The politics of transitions in electricity: Contested retail market designs and their significance for demand-side energy resources

In many countries, as part of an attempt to decarbonise, electricity systems are changing to accommodate more distributed energy resources. Distributed energy resources involve a more active role for energy users, when power is generated and stored behind the meter, and demand is reduced or shifted in time. Assuming that rules, firm structures, technologies, and end-user practices co-evolve, public policy and regulation will influence the decisions of firms and end-users, and vice-versa. This thesis asks how a specific set of rules, namely electricity retail market design is related to the wider adoption of distributed energy resources. For decades, electricity firms operated as vertically integrated monopolies with an exclusive license in a region. Since the 1990s, policymakers in several jurisdictions chose to restructure the industry to enable end-users to choose between competing electricity providers separated from distribution networks. In other places, policymakers chose to retain a regional monopoly in electricity retailing or introduced competition without unbundling of distribution networks. Therefore, electricity retail market designs vary across jurisdictions today.
This thesis analyses these differences by asking, “what is the political significance of electricity retail market design institutions for decentralised energy transitions on the demand-side?” The ‘political’ is defined as the realm of contestation and of varying distribution of resources and opportunities. ‘Transition’ dynamics are conceptualised through a socio-technical ‘multi-level-perspective’ lens that focuses on co-evolving realms of public policy, technology, and practices of firms and end-users. The thesis analyses ‘transitions’ as changes in these various spheres. The focus is on studying decision-making by policymakers, incumbent electricity companies, and innovative ‘newcomer’ firms. Empirically, the thesis studies electricity transition processes in two phases. First, it examines restructuring reforms in three US states - Massachusetts, California, and Texas - in the early 1990s, where new rules and electricity firm structures were created. Secondly, the thesis analyses business models, to study recent and ongoing processes of innovation that lead to increasing adoption of distributed energy resources behind the meter.
The thesis’ methodology is qualitative, and data came primarily from the US, Europe, and Australia. The main sources were publicly available documents; interviews with observers, policymakers, industry experts, company representatives, and other key informants; as well as field notes prepared at industry conferences. The analysis used two different approaches: firstly, the contested and hence political nature of electricity retail market design was explored through discourse analysis. Secondly, the analysis of business model evolution compared processes of building business models in jurisdictions with different electricity retail market designs. This allowed analysing how electricity retail market design influenced the access to resources and opportunities for demand-side resource providers and their customers.
The research finds that there are three main contested assumptions that underlie different electricity retail market designs. Firstly, there is disagreement about the meaning of efficiency and welfare, along with assumptions about what type of institutional arrangement can best achieve these aims. Secondly, there are disagreements between those who frame electricity as a special type of service that requires different rules, and those who believe it should be treated similarly to other products. Thirdly, framings of what constitutes meaningful ‘choice’ differ between those who privilege individual market choices over collective choice by policymakers. Depending on these different framings, actors highlight different problems as important and propose varying policies as solutions. These underlying assumptions are reflected in current debates about how institutional frameworks should evolve.
Additionally, the research found that electricity retail market design influenced DER newcomers’ access to resources and opportunities in some cases: in jurisdictions without dedicated policy-support, electricity retailers and their customers were able to realise standardised DER projects, such as micro-generation, distributed storage, and simple demand response measures, where market conditions were otherwise favourable. These findings contradict the literature criticising electricity retail competition as hampering the emergence of distributed energy. At the same time, the findings refute literature that suggests competition is important for innovation in energy services. The research found that for many types of distributed energy business models, electricity retail market design does not play a significant role because the business models rely on revenue streams and customer channels independent of electricity retailers. As long as there is adequate policy support for resources behind the meter, electricity retail competition is not a necessary condition for distributed energy service business models to prosper. Different types of DER newcomers and customers can benefit from varying types of electricity retail market design. Competition enables those newcomers and customers with the necessary understanding and capabilities to benefit from a greater range of options in tariffs, contracts, and contestable functions. Retail monopoly reduces the options and thereby the complexity which can be better for newcomers and customers with fewer resources and capabilities.
The study also found that competing retailers have not successfully promoted bespoke, tailored energy services which require more in-depth analysis of a customer’s premises, outside of regulatory obligations. This means that competition in retail does not drive these deeper, specially tailored distributed energy projects. This finding supports literature suggesting that on-going policy support is necessary, especially to improve building energy efficiency. Finally, the research did not find evidence to suggest that competition and unbundling of distribution network companies hamper implementation of well-designed policies to promote demand-side resources. Therefore, distributed demand-side transitions can occur under all kinds of electricity retail market designs.
This thesis therefore makes an important contribution to literature on energy services and electricity retail market design. It investigates business model innovation comparatively, after recent technological change and decarbonisation policies have improved the prospects for demand-side energy resources. Moreover, it makes a valuable contribution to policy practice and literature on socio-technical transitions in electricity by analysing the history and politics of retail market design with a focus on discourse and contested assumptions.

Keywords: California
unbundling
Massachusetts
energy services
energy retail market
ERCOT
discourse
electricity
energy market design
electricity market reform
liberalization
distributed energy resource
socio-technical transitions
restructuring
Advisor: Eyre, N