Liberalised Energy: A Competitive Boost or Setback?

The private vs public debate rages on since the distinction was made over a hundred years ago. If electricity is a public good (and perhaps a human right by now!), should the state have full control or is this simply a dinosaur strategy? 🦕

The UK energy market is the perfect place to draw some conclusions, as in recent years it witnessed a significant shift in its electricity and gas markets. The once tightly-regulated industry has undergone a process of deregulation, opening the doors for increased competition among energy providers. As a result, the market has seen a surge in new entrants offering a variety of services and prices to consumers.

But has this new competitive landscape been a boon or a bane for the industry? What have been the implications for the industry and consumers alike?

Let's have a look! 👇

The Deregulation Process 💼

The deregulation of the UK's energy markets commenced in the late 1990s, when the government decided to break the monopolies held by the then 'Big Six' energy providers. The objective was to encourage new entrants, enhance competition, and ultimately drive down prices for consumers. This process has accelerated over the years, with electricity deregulation completed in 1999 and gas market deregulation following suit in 2002.

The Rise of Independent Suppliers ⚡♨️

The deregulation has indeed brought about a surge in independent suppliers entering the market. Today, there are over 50 energy providers operating in the UK, offering consumers a wide range of choices when it comes to their electricity and gas needs. This increased competition has led to a decline in the market share of the once-dominant 'Big Six', which now collectively hold approximately 70% of the market share, down from their previous position of near-total control.

The Benefits of Competition 🥊

Deregulation has undoubtedly led to increased competition in the energy markets, resulting in some positive outcomes for both the industry and consumers. Firstly, the influx of new providers has forced companies to offer competitive prices to retain customers, which has helped to drive down energy costs. According to Ofgem, the UK's energy regulator, the average household energy bill has decreased by around 9% between 2018 and 2021, saving consumers an estimated £75 per year on their bills.

Furthermore, the deregulated market has fostered innovation, as companies look for ways to differentiate themselves from competitors. This has led to the development of new technologies, services, and customer offerings, such as smart meters, green energy tariffs, EV-specific tariffs and more flexible payment options to meet all niches in the market.

The Challenges🗻

However, deregulation has not been without its challenges. The increased competition has led to some smaller suppliers struggling to remain viable, resulting in company failures and consumer uncertainty. Between 2018 and 2021, more than 20 energy suppliers went out of business, leaving their customers in need of a new provider.

While Ofgem's 'safety net' ensures these customers are transferred to a new supplier without interruption, the process can still be disruptive and unsettling for consumers.

And where does the buck stop? Of course it's consumers who end up paying for the failures, with the government having to take over failed electricity supplier bulb.

Additionally, while the deregulated market has provided consumers with a broader range of choices, it has also led to an overwhelming array of tariffs and plans. This can make it difficult for consumers to navigate their options and find the best deal, potentially leading to consumer inertia and a lack of engagement in the market.

Privatisation has been good BUT... 💪

the deregulation of the UK's electricity and gas markets has brought about a mix of positive and negative consequences. While increased competition has driven down prices and fostered innovation, it has also led to market instability and consumer confusion.

It is impossible to draw conclusions on its own though so why don't we compare the UK to say...one of its favourite neighbours? 🥖

How about a nationalised energy market? 🇫🇷

France provides an interesting point of comparison because the energy market is still mainly controlled by the state-owned utility, EDF. While the French market has seen some liberalisation, it has not experienced the same level of deregulation and competition as the UK.

The French model has its benefits, such as ensuring a stable energy supply and maintaining a strong focus on nuclear power ☢️, which contributes to lower carbon emissions.

However, the lack of competition has resulted in less innovation and fewer consumer choices. Energy prices in France have remained relatively stable but higher than in the UK, which has seen a more significant reduction in energy costs due to the competitive market. Moreover, the UK's deregulated market has fostered the growth of renewable energy sources, which now account for over 40% of the country's electricity generation, compared to France's 23%. 🍃

Privatised market > Nationalised market 🧐

Overall, the comparison between the UK and France highlights the advantages of a deregulated energy market, where increased competition has led to lower prices, greater innovation, and a more diverse energy mix. Although some challenges persist (certainly!!!), the UK's experience demonstrates that privatisation and deregulation can bring positive outcomes for both the industry and consumers (not so much when regulators fail to do their due diligence, but oh well!)