Published in La Tribune, on January 6, 2025
Requiring electricity suppliers to exercise prudent management is a good thing. But how far can we go without stifling entrepreneurship and distorting competition?
Inexperienced consumers
During the energy crisis of 2021-2023, the wholesale electricity market was the scapegoat for many European politicians, who accused it of unfairly transferring income to producers. In reality, the wholesale market did exactly what it was designed to do: balance supply and demand in real time and send signals of scarcity in the form of time-varying prices. What is not working as intended in the liberalized electricity sector is final demand. Apart from large consumers, demand in the wholesale market does not come from the end customer, as most buyers are unable to adjust their electricity consumption to spot prices that vary from hour to hour. It is retailers who are exposed to the variability of wholesale market prices where they source their supply. They resell electricity to the end consumer at a fixed, or at least slightly variable, price. In doing so, they absorb wholesale price variations. Many companies, regulators, policymakers, and economists have considered electricity retailing to be primarily a marketing activity where, as in most other sectors, large volumes are purchased upstream to be resold to consumers in a more or less competitive environment. The financial component of this activity has been underestimated, particularly risk management, even though it is essential in a sector where the product cannot be stored...
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