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Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom

Huanhuan Chen, Jinke Li Orcid Logo, Nigel O'Leary Orcid Logo, Jing Shao Orcid Logo

Structural Change and Economic Dynamics, Volume: 72, Pages: 374 - 390

Swansea University Authors: Jinke Li Orcid Logo, Nigel O'Leary Orcid Logo, Jing Shao Orcid Logo

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DOI (Published version): 10.1016/j.strueco.2024.12.001

Abstract

The UK retail electricity market experienced a decline in market concentration as new suppliers (retailers) competed with traditional incumbents. Concurrently, consumer-funded schemes were implemented to support low-carbon electricity generation. To disentangle the effects of these two developments...

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Published in: Structural Change and Economic Dynamics
ISSN: 0954-349X 1873-6017
Published: Elsevier BV 2025
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URI: https://cronfa.swan.ac.uk/Record/cronfa68401
first_indexed 2024-12-01T19:47:23Z
last_indexed 2025-01-09T20:33:28Z
id cronfa68401
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spelling 2024-12-26T11:24:36.0479746 v2 68401 2024-12-01 Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom 1d12dcf12aad73117a2a5f43cf233aae 0000-0001-6325-804X Jinke Li Jinke Li true false fb1a5569008b44e42a4c63a3f971bd29 0000-0002-5971-9306 Nigel O'Leary Nigel O'Leary true false 4957a0af8a9dd429738c64c124c3f8e8 0000-0003-0587-317X Jing Shao Jing Shao true false 2024-12-01 SOSS The UK retail electricity market experienced a decline in market concentration as new suppliers (retailers) competed with traditional incumbents. Concurrently, consumer-funded schemes were implemented to support low-carbon electricity generation. To disentangle the effects of these two developments on the retail price, an autoregressive distributed lag (ARDL) cointegration model was applied to monthly data from 2010 to 2019. Results indicate that, while the costs of consumer-funded schemes contributed to the rising retail price, the declining market concentration unexpectedly pushed the retail price upward. Analysis of the six large suppliers shows that incumbents struggled to lower indirect costs as sales volumes fell, passing higher indirect costs per megawatt-hour to consumers. However, due to competitive pressure from new suppliers, incumbents were constrained from raising retail prices to fully cover these higher costs, resulting in lower profit margins. Thus, competition was evident not through lower retail prices but through its effect on incumbents' profitability. Journal Article Structural Change and Economic Dynamics 72 374 390 Elsevier BV 0954-349X 1873-6017 Electricity market, retail electricity price, market concentration, consumer-funded schemes, indirect costs 1 3 2025 2025-03-01 10.1016/j.strueco.2024.12.001 COLLEGE NANME Social Sciences School COLLEGE CODE SOSS Swansea University SU Library paid the OA fee (TA Institutional Deal) This research received no specific grant from funding agencies in the public, commercial, or not-for-profit sectors. 2024-12-26T11:24:36.0479746 2024-12-01T17:36:07.7110979 Faculty of Humanities and Social Sciences School of Social Sciences - Economics Huanhuan Chen 1 Jinke Li 0000-0001-6325-804X 2 Nigel O'Leary 0000-0002-5971-9306 3 Jing Shao 0000-0003-0587-317X 4
title Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
spellingShingle Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
Jinke Li
Nigel O'Leary
Jing Shao
title_short Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
title_full Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
title_fullStr Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
title_full_unstemmed Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
title_sort Higher prices in a more competitive market: The paradox in the retail electricity market in the United Kingdom
author_id_str_mv 1d12dcf12aad73117a2a5f43cf233aae
fb1a5569008b44e42a4c63a3f971bd29
4957a0af8a9dd429738c64c124c3f8e8
author_id_fullname_str_mv 1d12dcf12aad73117a2a5f43cf233aae_***_Jinke Li
fb1a5569008b44e42a4c63a3f971bd29_***_Nigel O'Leary
4957a0af8a9dd429738c64c124c3f8e8_***_Jing Shao
author Jinke Li
Nigel O'Leary
Jing Shao
author2 Huanhuan Chen
Jinke Li
Nigel O'Leary
Jing Shao
format Journal article
container_title Structural Change and Economic Dynamics
container_volume 72
container_start_page 374
publishDate 2025
institution Swansea University
issn 0954-349X
1873-6017
doi_str_mv 10.1016/j.strueco.2024.12.001
publisher Elsevier BV
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Social Sciences - Economics{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Social Sciences - Economics
document_store_str 0
active_str 0
description The UK retail electricity market experienced a decline in market concentration as new suppliers (retailers) competed with traditional incumbents. Concurrently, consumer-funded schemes were implemented to support low-carbon electricity generation. To disentangle the effects of these two developments on the retail price, an autoregressive distributed lag (ARDL) cointegration model was applied to monthly data from 2010 to 2019. Results indicate that, while the costs of consumer-funded schemes contributed to the rising retail price, the declining market concentration unexpectedly pushed the retail price upward. Analysis of the six large suppliers shows that incumbents struggled to lower indirect costs as sales volumes fell, passing higher indirect costs per megawatt-hour to consumers. However, due to competitive pressure from new suppliers, incumbents were constrained from raising retail prices to fully cover these higher costs, resulting in lower profit margins. Thus, competition was evident not through lower retail prices but through its effect on incumbents' profitability.
published_date 2025-03-01T08:41:21Z
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score 11.048431

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