Regulated vs. Deregulated Retail Electricity Markets
Depending on where your company’s operations are located, you operate in either a regulated or deregulated retail electricity market (or possibly both if your operations span multiple states or electricity grids). It is critical to know the difference between these markets when making decisions about electricity purchasing.
In regulated retail markets, vertically integrated monopoly utilities handle power sales with oversight from a public regulator. Customers in regulated markets cannot choose who sells their power and are bound to their local utility. Regulated markets dominate most of the Southeast and West.
In deregulated markets, retail suppliers can sell retail electricity to end-users. The utility, meanwhile, ensures that all power is distributed and all infrastructure is working properly.
Nineteen states have introduced retail choice (see map), which allows customers to choose their own electricity provider and benefit from more competitive rates and generation options, including renewable energy.
It is important to note that electricity markets are not split clearly between regulated and deregulated retail states – some states, like California, remain partially regulated.
What type of market is your organization located in?
For state-by-state information on the competitiveness of electricity and gas markets, refer to the American Coalition of Competitive Energy Suppliers.
What does this mean for renewable energy procurement options?
If your company operates in a regulated state, it can be challenging or impossible to buy from a large-scale renewable asset, such as a wind farm, and claim climate benefits inside your market. However, utilities are increasingly offering green tariff programs to allow large buyers to tap into the renewables market.
The good news is that even if you are located inside a regulated market, you can still procure renewable energy through a power purchase agreement (PPA) for an asset located outside your state. The asset must have access to a competitive wholesale market managed by an independent system operator (ISO) or regional transmission organization (RTO).
These are the major wholesale electricity markets in the United States and Canada:
Your company can then claim the economic and environmental benefits of your purchased renewable energy through ownership of project-specific renewable energy certificates (or RECs). Your existing grid power supply arrangement will remain in place while your company helps green the U.S. grid.
There are more options in deregulated states, some of which include incorporating renewables directly into your retail supply contract. There is also increased flexibility around contract structure and project location and scale.
Bottom line: The value proposition associated with large-scale renewable energy – lower costs, reduced future price risk, greenhouse gas emissions reductions, and other strategic benefits – is available to all customers, regardless of regulatory regime. But understanding regional regulations is important because they affect your options and the best approach to take.