Electricity Retail Competition Research Articles

Nonzero-Sum Stochastic Impulse Games with an Application in Competitive Retail Energy Markets

We study a nonzero-sum stochastic differential game with both players adopting impulse controls, on a finite time horizon. The objective of each player is to maximize her total expected discounted profits. The resolution methodology relies on the connection between Nash equilibrium and the corresponding system of quasi-variational inequalities (QVIs in short). We prove, by means of the weak dynamic programming principle for the stochastic differential game, that the equilibrium expected payoff of each player is a constrained viscosity solution to the associated QVIs system in the class of linear growth functions. We also introduce a family of equilibrium expected payoffs converging to our equilibrium expected payoff of each player, and which is characterized as the unique constrained viscosity solutions of an approximation of our QVIs system. This convergence result is useful for numerical purpose. We apply a probabilistic numerical scheme which approximates the solution of the QVIs system to the case of the competition between two electricity retailers. We show how our model reproduces the qualitative behavior of electricity retail competition.

Do gentailers charge higher residential electricity prices in the Texas retail electricity market?

In areas of Texas where energy consumers can choose among retail providers of electricity, we find that the prices offered by companies which are involved in both power generation and retail sales (“gentailers”) tend to be higher than the prices offered by Retail Electric Providers (REPs) which are independent of any generation company. Yet, within the group of gentailers, we find significant differences in their pricing levels and patterns. These findings are based on graphical and regression analysis of pricing plans advertised on the Power to Choose website. We offer hypotheses that might explain these pricing behaviors. As retail competition in electricity markets is considered or refined in other regions, these findings from Texas may prove instructive.

Managing the liberalization of Italy's retail electricity market: A policy proposal☆

Italy will phase out electricity retail price regulation by July 1st, 2020. Until then, residential customers and small businesses who do not choose their supplier are served under a regulated tariff named “maggior tutela” (greater protection), supplied by the local distributor at a price set by the regulator. We review the literature on electricity retail competition – with particular regard to its expected effects on prices, innovation, and customer engagement – and the conditions under which competition is expected to deliver benefits. We perform a Structure-Conduct-Performance analysis of Italy's retail electricity market for residential customers, finding two issues potentially problematic: excessive market concentration and low customer engagement. We propose a phase-out mechanism that relies on graduality, asymmetric regulation, and a mandatory, opt-out collective switching exercise. The mechanism aims to rapidly reduce market concentration by leveraging behavioral incentives to customers to switch to the cheapest supplier.

Managing the Liberalization of Italy’s Retail Electricity Market: A Policy Proposal

Italy will phase electricity retail price regulation by July 1st, 2020. This is the last step in the process of electricity market liberalization, that started in 1999. Until then, residential customers and small businesses who do not choose their supplier, will be supplied under a transitional, regulated service named “maggior tutela” (greater protection), which is supplied by the local distributor at a price set by the regulator. This paper reviews the literature on electricity retail competition – with particular regard to its expected effects on prices, innovation and customer engagement – and the condition under which its benefits may be delivered. Then a Structure-Conduct-Performance analysis of Italy’s retail electricity market for residential customers is performed. Two issues are found to be potentially problematic: excessive market concentration and low customer engagement. Energy poverty is also identified as an issue to be addressed. A phase-out mechanism is finally proposed, that relies on graduality, asymmetric regulation and a mandatory, opt-out collective switching exercise. The mechanism aims to rapidly reducing market concentration by leveraging on behavioral incentives to customers still under regulated prices to switch to the cheapest supplier.

Electricity retail competition: the case of the UK

The objective of liberalising electricity supply was to create competitive retail markets where asset-light suppliers would compete on price. This paper explores the quantitative and dynamic relationship between domestic retail prices and the wholesale price since one would expect a symmetric pattern with a stable and low retail margin. In this article, taking the UK market for analysis, a time-series approach is applied to calculate the extent and timing of pass through between wholesale and retail price variations. The preliminary results indicate that the impact effect and long-run effects from the wholesale to the retail market is quite low.

