What Future for Retail Electricity Markets?

The debate around electricity market design to date has focused on wholesale markets, largely ignoring end users and the retail business. Over the last two decades many jurisdictions around the world have opened up their retail electricity businesses to competition, to enable greater consumer choice. However, retail choice and competition has not benefited all users. While large customers who have the means and sophistication to evaluate and utilise such choices have been able to obtain better deals, this has not occurred for small customers. Paradoxically, this has led to government interventions in the market, such as the introduction of a price cap in the UK (one of the pioneers of market liberalisation).

Future retail market design will also be important as electricity markets are undergoing fundamental changes driven by goals on decarbonisation, digitalisation, and the changing role of consumers due to decentralisation. The emergence of “prosumers” or proactive consumers with Distributed Energy Resources (DERs) and the ability to produce, consume and trade electricity with the grid or with other users, could radically change the functioning of the retail market. It also challenges the current role of licensed electricity suppliers as the sole suppliers of electricity to customers (acting as ‘hubs’ in the market). Existing retail market regulation does not permit customers to have more than one supplier, whereas in the future, customers may be buying electricity from a variety of sources and selling back what they do not need to other users.

This paper addresses three main questions: what is the future of the retail electricity market? How can competition be reconciled with consumer protection? And, how can the electricity market be redesigned in order to allow emerging and innovative retail models to grow?

By: Rahmat Poudineh