Question

Explain the differences between a “regulated” and “deregulated” (competitive) electricity market.

Answer 1

A regulated electricity market will have price regulations, restrictions to entry into the market and other barriers that can brought by the government, whereas deregulated electricity market will have demand and supply forces to decide the price of the electricity and its variant products as well as output to be produced. Further, there are be large number of electricity service providers if they can enter the market. In contrast to it, when electricity market is regulated, then it is the government or government sponsored agencies that decide the rule of industry, number of players to operate and price to be charged for the electricity.

In regulated electricity market, customers also face the regulations as they cannot chose their service providers and they will be forced to opt for the service provider, designated by the government. It is the electricity service provider that has complete control over the A to Z of electricity related devices, transmission lines and delivery system of electricity, but price is decided by the government. Though, it is not the case in deregulated market, where private firms can also operate their own plants, own delivery lines and customers can opt for the service provider if they have the flexibility to chose form.