Market Change


The electricity market has for the last 100 years been based on the following general principles:

  • electricity is generated centrally due to the economies of scale involved in the generation, the generation technology is also complex and capital-intensive
  • electricity is then delivered to the customers via the electricity grid which is expensive to build and maintain
  • the price of electricity in the whole-sale market is based on the demand and these price changes are reflected in the consumer markets
  • the capacity of the generation and the grid is based on the peak demand, thus leaving some of the generation capacity idle for a significant part of the time

These principles have created the infrastructure that we all use and rely on everyday to deliver the electricity for our needs. The electricity demand has been growing steadily in almost every market in the world and therefore investments have been easy to make. The market has been done with a long-term view and returns on the capital outlays have been steady.

This status quo is now being challenged by a few trends that make the picture completely different. These changes affect the different markets in different ways but in general one or multiple of these trends are beginning to have significant impacts on the electricity markets around the world. The key trends are:

  • the demand for electricity is not growing or even declining (especially in the developed world) due to changes in manufacturing industries and greater energy-efficiency
  • local or distributed generation by private individuals or smaller market players is becoming cheaper and the technology for this is becoming widely available
  • the generation of electricity is moving into renewable and non-polluting technologies due to the severe environmental impacts (especially in the developing countries)
  • technology for monitoring and managing energy usage at homes and small businesses is becoming easier to use and cheaper

Essentially the consumers are taking a larger role in managing the decisions that affect their energy cost, usage, environmental impact and comfort levels. The decisions made by a single individual are small in scale, but decisions by large groups of people will have a significant impact on the “big picture” as well. Well documented examples of this are for example negative wholesale energy prices in some European markets due to wind and solar production, significant reductions in energy consumption during daylight hours in markets like California, Hawaii or Australia (as illustrated below by the so called “Duck Chart” courtesy of the California Inter-System Operator) and the closing of generation capacity in Europe due to low usage.


In the developing countries like China and India the demand is growing sharply, but the environmental impacts of the coal-fired plants are creating serious health issues for the population in general. Therefore increased renewable generation, demand curbing, greater efficiency and the reduction of energy losses in the system are the key issues to tackle in the future.

The regulatory policies created to manage these changes vary from country to country. In some cases legislation has been passed to support the uptake of new generation technologies (feed tariffs for solar and wind power) while in some cases similar schemes have been applied to nuclear generation in countries like the United Kingdom to ensure the availability of sufficient generation capacity in the future. The policymakers are also trying to make sense of the market changes and how to balance the impact of the various forces at play.

It does seem that the price of the local generation and storage will continue to decline and therefore an increasing amount of consumers will start migrating to producing at least a part of the energy they consume. This will further exacerbate the challenges associated with the declining demand of energy from the grid and making the management of the generation capacity even more challenging. The further decline of the price decline in storage will lead to cases where people go “off-grid” and no longer have a grid connection. In the most radical scenarios in Australia this figure is put at almost a third of the population leaving the grid by 2050.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s