The blessings of energy market liberalization

This week we finalized negotiations of a gas contract which we had started ten months ago. This is the longest period that we have ever spent negotiating an energy contract with a client. It was a gas contract in Germany and due to specific reasons we had no choice but to sign it with the local supplier, a small ‘Stadtwerke’. Making the contract was a painstaking experience. The small concessions that we could negotiate came after repeated, long and painful discussions. The end result is the worst gas contract that we have ever seen and much worse than anything else that we have negotiated for this client. A contract that the client had to sign because nothing better was possible.

This experience has taught me two big lessons.

  1. Liberalizing energy markets was supposed to bring consumers two things: lower prices and better service. As far as the lower prices are concerned, it is clear that power market liberalization hasn’t delivered on that promise. Just compare France’s regulated prices to open market prices from elsewhere. About gas prices, I am convinced that prices would have been higher without liberalization, but we can discuss about that. One thing to me is clear: it is impossible to get a good service for e.g. price fixing in a market that is not open. Therefore, the open energy market has clearly improved the service level offered by suppliers.
  2. Some German energy suppliers still have a long way to go to develop service levels that are anywhere near what you can get in other (surrounding) countries. Therefore, German industrial customers have more than anyone else reasons to work together with international energy purchase consultants such as us. Bit by bit, we will work towards German energy contracts that come closer to what is standard in other countries in terms of price fixing services and volume flexibility conditions.

If liberalization processes run with large difficulties, like we have seen in many countries, it is easy to call for liberalization to be reversed. Now that Anglo-Saxon liberalism has come under so much criticism due to the credit crisis, the call for a return to the good old days of regulated markets sounds even louder. I think that anyone that would have participated in this negotiation process, would have become convinced that competitive energy markets aren’t such a bad idea after all  …

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