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History of the Energy Markets

October 11, 2017

History of the Energy Markets

There was a time when electricity was just as exciting, if not more so, than the internet is today. For the first time humanity was able to harness the power of nature, store it as electricity, and use it a thousand kilometers away. The energy industry made enormous progress in the first few decades of its existence, but then innovation nearly stopped.
It’s only recently, with the advent of the deregulation of the energy industry, that we have begun to see an increase in innovation in the industry; it is needed now more than ever.

Birth of the Electrical Age and Industry Regulation

To understand how energy deregulation came about we need to start back at the first few decades of the electricity era from 1882 to 1914. At this time electricity was changing the world; with the now famous battle between Tesla and Edison – better known as the War of Currents – taking over the media.
Eventually Tesla won this war and Alternating Current became the standard method of distributing electricity. The race was on to install the distribution lines to bring this new power to the masses. Many private companies competed to deliver this electricity to end-customers, even building competing lines to the same cities. The competition was quite fierce and often drew complaints from consumers and politicians alike. These companies were accused of providing spotty service, charging high prices, and ignoring areas that were less profitable.
Eventually, governments stepped in to regulate and oversee the energy industry to protect consumers and ensure a more reliable service. Governments created organizations that were contracted to be the sole providers of energy in each region, and made laws to ensure that these companies provided this energy safely, reliably, and for a fair price. In exchange for a long list of restrictions on their ability to operate, these companies were granted a monopoly in their markets and guaranteed returns on their investments: the modern utilities were born.
This arrangement seemed to work for a while, and the electricity grid grew rapidly until nearly every home and business was connected to the electricity grid. Eventually, however, issues began to arise. Many utilities earned profits based on a return on their investments and as a result they were incentivized to spend money. This led to hugely wasteful investments in outdated technologies, but very limited investment in new ones. Consumers began to complain about the lack of innovation and poor customer service.
Many thought that there would be more innovation, and consumers would get better deals, if there were more competition in the industry.

The Re-emergence of Deregulated Energy

Despite consumer complaints, governments were hesitant to deregulate the entire industry, fearing that they would recreate the problems of the early 1900’s. Instead, a solution was found which allowed utilities to maintain their transmission and distribution monopolies but introduced competition in the generation and retailing of electricity and natural gas.
This arrangement ensured that there would be increased competition in the energy industry but customers would continue to receive service from their utilities, that lines would continue to be managed and owned by their existing owners, and service would not be impacted by new private companies.

Generation Deregulation:

This let average homeowners and small companies to generate their own electricity, allowing everyone to install solar panels on their rooftops and, in many markets, sell their excess electricity back on to the grid. This trend continues to grow and could in the future lead to a majority of our energy coming from decentralized solar panels and wind turbines scattered across the country rather than a handful of coal and nuclear power plants.

Retail Deregulation:

This allowed private companies to offer new and innovative product and service solutions to customers for their electricity and natural gas. This is also commonly referred to as behind the meter innovations. It allows private industry to improve the service that customers receive from the industry, and begin to take charge of their energy usage. This is usually done in the form of different pricing options, but increasingly companies are also finding other unique ways to provide value to customers.