NCPA - National Center for Policy Analysis

After Germany Smashed Electricity Regulations With A Vengeance

October 28, 1999

Many countries have opened their electricity markets to competition gradually. But in February, Germany abolished all restrictions in a single radical move that has resulted in fierce price wars. Households, as well as businesses, have watched in glee as their electric bills tumbled.

  • Wholesale electricity prices -- what local utilities pay for power -- have plunged as much as 60 percent in the past year.
  • Corporate customers are getting reductions of 30 percent and more -- often without even having to switch providers.
  • Residential consumers are being wooed by slick sales presentations in department stores, on television and over the Internet.
  • In a bid for environmentally-aware customers, some electric companies are even offering "green electricity" -- which costs more but is supposed to come exclusively from renewable sources such as hydroelectricity and windmills.

Indeed, German electricity prices have had a long way to fall. They were more than twice those of the United States and higher than in any other European country except Italy. Germans had been paying 16.1 cents per kilowatt hour, compared to an average of 8.5 cents in the U.S. As a result, Germans consumed an average of only 5,814.5 kilowatt hours per person annually. That compares to 12,025.4 kilowatt hours in the U.S.

Deregulation has sent electricity companies scurrying to protect their bottom lines. One strategy is to set up shop in neighboring countries and hunt for private and state-owned utilities to purchase. The rush is on to set up sales offices in countries like Poland, Italy and the Netherlands.

Even industry insiders are astonished at the speed with which deregulation has totally altered the market.

Source: Edmund L. Andrews, "Cheaper Power to the People," New York Times, October 28, 1999.


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