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United States

From stop and go to forward march

In American states with deregulated gas and electric markets, retail choice has already reached the critical mass needed to guarantee profits. Residential and small businesses are predicted to continue to switch to independent suppliers at an increasingly fast rate. The huge US market, however, favours companies already selling electricity and natural gas.

These are the conclusions in a recent report, "The Rise of a new era: Retail choice gains momentum," by Cambridge Economic Research Associates (CERA), a leading energy research group in Massachusetts.

The most headway in retail choice so far has been in natural gas -- concentrated in the states of Georgia, Ohio, New York and Pennsylvania -- not in the electricity market, says the report. Even so, the analysis is important for wind power by finding the rate at which consumers switch to new electricity providers, adding to previous research which has found that a majority of residential users who switch suppliers do so to buy green power. Furthermore, green electricity marketers selling wind have had to inject a great deal of capital to capture market share without much payback yet.

"This is the breakthrough point in the marketing and economics of deregulated energy in the US," says Paul Parshley of CERA's North American power team. "After many years of experimentation, several companies have a large enough critical mass of customers to achieve the scale needed to drive down the average cost of marketing and customer service and create a profitable retail energy business." Parshley adds that the trend towards natural gas and retail choice is changing from a stop and go process to "Forward, march!"

The report predicted that three million customers will have switched their electricity and natural gas supply to non utility companies by September -- double the number from 1998 -- and the figure will rise another one-third by the end of 1999. Thus, even though the majority of states have not yet opened their markets, customers who have changed to non utility suppliers will number 4,000,000 -- a market nearly the size of Denmark -- by 2000.

While large natural gas retailers have emerged, no major electric providers have yet done so, the report notes, although it does mention Green Mountain, Conectiv and Exelon Energy as major electricity players, the first two of which market green power. Few technical, financial or retail players have entered the energy market, meaning that those who are players do not have enough prowess in marketing or technology to change the playing arena, the report says. The next two states to watch for activity, it notes, will be Massachusetts and New Jersey, which both plan to unbundle gas and electricity by early next year.

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