Energy Sources and Worldwide Competition

Energy sources and worldwide competition

Energy is the base of modern economic and human development. Not only does it provide the required input for different industries and services but also provide a better and efficient lifestyle for the humans. The competition for sources of energy is thus understandable. The competition for energy in fact has intensified and diversified over different sources of energy. In my view the completion for energy is not just restricted to sources which are in limited supply but an increased competition is between different stakeholders for developing newer and more efficient energy sources. The competition is thus healthy and provides an efficient market for energy.

One reason why I feel, competition in energy market is healthy and provides an efficient market is because completion in this market helps in price discovery. Energy constitutes a major component of cost of livelihood and is a major cost in production. Its pricing is thus very important. Competition prevents markets to move too far away from efficient prices and thus influence demand by setting the right prices. For example when crude oil demand rose more than its supply, the prices rose sharply. In the short term, consumers were unable to change their consumption patterns but in the medium and long term consumers did react to high oil prices and demand started to taper off.

 

Another reason why I feel competition in energy markets is good and should be encouraged is because competition prevents any individual energy player to influence prices and supply by gaining a market dominant position. Since prices for similar goods are similar in a highly competitive market, worldwide competition for energy sources prevents abuse of market dominant position by individual players. Competition for energy sources has also lead to the development of derivatives market and trading of energy sources on the bourses like other commodities. Companies and individuals can hedge their energy requirements and speculate on energy prices in active energy markets.

Since energy is one major ingredient in economic development of a country it is very natural for different countries to compete for securing their energy requirements of the future. For example the emerging economies of Asia, China and India are competing fiercely in Africa to secure energy assets and thus securing their future energy requirements. It has also been seen that competition for energy sources has diverted efforts of some market players towards innovation and discovery of different sources of energy which can be effectively tapped like tidal energy and solar energy. It is a work in progress and a positive side effect of competition for energy sources.

However the stiff competition for energy sources is encouraging the price rise as demand for the sources is increasing more than the supply. Also some energy sources which are non environment friendly the competition has resulted in excess exploitation of the resource and thus more damage to the environment. Some mechanisms like carbon credits and tax on polluting industry is the regulatory framework developed to check excess competition and usage for energy sources which are polluting the environment and encouraging clean and green energy sources.

In the end I would conclude by saying that competition for energy sources has lead to more efficient usage and pricing of energy products. It has also increased the energy supply by usage of more efficient and innovative technology, and development of alternate sources of energy. Such completion should be encouraged while at the same time setting up regulations in place to prevent wastage of energy sources.