Electricity and the protected market: 4.5 million bills set the auction on fire

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The big day to auction off a good half of the electricity customers remaining in the greater protection regime has arrived. The competition managed by the Single Buyer is being held today: there are around 4.5 million customers at stake, around half of the 10 million remaining in protection. The other half are the so-called vulnerable customers whose fate should have been decided (based on the Energy Decree) by a provision from the Energy Authority (Arera) to be issued by the beginning of February; However, at the end of 2023, Arera put its hands forward, asking for time until the end of 2024perhaps doubting whether auctions are the most suitable way to manage the transition to the market of such a delicate category of customers.

Operators at the starting blocks

Meanwhile, the 20 operators admitted to today’s competition are in the starting blocks: not all have raised the veil on the commercial strategy and only some have specified the objectives in the industrial plan. Utilities such as A2A and Hera aspire to reach the maximum allowed by the antitrust thresholds, i.e. approximately 1.4 million more customers each (the criteria provide for a minimum base of 100 thousand customers as of 30 June 2023, a maximum of 7 lots out of 26 that can be awarded and up to 5 times the initial customer base). Iren aims for 500 thousand new customers. Plenitude of the Eni group still keeps its cards covered, while the participation of Enel and Acea, which together hold the largest share of those 4.5 million protection customers, is taken for granted in order to try to defend their shares as much as possible of the market.

Fierce competition

The competition will be very fierce: that group of users is considered very attractive, also because they are excellent payers, given that insolvency rates are on average below 2 percent. And again: only one offer can be made, without raises, and the only selection criterion will be the discount on the fixed marketing fee, i.e. the profit margin that the operator has from the provision of the service.

This mechanism can represent a double-edged sword: on the one hand it will lead to a lower cost bill for customers for 33 months, the duration of the gradual protections. On the other hand, it could lead smaller operators to attempt a coup to make the leap in size and perhaps double the customer base; the risk is that they are not prepared to deal with the complexity of IT management and billing and are not able to guarantee the service. Or that excessive discounts could make the operation unsustainable from a financial point of view.

Final assignment on February 6th (subject to appeals)

In any case, the outcome of today’s auction will not be known today. The provisional assignment will be made tomorrow; the Single Buyer will not make the outcome public but will communicate the lots awarded to the individual participants. The final assignment will be on February 6th. Everything, however, could be put on hold by appeals and disputes. And this is because the transition process from greater protection to the free market for electricity takes place in a context of great uncertainty: as mentioned, Arera raised various critical aspects at the end of the year.

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