Electricity retail competition: the case of the UK

The objective of liberalising electricity supply was to create competitive retail markets where asset-light suppliers would compete on price. This paper explores the quantitative and dynamic relationship between domestic retail prices and the wholesale price since one would expect a symmetric pattern with a stable and low retail margin. In this article, taking the UK market for analysis, a time-series approach is applied to calculate the extent and timing of pass through between wholesale and retail price variations. The preliminary results indicate that the impact effect and long-run effects from the wholesale to the retail market is quite low.

LIBERALIZATION OF ELECTRICITY RETAILING IN EUROPE: WHAT TO DO NEXT?

The aim of this article is to provide a mid-term evaluation of liberalization of electricity retailing in Europe, taking into account four limitations to policy analysis: different and often conflicting theoretical points of view, shortage of routinely collected data, problems in disentangling the effect of retail liberalization from those of other related reforms and pervasive regulatory interventions. Lacking a common analytical framework to assess the costs and benefits of electricity retail competition, we firstly built a comprehensive theory on retail liberalization and we then use European Union data on market structure and its dynamics to test the consistency of theory and practice. The analysis highlights the presence of an oligopolistic supply structure, as well as a limited level of customer engagement in the market, which in the case of small consumers is partially justified by the presence of switching costs and informational complexities. Asymmetries in the rate and speed of cost-pass through make the market opaque, challenging the sole reliance on “light-hand” regulation to guarantee a sound market functioning. We identify the situations in which some form of “hard” regulation appear to be necessary to secure the continuity of supply even after the introduction of competition and we propose several implementation solutions according to the weight attributed to the objectives of supply continuity and customer protection. In the light of evidences about European markets, we suggest that the attribution of the Default/Last Resort service through an auction mechanism may favor both the development of upstream and downstream competition, without deterring customer switching.

Have customers benefited from electricity retail competition?

Compared to traditional cost-of-service regulation, electricity retail competition may lead to lower costs but higher markups. Thus, the net policy effect on the average electricity retail price is ambiguous. This paper uses a difference-in-difference approach to estimate the policy impact for U.S. states that restructured their electricity retail markets. The results suggest that in restructured states, only residential customers have benefited from significantly lower prices but not commercial or industrial customers. Furthermore, this benefit is transitory and disappears in the long run. Overall, retail competition does not seem to deliver lower electricity prices to retail customers across the board or over time.

Toward electricity retail competition: Survey and case study on technical infrastructure for advanced electricity market system

The retail competition in electrical power industry may produce benefits in perspectives of both business and environment. Customers can obtain monetary benefits through competition among service providers and exploit diverse electric services which can be more enhanced with the retail competition. In addition, employing distributed/renewable energy generation units can be accelerated by the retail competition, which leads a way for green growth of our society. In order to construct a new retail competition model or reform an existing one, we should conduct substantial amount of decision-makings on distribution automation technologies under an open access paradigm to enable stable grid controls and operations, smart metering for distribution network operators, and information exchanges between service providers and customers. Besides, we should also address critical concerns about security and privacy issues in the retail competition model since personal electricity information is supposed to be exposed, exchanged and exploited by most functions of the retail competition market. In this paper, we present a number of business models and price models which are shared viewpoints of the participants when deploying a retail competition market. We then introduce and summarize the distribution automation standards, and the smart metering interface and relevant standards. Subsequently, we make rigorous analysis on security and privacy issues, and finally we provide an overview of the retail competition model and a number of related academic issues. We envision that this survey will provide an overview of the entire retail competition market and common techniques in smart grid system to researchers and guide them on their research and developments.

Electricity markets and oligopolistic behaviors: The impact of a multimarket structure

The article analyses the development of retail competition in electricity markets, compares market structures and performance in Great Britain and Norway, and concludes that there is no satisfactory outcome in a multimarket setting like Great Britain. We study differences in retail profits between Norway and Great Britain, both considered as benchmarks for competitive markets. We highlight the price parallelism of British suppliers whatever the trend of wholesale prices. These behaviors contrast with the small and stable retail mark-ups in each group of suppliers in Norway. The main explanation comes from the combination of vertical integration and multimarket setting, which allows parallel pricing behaviors in the British retail market. We also evaluate the impact of other factors that influence the dynamic of retail competition: national fuel mixes and institutional design of retail and wholesale markets. However, we demonstrate that a multimarket setting, which is a major feature of most retail markets, remains the main determinant of oligopolistic profit. Remedies must be implemented to correct these market imperfections.

