An Evolving Market
Over the past two decades, there has been a gradual opening of wholesale electricity markets around the world as types of deregulated structures, often referred to as liberalized, are pursued.
In a traditional system, although utilities purchase power from each other when needed, they are primarily responsible for their own generation, transmission, and distribution of power to all of the retail customers in their service territories.
In a deregulated supply system, generation, transmission and distribution are unbundled and customers are no longer captive but are free to purchase from any suppliers on the grid. Buying and selling of power is done through wholesale market mechanisms and transmission scheduling is conducted by an Independent System Operator (ISO).
Buyers and sellers of electricity in the wholesale market, where anyone with sufficient qualifications can participate, can enter and purchase or sell electricity like other commodities. And, like any other commodity, electricity is also traded in financial markets and products.
In the US, about 60% of the country's utilities have transitioned to some form of deregulated structure. In Canada, two provinces – Ontario and Alberta – have restructured their electricity markets in two distinct hybrid models of deregulated structures.
Outcomes of Deregulation
In many regions, a deregulated market structure has achieved its intended objectives – stable, reliable generation and transmission, increased efficiencies and production as well as lowered costs.
As deregulation relates to nuclear generated power, a UC Berkley study of 103 reactors over the past 40 years found that "deregulation and consolidation are associated with a 10 percent increase in operating efficiency, achieved primarily by reducing the frequency and duration of reactor outages. At average wholesale prices the value of this increased efficiency is approximately $2.5 billion annually and implies an annual decrease of almost 40 million metric tons of carbon dioxide emissions."
While benefits have been seen, on the reverse side of the equation, in some locations deregulation has had negative outcomes.
The theory of the market assumes that supply and demand will reach equilibrium at a price that is mutually acceptable to buyers and sellers. But because demand of electricity, upon which we are all so reliant, is not very flexible, sellers have power over buyers, knowing that they will have to buy even if the price becomes unreasonable.
Such was the case in 2000 and 2001, when Californians were subjected to massive electricity shortages and blackouts caused by market manipulations. The crisis cost an estimated $40-$45 billion.
The debate over benefits and deregulation continues.
Regardless of the marketplace structures, there is no question about increasing demand for electricity, however. Since 1980, global electricity consumption tripled, and is forecast to increase by 70% over the next two decades.
