Deregulation of the electricity sector has had mixed results. Advocates hope to end monopolies and lower prices, but detractors argue that demand remains fixed. Belgium and England have completely deregulated, while the rest of Europe maintains a hybrid system. The US deregulated in the 1990s, but customers in deregulated areas pay more. However, some companies have developed more efficient pricing.
Deregulation in general has been a hot topic of discussion during election seasons at regional and local levels. Deregulation is when the government relaxes or removes regulations in an industry so that the free market takes over, allowing the balance of supply and demand to set the market price. While deregulation was generally considered successful in the airline and banking sectors, electricity deregulation did not work in the same way.
Advocates of electricity deregulation hope to end the unnatural monopolies enjoyed by electricity companies. With more power generation companies, they argue, the wholesale purchasing power rate would fall. At the same time, offering customers more choice in which electric company to use for service would create healthy competition among service providers, thereby lowering overall consumer prices.
Deregulation detractors like to point out that, unlike the aviation industry, for example, consumer demand does not vary on the basis of cost. In the middle of a cold winter, people still need to heat their homes, just as they must cool them down in the hot summer months. In essence, demand remains fairly fixed even as supply fluctuates. Without a responsive market, they say, electricity deregulation doesn’t work as it should.
As of 2004, Belgium and England are the only two countries to completely deregulate the electricity sector. The rest of Europe maintains a hybrid of public and private companies in which governments handle the regulation of power for customers while the private sector generates the power. In Asia, Hong Kong has a proposal to deregulate electricity by 2019, with a 50% deregulation target by 2014. The plan hopes to rid the area of an electricity monopoly, but could backfire if there are too few private companies. Integration into China’s electrical infrastructure can also cause complications and service interruptions.
The United States took the first step toward deregulating electricity in the 1990s. While service providers remain subject to government regulations, companies that generate power can sell it on the open market. Even after service provider deregulation, however, the physical lines that carry power to homes and businesses remain regulated. In Texas, customers in deregulated areas were found to pay more for electricity than those in areas still subject to government regulation.
While electricity deregulation doesn’t quite work as planned, it is not without some benefit. Discovering a lack of fluctuation in demand has, in some cases, led electric companies to develop a more efficient way to charge for electricity. In the wholesale market, price fluctuations change based on factors such as time of day and weather conditions. In the future, electricity customers will be able to take advantage of these fluctuations by scheduling most electricity usage to coincide with cheaper prices.
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