Does liberalisation of energy Market (1996, 2003, and 2009) increase price volatility?
Mohammed,
Liberalisation would have an effect, undoubtedly ! But how volatile the prices become depends on sensitivity of the market conditions on energy economics !
Perhaps analysis in terms of an appropriate volatility index could provide better answers.
-Sanjay
The liberalization of energy markets bring great competition into electricity and gas markets in the interest of creating more competitive markets and reductions in price by privatization.
The liberalization of energy markets consists of creation of a competitive market for electricity, the breakup of monopolized supply such that each consumer can select his provider
Liberalization of energy markets leads to more volatility of prices if the energy sources are more volatile (e.g. PV, Wind). This ist partly due of subsidising those energies incresasing their importance in the energy markets (especially because their marginal cost are low and those energies are in the beginning of the merit order curve). On the other side demand is often not very flexible. The creating of future markets reduces volatility to some part. Further, demand side management may help in future.
I think that energy markets today are too volatile. In the time of natural monopoly there was a concern that consumer pays too much, although different tools for market regulation were used in different countries. Liberalization caused price decrease in some countries, but rarely for small consumers (HH). In EU they pay more than industry. In particular, in Germany they pay 0.30 Euro per 1 kWh, well above industrial price that is typically below 0.10. Different taxes and implicit subsidies to renewable energy enter this price.
Liberalization is not necessarily the cause for higher volatility. Volatility depends on market design, and its current structure seems to support it. Market volatility today comes not only from speculative activity (like in stock markets) but also due to randomness of supply of wind and solar (less) energy, which in gaining more share in EU. Small consumers see high price but not volatility, while big consumers and traders see it.
Market volatility was even the cause of bankruptcy; see the case of Californian crisis in 2000.
Thank's everyone for your valuable answer ! I'm taking notes of all your comments
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