Electricity Retailing - Creating A Market

Creating A Market

In 1990 there was a significant development in the way electricity was bought and sold. In many countries, the electricity market was deregulated to open up the supply of electricity to competition. In the United Kingdom the Electricity Supply Industry was radically reformed to establish competition, including a market in advising users about switching supplier. This trend continued in other countries (see New Zealand Electricity Market and deregulation) and the role of electricity retailing changed from what was essentially an administrative function within an integrated utility to become a risk management function within a competitive electricity market.

Electricity retailers now provide fixed prices for electricity to their customers and manage the risk involved in purchasing electricity from spot markets or electricity pools. This development has not been without casualties. The most notable example of poor risk management (coupled with poor market regulation) was the 2001 California electricity crisis, when Pacific Gas and Electric and Southern California Edison were driven into bankruptcy by having to purchase electricity at high spot prices and sell at low fixed rates.

Customers may choose from a number of competing suppliers. They may also opt to pay more for "green" power, i.e. electricity sourced from renewable energy generation such as wind power or solar power.

An electricity provider is often known as "the electric company" or "the power company".