1. Building Efficient & Innovative Retail Electricity Markets
Douglas Cooke
Senior Counsellor
Presentation to the IEA-Russian Market Council Conference Russian Energy Market: the Present and the Future
Moscow, 5 December 2012

2. Presentation Outline Retail Market Structure
Retail Market Arrangements
Toward Cost-reflective End-user Pricing

3. Suppliers of Last Resort dominate electricity retail markets
Regional Market Shares of SLR’s in 2010
Barents
Arctic Ocean
Sea
Norway
Sweden
Laptev Sea
Finland
Baltic
Sea
Estonia
Latvia
Northwest
SLR: 85%
Lithuania
Belarus
Central SLR: 80%
Urals SLR: 81%
Ukraine
Siberia
SLR: 83%
Volga
SLR: 75%
South
SLR: 85%
Lake Baikal
Georgia
Caspian
Kazakhstan
China
Armenia
Sea Km
Azerbaijan
Aral
400
800
Sea
Mongolia
Note: Urals figures are for 2009

4. Retail markets were very fragmented with high levels of concentration …
Volga Federal District: 2007

5. … but levels of concentration are falling as independents build market share …
Volga Federal District: 2010

6. … however, there is still a way to go to achieve a more competitive structure

7. Options to develop a more diversified & competitive retail market structure
Facilitate the development of retail companies with a wider regional & national presence
Identify & remove remaining policy, legal, regulatory & market barriers to new entry
Consider reinstating auctions for Supplier of Last Resort services & franchises
Build effective competition supervision to support competitive market development

8. Retail Market Arrangements

9. Key requirements for efficient & innovative retail markets include:
Cost-reflective, time-of-use pricing
Simple & efficient legal frameworks, market rules & processes

10. Simple & efficient legal frameworks, market rules & processes
Contracts
Metering
Switching & Moving
Settlement & Billing
Retail
Market

11. Key requirements for efficient & innovative retail markets include:
Cost-reflective, time-of-use pricing
Simple & efficient legal frameworks, market rules & processes
Access to accurate & timely information

12. Access to accurate & timely information: Spanish example
Customer Information
Individual or entity name
Location
Default & arrears history
Contract Terms & Conditions
Product & tariff type
Date last changed supplier
Date last changed product
Payment terms
Consumption Information
Usage over last 2 years
Consumption profile
Consumption class
Technical Information
Voltage
Metering type
Availability of power management systems

13. Key requirements for efficient & innovative retail markets include:
Cost-reflective, time-of-use pricing
Simple & efficient legal frameworks, market rules & processes
Access to accurate & timely information
Customer awareness & engagement

14. Customer awareness & engagement: Texas electric choice program example
Website Home Page
Electricity Basics
Overview
Links covering a range of issues
Why Switch?
Reasons
Questions to Ask Yourself
Switching Process
Ways to Save
Compare Offers
Process Overview
Step 1: Understand Choices
Step 2: Questions to Ask Providers
Step 3: Compare Offers
Resources
Publications
Low Income
Your Rights
FAQ’s

15. Key requirements for efficient & innovative retail markets include:
Cost-reflective, time-of-use pricing
Simple & efficient legal frameworks, market rules & processes
Access to accurate & timely information
Customer awareness & engagement
Enabling technologies

16. Enabling technologies strengthen real-time price responsiveness
30% higher response with technologies
Source: Faruqui & Palmer 2011

17. Toward Cost-reflective End-user Pricing

18. Considerable progress has been made toward cost-reflective pricing …
40-50%
increase
3x-4x increase
… but further adjustment may be required to achieve the goal.

19. Timely & effective removal of subsidies requires an integrated approach …
Price Growth 5% pa.
$/kWh
Lower cost-reflective price
50% P1
Cost Reduction 5% pa. P2
Halve Period
5 yrs
10 yrs
Time
… to lift end-user payments while reducing cost-reflective price levels.

20. An integrated approach to removing pricing subsidies could include:
Increasing end-users prices consistent with capacity to pay
Replacing cross-subsidies funded by electricity users with direct payments funded by government
Improving sector efficiency to reduce the level of cost-reflective prices
Competitive & innovative wholesale & retail markets
Efficient network & system operation costs

21. End-User Price Controls: A Safety Net or Impediment to Efficient Pricing?
Rationale for price controls:
Limited price responsiveness (inelastic demand)
Protection for low income, vulnerable consumers
A ‘safety net’ while robust competition develops
But experience suggests that price controls can be harmful once competition is effective
Discourages innovative products & services
Undermines new entry & competition
Discourages end-use energy efficiency
Favours wealthier consumers who use more (regressive)
Distorts efficient market development & reduces overall benefits for consumers

22. Evidence suggests that residential users can & do respond to time-varying prices
Source: Faruqui & Palmer 2011

23. … and that low-income households can benefit from real-time pricing products
65% with lower bills
Source: Faruqui, Sergici & Palmer 2010

24. Some principles for managing end-user price controls:
Retain price caps as a ‘safety net’ during the transition to robust retail competition
Ensure price caps provide sufficient ‘headroom’ to facilitate unwinding of subsidies & development of competitive retail markets
Longer-term – review need for end-user price caps, with a view to removing them where retail competition is sufficiently strong

25. Spaciba Contact details:
Web: