Energy Products

The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
Adam Smith, Book I, Chapter XI, Part III, Conclusion of the Chapter, pg.292

The question of regulation and liberalization of the markets is in the world, heavily tested by the financial crisis, obviously burning. Many kinds of regulation are mentioned especially on the energy markets field, because of state’s dependency on their energy sources. On the other hand, the basic economy principles teach us, that all those interventions might by counterproductive.
In fact our argumentation is not purely against the energy markets regulation, we also think, that fast and unconsidered reduction of rules would cause more damage than profits. It is generally known, that there is a pretty tough oligopoly structure on this market or high costs of entry in to the business. Especially the second argument seems to be really strong in this case. As a regulation – pro example the case with natural gas prices manipulation, which was made by Enron after California’s deregulation, can be mentioned.
We believe that well working and tested regulatory framework can provide effective allocation. The regulatory rules must be sometimes updated and validated, but every change must be very deeply examined and all possible consequences detected.
Regulatory framework basically provides:

  • Protection of consumer interests
  • Promotion of the quality and reliability of energy supplies to consumers
  • Support for competition
  • Making energy utilities’ operation more effective
  • Ensuring stability of prices

Renewable energy sources
By year 2020 the Czech Republic should meet 13% minimum proportion of renewable energy sources. This obligation needs lots of investments. Therefore the Czech Republic adopted EU standard of subsidization photovoltaic power stations. However, as it seems like a good idea, it has some negative consequences. After an implementation in 2009 the number of Czech photovoltaic power stations rapidly increased, yet the stability of power network is endangered. The authorities are considering unplugging some of recently built units. In Spain a curious case was detected. The photovoltaic panels had been floodlighted and the power station produced subsidized solar energy at night. Of course that somebody had to notice after some time, but imagine floodlighting panels by daytime… A perfect “pure” energy sold at level of subsidized price.

It’s difficult to make definite conclusion about the regulation of energy markets. Despite we believe in the power of the market, there are some strong arguments for the regulation. If we look on this branch, it’s necessary to bear in mind that it has lots of specific features as strong tendency to be natural monopoly due the ownership of resources and network character of this business and also security risks, because energy is the key source for the whole economy.
Although all theoretical arguments, we have made some findings based on empirical observations which point out that several regulative actions lead to inefficiency of the industry. Example of this are public support of specific way of production as solar energy or wind power plants, which cause that there are employed less efficient resources and increase of risk due the irregular delivery. Another example is state ownership of the dominant company and state regulation of the price, which can create certain form of inefficient tax. As a result are high prices for consumers.
We are persuaded that liberalized market can work, maybe with some complications, but in long run it delivers economic benefits. Our opinion is supported by empirical evidence made by OECD. So, our recommendation is, that every regulatory step has to have clear purpose and must be take whit regard to it’s effects on the whole sector.

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