Competitive MarketsBefore being able to assess the potential advantages and disadvantages of a competitive market, one has to understand why a competitive market is being introduced and in what form.Too often, there is a failure to do this and, therefore, benefits and associated costs are not correctly analysed and understood. Sometimes, too much is expected of a competitive market and too readily it is blamed for failures which actually are not directly related to the presence of a competitive market. There are many different forms of competitive market in electricity – both at the wholesale and retail level. Not all are created equal and nor are they designed to be. Thus, it is necessary to understand the context of a competitive market, before one can judge the benefits it is delivering and the price being paid. For example, it is often the case that so called “competitive markets” are designed to be anything but truly competitive and as such, the expectations of what these markets can deliver must be somewhat diminished. Timing is all-important. Reforms are easier to implement with the right market conditions. For example, before a competitive market was introduced in England & Wales, the electricity system had been “gold plated” and there was plenty of scope for costs to be cut with minimal new investment being necessary. Similarly, excess capacity in parts of Australia assisted the introduction of the National Electricity Market in Australia. Competitive markets do not necessarily mean privatisation, but often the two are closely associated because many perceive that the benefits of competition are more likely to flow under the private sector rather than the public sector. The two can and often do co-exist, for example in Australia’s National Electricity Market, where privatisation was top of the agenda in Victoria and South Australia, but did not feature in New South Wales and Queensland. For details of our experience and capabilities in areas related to the above subject matter, please contact Jonathan Hedgecock |
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