The deregulation of the electricity market in the 1990s has opened the gates for new electricity providers. This market is regularised by the Office of Gas and Electricity Markets (Ofgem). Deregulation has helped the consumer in many ways. These suppliers provide a variety of contracts and services.
The wide variety of supplier options has created a market for advising consumers regarding the contracts and suppliers. One such advisory firm is Utility Bidder, they will give you unbiased advice about switching and contracts.
The Benefits Of A Competitive Market
A competitive and deregulated market ensures transparency in the electricity rates. There is no chance of monopoly from a single player. This transparency triggers investment in infrastructure, encourages energy conservation, and stimulates demand response. All of this benefits the consumer.
The competition provides the consumer with options and choices. A consumer can choose and select the type of contract, its tenure with flexibility. They can make choices concerning the environmental impact of getting electricity from a certain supplier or even the reliability of the service that is being provided.
The electricity supplier will have to tailor their service around the customer experience. They will have to make decisions that ensure that they remain profitable and also have a satisfied customer base. The supplier can work on solutions at the demand side rather than investing on the supply end wherever possible.
A regularised market where a vertically integrated company provides all stages from generation to retail can shift the burden of misfortune on the consumer. They can manipulate the rates of electricity to mitigate the loss. On the contrary, a competitive market shifts the risk from the consumer to the investor.
Such a market also improves performance and efficiency because the risk of investment is on the investor. If a supplier has poor performance it will fail and it will be acquired by a competitor or get replaced by someone who is more skilled and has better foresight.
The Limitations for Consumer
The unregularised market does provide us with many suppliers but it has some limitations for the consumers. One such limitation is the switching between suppliers. A consumer can not switch from one supplier to another supplier without fulfilling some conditions.
If a user has signed a fixed price contract then he will have to wait until the contract expires. And if you want to terminate it immediately then you will have to pay an exit fee. The consumer will also have to make sure that his contract does not renew automatically and also issue a termination notice within the specified period.
The consumer also needs to make sure that he does not have any dues that are not paid. Otherwise, he can not switch to another supplier.
One other drawback is that the biggest suppliers can cannibalize smaller competitors which might result in reduced competition. This will eventually lead to market manipulation by the main players and result in a price increase.
At the end of the day, the competitive market also needs to be regulated by government agencies.