Do you know these two types of market? Save on your energy bills by choosing the type of market that best fits your needs.
Source: Freepik
Author: Redaction
In the energy sector vocabulary, the terms "regulated market" and "free market" are often used interchangeably and can thus be confusing terms for consumers. It is crucial to understand that, although related, these concepts have important distinctions that directly impact the choice of energy supplier and its total cost in the end.
In Portugal, because there are different bodies in the electricity sector, there are also several roles that aim to facilitate the understanding of the final consumer, and that may be to regulate the functioning of the market or to work through offers and tariffs applicable to the end customer, either in the regulated market or in the free market, depending on the characteristics of the contracted service and who manages it.
Regulated market
The regulated market is characterized by the presence of a government agency, ERSE - Energy Services Regulatory Authority, which assumes the role of regulator, defining energy prices, tariffs and general conditions of supply.
Having been the first type of market to emerge, it is usually the most chosen by consumers, because there are advantages in the fact that there is intervention of a government agency, for the protection of consumers and in the mitigation of abrupt fluctuations.
Thus, the main duties of the regulated market are to ensure consumer protection, keeping them informed and providing a good quality of services, but also to define tariffs, reviewing them annually.
Main advantages
• Stability and predictability: prices set by the regulatory authority provide security and allow better planning of energy expenditure;
• Protection against market fluctuations: the consumer is protected from price peaks and market volatility, especially in times of crisis;
Main disadvantages
• Less choice: the offer is generally limited to a single supplier, which restricts consumer choice;
• Less incentive for innovation: strict regulation may not stimulate the development of new technologies and more efficient and sustainable energy solutions;
• Potential for less competitive prices: in the long term, prices in the regulated market may become less advantageous compared to the free market, due to less flexibility in adapting to market dynamics.
Free market
In contrast, compared to the regulated market, the free market is characterised by its openness to competition between different energy suppliers, having emerged 18 years ago with the aim of reducing electricity costs and improving available supply. From the moment the free market began to operate, the regulated market was no longer the only one, creating competitiveness in the prices and services provided.
Therefore, the free market is governed by the competition rules, the legislation in force and the Trade Relations Regulation.
In the free market, traders have the autonomy to decide prices and trading conditions themselves, unlike in the regulated market where it is ERSE that tables all this.
Another point to highlight is the fact that the free market is not subject to loyalty, and may change trader when it wants.
Main advantages:
• Wider choice: The consumer gets access to a wider range of tariffs, service plans and suppliers, allowing choice according to their needs and consumption profile;
• Encouraging innovation: competition drives companies to seek more efficient, sustainable and competitively priced solutions to attract and retain customers;
• Potential for lower prices: competitive dynamics can lead to more advantageous prices for the consumer, especially for those who follow the offers and compared different options.
Main disadvantages
• Prices may vary and require monitoring: the consumer needs to be aware of market fluctuations and offers from different suppliers to ensure the best cost-benefit;
• Need for research and comparison: choosing the ideal supplier requires active research and detailed comparison of tariffs, service plans and reputation of companies;
• Exposure to market risks: the consumer is subject to fluctuations in energy prices and may have to bear unexpected costs in case of market spikes.
What to choose?
If you still have doubts about which of the two types of market is the most advantageous, it is best to consider that one of the two may be more appropriate to your type of profile, considering, for example, that the regulated market is more appealing to consumers who prioritize the predictability and stability of energy prices, while the free market is more appreciated by consumers seeking the widest choice and flexibility in the choice of supplier and tariff.
Our advice is to simulate, compare and stay informed about which of the two markets will best match your needs.
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