۱- Introduction

۲- Literature review

۳- Regulation of the Dutch retail electricity market

۴- Method and data

۵- Results and discussion

۶- Conclusions and policy implications

References

Abstract

This paper examines market structure, regulation, and market performance of the Dutch electricity retail market for households since its opening in 2004. Using data containing monthly prices for all products offered in the Dutch retail electricity markets over the period 2008–۲۰۱۴, we provide quantitative results on the intensity of retail competition and the benefits to consumers. Regulation of the retail electricity market is relatively intensive and encompasses structural measures, contractual restrictions, rules on information provision, price surveillance and market monitoring. In contrast to most other countries, the Dutch regulation includes a kind of price regulation which is that the regulator surveys all new retail prices before market introduction in order to prevent too high retail prices. The Dutch retail electricity market has remained relatively concentrated, with retailers offering an increasing variety of retail products, often using multiple brands. Competition is characterized by product innovation, especially for green energy, rather than price competition on homogenous products. Gross retail margins remain relatively high, as is price dispersion across retailers. The market matured, as evidenced by fewer consumer complaints and higher switching rates.

Introduction

In their cross-country monitoring report, European regulators (ACER/CEER, 2015) conclude that many retail markets remain very concentrated with aggregate market share for the three largest electricity retailers of 70% or more.1 Across the board, strong product innovation is observed especially regarding contract duration, additional services and sustainability. Overall, it is said that the transition towards a competitive and efficient retail market depends on the ability and the willingness of individual well-informed households to actively search for and select contracts that best fit their needs (see also Ofgem, 2011a). Although aggregate market developments are similar across many markets, idiosyncratic differences in regulation and (initial) market structure affect market outcomes. This paper provides an in-depth analysis of the evolution of competition in the Dutch retail energy market for household consumers since its full opening in 2004, and documents the evolution of both market structure, regulation and market outcomes. During this period, the regulation of the retail energy market became gradually more intensive. This increased intensity aimed at improving competition by eliminating market failures. These market failures in particular refer to the lack of transparency and negative spill-overs of bad experiences with one retailer (bankruptcy, fraudulent billing, and bad customer support) on consumers’ faith in the market. Because of the large number of regulatory changes in the Dutch market it is unfortunately not possible to empirically test the impact of those change on market outcomes. Our analysis therefore consists of two parts. First, we describe the changes in the regulation in the Dutch retail energy markets, and give a qualitative assessment of the importance of those regulations (Section 3). In the second part of the paper, (Sections 4 and 5), we provide quantitative results on the intensity of retail competition and the benefits to consumers. We analyse market structure, product innovation, pricing strategies, gross retail margins as well as consumer behaviour. The analysis relies mainly on a dataset collected by the Authority for Consumers & Markets (ACM), containing monthly prices for all products offered in the Dutch retail electricity markets over the period 2008–۲۰۱۴٫ We find that the Dutch retail market remains concentrated, despite numerous entrants, as entrants remain small and entry has been offset by (horizontal) mergers. The number of products has increased strongly, while the gross retail margin decreased slightly. However, price differences between retailers remain high, and a large fraction of consumers has never switched.