U.S. competitive power market projected to grow

Feb 23, 2005

In its recently published Retail Outlook report, energy consultant KEMA, Inc. projects that the US competitive retail power market will grow at an annual rate of 8 percent through 2009, from approximately 300 Terawatthours (TWh) at the end of 2003 to approximately 475 TWh by the end of 2009. This compares to growth of over 100% from 2001 to 2002 and 16% from 2002 to 2003. The projected growth is expected to come from a substantial increase in participation by business customers in roughly a dozen states.

A terawatthour is equal to one trillion watthours. The average US household uses approximately 10 thousand watthours each year.

After a thorough review of state restructuring policies, several key indicators point towards continued growth in the amount of customer participation over the coming five years. "Compared to early attempts at electric restructuring that imposed price caps and other price controls, the general movement towards market-based pricing for large power buyers has fueled growth in customer participation in recent years and we expect the trend to continue over the coming five years. By contrast, competition for residential customers has not developed with the exception of a few states. This is driven in large part by the continued use of price caps and controls which we expect to continue in most markets," said Taff Tschamler, Director of KEMA's Retail Energy Markets advisory service.

KEMA's projections were conducted under three scenarios: a Base Case, a High Case and a Low Case. In addition to the Base Case projection, KEMA projects approximately 350 TWh will switch to an alternative supplier by the end of 2009 in its Low Case and 750 TWh in its High Case, reflecting the high level of regulatory uncertainty in several states.

KEMA's Retail Outlook analysis provides annual sales projections at the utility and state level for residential and business customers. Key findings from the analysis include:

  • The most active markets are expected to be in Texas, the Northeast and the Mid-Atlantic - Texas being by far the largest and most active state market.
  • KEMA does not project any additional states or utilities to open their markets to retail customer choice under its Base Case and assumes that 7 utilities in 3 states will open their markets under the High Case.
  • As of 2003 about 23% of total US eligible electricity sales had switched and under KEMA's Base Case that number goes up to 32%. Under the High Case it goes up to 43% and the Low Case it drops to 22%.
  • Residential electricity sales served by non-incumbents account for 2% of the US residential total and 6% of US residential eligible volumes as of year-end 2003. Under KEMA's Base Case the percent switched goes up to 13%. Under the High Case it goes up to 22% and the Low Case it drops to 7%.
  • As of 2003 about 32% of the non-residential eligible volumes switched to alternative suppliers and under the Base Case that number goes up to 42%. Under the High Case it goes up to 54% and the Low Case it remains at 32%.

The growth in customer participation is occurring in conjunction with an increase in the number and the size of competitive suppliers. Over the past year, more than 25 firms have entered competitive retail power markets while the top five competitive providers now serve between 2,500 to 10,000 MW of customer peak demand, equivalent to a mid to large sized regulated US utility.

"There's been a rapid growth of diversity among new entrants over the past few years, in terms of ownership, firm size, product offers and financial performance. By contrast, only a handful of firms have exited the market compared to 3 or 4 years ago. This reflects a transition from early dysfunctional markets to a more sustainable environment of customer choice and competition," said Tschamler.

KEMA estimates the Top 10 competitive retail electric providers serving the commercial and industrial market are:

  • Constellation NewEnergy
  • Reliant Energy
  • TXU Energy
  • Strategic Energy
  • Sempra Energy Solutions
  • Tractebel Energy Services
  • Pepco Energy Services
  • FirstEnergy Solutions
  • Select Energy
  • ConEd Solutions

For more information about KEMA's Retail Energy Markets (REM) advisory service, please contact Taff Tschamler at 720-241-0168 or ttschamler@kema-xenergy.com

About KEMA
KEMA's Retail Energy Markets (REM) advisory service is the leading research and advisory service to competitive power markets. KEMA has been providing market intelligence and analysis on retail energy markets since 1996. Originally initiated by XENERGY Inc., which was acquired by KEMA in 2000, the REM service is designed specifically to assist clients that need reliable and detailed knowledge of competitive energy markets.

KEMA is an independent company with an international reputation for high-level technical and management consultancy, testing, inspections and certification for businesses in the energy industry, assisting more than 500 clients in more than 70 countries. Headquartered in Arnhem, the Netherlands with subsidiaries and offices worldwide, KEMA employs more than 1,500 full-time professionals and leading experts in many facets of the energy utility industry. Founded in 1927, KEMA serves the complete spectrum of participants in the energy marketplace and offers a full complement of services supporting generation through the consumer side of the meter. KEMA's North American business operations are headquartered in Burlington, Massachusetts.