What’s Holding Back Competition in Energy Markets?

Why It Matters

Without fully competitive markets, energy prices stay elevated and the transition to cleaner, more flexible power systems slows, affecting both consumers and broader economic productivity.

Key Takeaways

• Legal unbundling still missing in ~10% electricity markets
• Retail choice limited for households in many countries
• Smart meter rollout remains low, hindering informed switching
• Demand response programs exclude most residential consumers
• Regulatory gaps risk undermining renewable integration

Pulse Analysis

The OECD’s latest product‑market‑regulation review confirms that the wave of 1990s liberalisation has turned most of the world’s electricity and gas sectors from state‑run monopolies into formally competitive markets. Yet the study shows that legal reforms have outpaced the restructuring of underlying network ownership, with about one‑tenth of electricity systems and sixteen percent of gas networks still only accounting‑separated or fully integrated. This incomplete unbundling gives incumbent operators the ability to favour their own affiliates, dampening the price‑disciplining effect that competition should deliver.

Consumer‑facing barriers further blunt the benefits of liberal markets. In many jurisdictions households and small businesses cannot freely select their retailer, and where choice exists, the absence of independent price‑comparison tools and low smart‑meter penetration make switching costly and opaque. Without clear consumption data, even price‑sensitive customers struggle to identify cheaper offers, allowing regulated tariffs or incumbent pricing to persist. These frictions not only raise bills but also reduce incentives for suppliers to innovate or improve service quality.

The unfinished reform agenda has become more urgent as grids accommodate higher shares of intermittent renewables. Effective demand‑side flexibility—through dynamic tariffs, aggregators, and widespread smart‑meter adoption—remains limited, with roughly one‑fifth of surveyed countries lacking any demand‑response mechanisms and many restricting participation to large industrial users. Extending these programmes to residential consumers can smooth peak loads, lower system costs, and reinforce grid stability. Policymakers therefore need to close the remaining regulatory gaps, ensuring full unbundling, transparent retail markets, and inclusive demand‑response frameworks to unlock the full economic potential of competitive energy markets.