When you flip a switch, have you ever wondered how that electricity gets to your home or office? The answer matters for your wallet and the environment.
Electricity is an essential service that we rely on for everything from virtual meetings to powering emergency systems. But the simple act of flipping a switch isn’t so simple. As policy leaders address how to build a lower-carbon economy while keeping energy affordable and reliable, the competitive power markets where electricity is bought and sold will play an important role.
In this video, learn how electricity gets from where it is generated to your home or business – and how competitive power markets help determine where that electricity comes from and how much it costs.
For many years, utilities had a monopoly over both power generation and the delivery of that electricity to homes and businesses in their service area. To build new projects, upgrade operations or cover other business costs, utilities submit rate proposals to local regulators to add charges to customer bills. This can mean that if a project is behind schedule, over-budget, doesn’t get built or is no longer needed, utilities may still attach associated charges to monthly bills.
In the 1990s, the status quo got a shake-up. Parts of the U.S. opened the door to competitive wholesale electricity markets, which allowed more companies to offer power generation choices. Power generators compete in these markets to sell electricity generation based on factors such as price and reliability needs. The markets are overseen by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), which also create a means to plan and share or “pool” generation across a large geographic footprint.
This also allowed the power generation companies operating in these regions to offer electricity across a broader state or region. These companies – known as independent power producers (IPPs), merchant generators and competitive power suppliers – must compete in the marketplace to be compensated. When companies compete to make a smartphone, car, or in this case, generate electricity, they must constantly innovate and nimbly respond to consumer demands and the markets in which they operate. Unlike regulated utilities, competitive power suppliers do not recoup costs through customer bills – rather they rely entirely on market revenues to cover the cost of business.
Learn more about the basics of power markets and how they can help generate more affordable, reliable and cleaner electricity solutions.
Competitive electricity markets help put downward pressure on wholesale power prices, and have been successful in encouraging reliability while also allowing new technology to be built. Competitive market dynamics also help ensure plants that are not cost-effective, not needed, or less efficient go offline. Today, wholesale power prices in many regions are at their lowest level in the history of the restructured market, leading to $3.2-4 billion in savings for families and businesses in PJM Interconnection, the nation’s largest RTO.
The same efficiency that has driven down power prices has also helped accelerate emissions reductions and put more clean energy technology on the grid. In 2019, competitive markets helped drive 150 million metric tons in carbon reductions. In the past 20 years, New York’s ISO has seen a 55% reduction in carbon emissions thanks to the increasingly low cost of cleaner natural gas, renewable resources like wind and solar, and battery storage. And because well-designed markets create a fair playing field for all resources to compete, competitive power suppliers are constantly evolving to meet the needs of the grid.
EPSA member companies – America’s competitive power suppliers – provide about 150,000 megawatts (MW) of electric generation. That’s enough to power more than 117 million homes, or 84% of homes across the nation. But all Americans should be able to benefit from more affordable, reliable and cleaner electricity.
Today, as America determines how to reduce carbon emissions from all parts of the economy, it will be essential to maintain competitive power market integrity and ensure cost and – most importantly – reliability are valued along with environmental benefits. Policies that lean on competition to reduce emissions – such as an economy-wide carbon price or well-designed Clean Electricity Standard – will deliver the best results. It will also be critical to support market mechanisms that allow resources needed to maintain reliability at the least cost to stay online to support the expansion of renewables.
Competitive power suppliers and power markets have provided significant cost savings for consumers, encouraged innovation and delivered cleaner solutions for our grid. EPSA works with policymakers and stakeholders at every level to keep America’s power grid competitive and reliable.
Download EPSA’s fact sheet for a 101 on how competitive power suppliers support reliable, affordable and cleaner energy solutions.