Many people would argue that we, consumers and producers, are financially better off in a competitive economy than in other forms of economic organization. This means the economy offers reasonable competition and incentive to innovate and produce. Given the world’s extreme (and increasing) reliance on energy, I think a competitive economy requires an energy sector that is both efficient and well developed. To be economically efficient, energy sources should be reasonably priced, and to be well developed, energy supply should be stable and reliable. With these characteristics, energy sources enhance economic benefits resulting in economic competitiveness (Maradin et al., 2017), and without these characteristics, I think there is a higher risk of economic vulnerability. This vulnerability is due to price fluctuations in response to energy resource depletion and supply dependence.
A Well Developed Energy Sector
I recognize the criticality of energy and believe it is the basis of an economy, as it is needed to maintain production (output) and processes that support the economy (Maradin et al., 2017). Not only has there been a steady increase in global population, and thus energy consumption, but economies are constantly expanding, and the introduction of new technologies, like artificial intelligence, are consuming increasingly large amounts of energy (De Vries, 2023). As such, the demand for energy resources is skyrocketing and, given their virtually non-existent renewal rate and limited quantities, there is a serious urge to reduce the reliance on non-renewable fossil fuels (such as oil and natural gas) because overreliance on non-renewables can lead to resource depletion, threatening future economic prosperity (Wang et al., 2024).
Another aspect, that I think should be considered when discussing reliable energy, is the susceptibility of energy supply to political events. When economies become reliant on resources that are sourced in other countries because they do not have the same access to resources, the country and its firms become vulnerable to volatile prices and supply. A good example of how political events can affect the prices of oil and gas is the Russian invasion in Ukraine. When Russia invaded Ukraine, many countries, including countries in the European Union, who typically sourced their natural gas from Russia, were seeking to reduce their reliance on Russian energy and, at the same time, raise economic pressure on Russia (Adolfsen et al., 2022). Other energy suppliers were stepping in to substitute natural gas, which resulted in increases in energy prices for the majority of European countries (Adolfsen et al., 2022). The United States (US) began supplying natural gas to assist, but this drove up prices in the US as well, as they have limited production of natural gas, yet being one of the top natural gas producers in the world (Rezvani, 2022).
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Efficient Pricing
Nassar (2019) performed a study to test if renewable energy is cheaper for consumers in practice. Using the Egyptian energy network as a case study, three scenarios of progressively higher proportions of renewable energy that were added to the traditional energy source were tested. Findings of the study revealed that increased proportions of renewable energy led to substantial economic benefits, including reduced operational costs, decreased greenhouse gas emissions, and enhanced energy efficiency. He concluded that, not only does a more affordable energy source offer better prices to society but it also provides cost-cutting opportunities to businesses who seek to maximize profits. I’m noticing that many mature firms seek to improve their EBITDA (earnings before interest, taxes, depreciation and amortization) by cutting operational costs, as their revenue growth slows down. For energy firms, this can be done by reducing operational spend, i.e., salaries, and risk hindering operational efficiency, or they can complement their sources of energy with cheaper sources that will provide long-term efficiency and optimized processes (such as renewables). Lower energy costs will bring about immediate savings with lower utility bills for the consumers. The outcomes of adding renewable energy into traditional energy sources are believed to improve overall economic competitiveness, as businesses and economies benefit from lower energy expenses and a reduced carbon footprint (Nassar, 2019).
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