However, the greatest change can be seen in the noisy charts of the half-hourly wholesale spot price for electricity. The industry has moved from stable, regulated prices to volatile, market-determined prices. The risk management implications of this change are enormous. In a deregulated market, energy producers and retailers are forced to manage price risk. This demands that the industry develop entirely new skills.
Deregulation leads to a major realignment of the economics of production assets.
Market-determined pricing also changes the economics of production assets. For example, the value of a gas-fired electricity generator is very different after a move from regulated to deregulated markets. In the electricity market, like any other market, different players will have different price risk management objectives. Many generators are option holders who do not have to produce if the price is too low. For generators, the higher the market price, the better.