Retail competition in electricity markets — expectations, outcomes and economics

Retail competition in electricity markets — expectations, outcomes and economics

Retail competition in electricity markets—Expectations, outcomes and economics: A reply

Retail competition in electricity markets—Expectations, outcomes and economics: A reply

Retail competition in electricity markets

The introduction of competition into retail electricity supply gave rise to great expectations. However, to date, its performance has proven less than stellar, owing primarily to the theoretical concepts underpinning this reform, which draw heavily on the Austrian school. Neither consumers’ decision processes nor this sector's technical paradigm were adequately accounted for, leading to an uncorrect estimation of the expected impact of opening to competition. Short- and medium-term prospects for the evolution of retail markets must be reconsidered from the perspective of greater stability: not a generalization of competition, but rather a persistent segmentation between active and inactive clients; not a large and rapid diffusion of radical innovations in commercialisation, with the potential for undermining the incumbents’ positions.

ELECTRICITY SECTOR RESTRUCTURING AND COMPETITION: LESSONS LEARNED

ABTRACT We now have over a decade of experience with the privatization, restructuring, regulatory reform, and wholesale and retail competition in electricity sectors around the world. The objectives and design attributes of these reform programs are reviewed. The improvements in sector performance that have been achieved are discussed. The nature and sources of performance problems are also reviewed. Several lessons learned from this experience are identified and their implications for successful ongoing electricity reform initiatives presented. Electricity sector restructuring, regulatory reform and competition initiatives can yield significant consumer benefits when these reforms are designed and implemented well. Applying the lessons learned from recent experience can yield larger consumer benefits in the future.

Retail Competition in Electricity: Market Prices Revisited

Given the practical difficulties of undertaking an ex-post review of whether retail rates are “just and reasonable,” the focus should be on establishing purchasing guidelines or on seeking a competitive contracting-out solution.

Universal Service in Competitive Retail Electric Markets: Whither the Duty to Serve?

During the twentieth century, the privately-owned electric utility was regulated as a natural monopoly. Under the natural monopoly paradigm, a vertically-integrated electric utility provides generation, transmission, and distribution services under the rubric of a single firm serving a geographic service territory. While it is allowed to operate as a monopolist, this firm also has certain responsibilities: it submits to price regulation and assumes obligations to extend service to all customers within its geographic service territory and to continue providing service, once service has commenced. With the advent of deregulation, it is assumed that markets will largely displace price regulation, but little discussion focuses on the implications of deregulation for utility service obligations in the electricity industry. Today, electric utilities' extraordinary service obligations - often collectively referred to as the duty to serve - face their largest challenge ever. Can vigorous retail competition of the type public utility deregulation envisions coexist with extraordinary obligations to serve customers? If so, at what costs? Who will bear these costs? These questions are central to an emerging law and economic analysis known as the jurisprudence of networks, of paramount importance as regulators and courts implement competition in traditional public utility industries, including electricity, where the natural monopoly model is being abandoned or reformed. After summarizing how the duty to serve was implemented in the electricity industry under natural monopoly regulation, this article addresses whether traditional service obligations can coexist with retail competition. A rationale often given for universal service obligations in the telecommunications industry is that universal service, by promoting interconnectivity, enhances network system benefits for all customers. While the network economies argument may have worked to sustain universal service in the face of telecommunications deregulation, it is tenuous when applied to the natural gas and electricity industries. Many reformers look askance at the duty to serve in competitive retail utility service markets, often pointing to conflict between retail competition in electricity and the duty to serve. This article argues, however, that application of extraordinary service obligations to distribution companies in a competitive retail framework can coexist with improved efficiency in retail power markets, although the abandonment of the natural monopoly framework challenges regulators to articulate new rationale for service obligations and to devise new ways of paying for them.

The efficiency of wholesale vs. retail competition in electricity

If markets are sufficiently competitive, the retail model of restructuring is likely to produce a greater array of products and services and lower electricity prices, but the wholesale model may yield lower transaction costs and better encourage transmission investment. Which model is best? We don't know yet.