and a natural gas supplier. However, it is important to note that this isn’t true for all provinces within the country.
Similar to the Unites States, natural gas prices in Canada reached an all time high throughout the 1970s. By 1980, the nation’s Energy Program gave the government the ability to negotiate pricing for unstable crude oil, as well as charge for new royalties and taxes. However, this all changed when the global price of oil started to fall.
The Canadian government passed further legislation in the fall of 1985. This legislation separated the cost of transmission and distribution from the cost of gas at the wellhead. This particular legislation is what opened the markets to competition but only for industrial and commercial consumers.
Starting in 1986, residential consumers had the option to choose their energy supplier (in Ontario). British Columbia consumers have also seen customer choice for the home as well as Alberta, a province with around 40% of their residential customers purchasing natural gas from a supplier.
Alberta is the first and only of Canada’s provinces to make electricity deregulation available to consumers. In 1998 however, several laws were amended to regulate the grid in addition to supporting customer choice and supplier competition. This province is Canada’s most successful deregulated area, with electricity priced by the hour, and customer choice options for large, medium and small businesses. Approximately 40% of energy consumers in Alberta have made the switch to a competitive electricity provider.
Ontario is considered to be a partially deregulated province because of a 12-month price period plan (and other pricing restrictions) put into place after 2005.
Current electricity suppliers in Canada include:
- Direct Energy
- Xoom Energy
- Active Energy
- Blue Power Distributed Energy Corporation
- Sunwave Gas & Power
- Link Energy Supply
- Just Energy
- Toronto Hydro
- Canada Energy Wholesalers
- Bullfrog Power
Energy deregulation in the United States started around the same time as in Canada, and for similar reasons. The primary reason for switching over to an energy deregulation model however, was to break up the existing utility monopolies. Up until the 1990s, utilities were responsible for all elements of electricity from generation to supply to customer service. The number of utilities within each state were rather small, which for many customers meant that they had no choice over who provided their energy related services.
Without competition there was no urgency to keep the price of electricity low or reasonable. The government decided to take action and congress passed a bill that opened up the energy market to competition.
Since then, many states have made the switch to consumer choice, allowing electricity providers to open up shop and offer supply services to residential, commercial and industrial consumers. It is important to note that while this bill required all states within the U.S to make strides towards energy deregulation, not all states have taken the final leap into offering customer choice.
There are over a dozen states in the US that are at least in some capacity operating a deregulated energy market. These states include:
- New Jersey
- Washington D.C.
- New Hampshire
- New York
Energy Deregulation in the European Union (EU)
The original 15 EU members all have energy deregulated markets, including all of the new ascension countries. The majority of these countries are fully deregulated, except for Hungary and Estonia. These EU countries include:
- Republic of Cyprus
- Czech Republic
- United Kingdom (UK)
The EU decided to open the energy market up to competition in the 1990s, but as part of a gradual process. The first half of the directives went into effect in 1996 for electricity, and 1998 for gas. The second part went into effect in 2003.
The EU decided on several changes including:
- Establishing a clear distinction between the supply of energy to customers and operation of the different networks. In other words — differentiate the competitive aspects of the industry from the non-competitive.
- Allowing third parties to have access to the energy infrastructure via the operators within the non-competitive aspects of the energy industry.
- Removing barriers that stopped alternative energy suppliers from producing or importing electricity.
- Removing customer restrictions around changing electricity suppliers.
- Implementing independent regulators to keep an eye on the industry.
EU 2005 Inquiry into Competition
In 2005, the EU conducted an inquiry regarding competition within the electricity and natural gas markets. While significant progress into energy deregulation had been made, there was still very little cross-boarder trade. The purpose of the inquiry was to identify individual barriers that prevented competition from entering the market.
The EU published the results of the inquiry in a report in January of 2007. This report outlined several problems or issues facing the natural gas and electricity industry including,
- Lack of liquidity, which prevented successful new entries into the market.
- Not enough integration between EU member markets.
- High market concentration within many national markets.
- Customers locked in with suppliers due to unfair long-term contracts.
- Distrust in the pricing due to lack of transparent market information.
Since 2007, the EU has made great strides to try and combat the issues associated with energy deregulation.
Energy Deregulation in the EU Today
Once the EU put energy deregulation into place, it truly started to change the electricity market. European electricity consumers could choose their electricity supplier and generate individual supply agreements. While much of the electricity within these countries is traded directly from the producer to the customer, brokers have the option to also act as an intermediary.
Prior to energy deregulation, the EU was divided into many different energy regions. This problem helped to drive up the cost of electricity for consumers. Since then, every country involved has worked hard to improve their electricity and natural gas grids in order to create a fully integrated system across Europe. This process has helped to encourage other countries outside of the EU (but still within Europe) to move towards energy deregulation.
These countries include:
So far, these incredible investments and upgrade have helped to lower energy prices — specifically for industrial and commercial customers. The ultimate goal is to have those savings benefit all consumers with the added bonus of a highly manageable and sustainable grid. In addition, these changes have helped to increase the import and export of electricity and related goods between European countries. This in turn has benefited the economy in significant ways.
Energy Deregulation in the Asia-Pacific
To help get electricity to all areas of Australia, the country’s power networks started work on a national electricity grid. The only areas that are not part of this national grid are Western Australia and the Northern Territory. These areas have their own grid. The national grid makes up what is known as the National Electricity Market (NEM) and operates through purchasing electricity via generators and delivering that electricity to consumers. Retailers, or electricity providers are paid to manage the supply side of the operation.
The benefit to developing this national grid is that it paved way for energy deregulation, allowing companies to compete for business across the country. In this deregulated market, distributors have the opportunity to sell to consumers from South Australia to Queensland. In the regulated market, this was not possible because the same electricity was managed by the government (at state level).
In 1987, New Zealand switched from a regulated energy market to one that allows room for competing electricity suppliers. Today, their market is split into several area including, regulation, generation, distribution, administration, metering and retail, market clearing, and transmission.
For customers looking to switch to an electricity provider, there are several organizations that help to aggregate information, rates and plans. This is very similar to companies in the United States like Electric Choice, where entering a ZIP code populates a list of electricity providers that provide service within the area. One of the electric choice companies based out of New Zealand includes, Consumer PowerSwitch.
It has only been recently that Japan has started to deregulate its energy markets. Currently, large commercial and industrial companies have the option to choose their supplier. However, many smaller commercial companies and residential consumers do not have the freedom to choose. They must remain with their utility. Japan hopes to change this soon, as many recent government rulings will hopefully help the market to become fully deregulated sooner rather than later.
South Korea & Singapore
Both South Korea and Singapore have yet to deregulate their energy markets, however both countries are taking steps towards allowing customer choice.
Additional energy deregulated countries within the Asia-Pacific region include,
- Sri Lanka