I get the difference in country perspective, and the difference between a regulated local monopoly (which I believe you have in US) vs a market structure with a regulated distribution network, but a large choice of retail suppliers.
Incidentally, there are 6 large UK suppliers, and multiple smaller ones, so this is far from perfect competition, but also far from a monopoly. According to this report retail margins are about 7 per cent, and the previous margin was only about 3 per cent. Even in a “good year”, the big six suppliers are making an average profit of around £100 per year on an average bill of around £1400 per year. So if the retail price dropped to 9 pence per kWh as opposed to 10 pence per kWh, the firms would probably be making a net retail loss.
While the current profit margin probably does encourage entry, I can’t see any way that the retail price could drop to 4.5 pence per kWh and still allow a supplier to make a profit. It seems quite possible that a new supplier could start up offering 5 pence per kWh, and would rapidly grab market share: the fact that no-one in UK is trying that suggests that it just doesn’t stack up as NPV positive.
I get the difference in country perspective, and the difference between a regulated local monopoly (which I believe you have in US) vs a market structure with a regulated distribution network, but a large choice of retail suppliers.
Incidentally, there are 6 large UK suppliers, and multiple smaller ones, so this is far from perfect competition, but also far from a monopoly. According to this report retail margins are about 7 per cent, and the previous margin was only about 3 per cent. Even in a “good year”, the big six suppliers are making an average profit of around £100 per year on an average bill of around £1400 per year. So if the retail price dropped to 9 pence per kWh as opposed to 10 pence per kWh, the firms would probably be making a net retail loss.
While the current profit margin probably does encourage entry, I can’t see any way that the retail price could drop to 4.5 pence per kWh and still allow a supplier to make a profit. It seems quite possible that a new supplier could start up offering 5 pence per kWh, and would rapidly grab market share: the fact that no-one in UK is trying that suggests that it just doesn’t stack up as NPV positive.