“electricity Market Liberalization And Competition In The Eu” – Energy market liberalization means opening the electricity and gas markets to free competition. This has broken existing monopolies and opened up the market to more participants. In most cases, de-linkages were removed with liberalization, creating a distinction between generation, transmission and distribution/retail in the power sector. The aim was to make electricity supply more efficient by combining competitive forces wherever possible and unifying regulation where necessary. In Europe, liberalization began in 1996 with the adoption of the first European directive.
The electricity market with free competition as we know it today is still very young and developing. Three decades ago, the European electricity sector was a monopoly. Vertically integrated companies were responsible for electricity generation, transmission and supply. In the absence of competition, these companies were able to set the price of electricity. Since those companies also held the network infrastructure, new players could not enter the market. Current vertically integrated utilities are primarily able to act as gatekeepers to the network.
“electricity Market Liberalization And Competition In The Eu”
In 1996, the European Union began to gradually open the market to competition – liberalizing the energy market as it had done previously with several other sectors. The legal basis of the liberalization and harmonization of the EU’s internal energy market is Article 194 and 114 of the Treaty on the Functioning of the European Union (TFEU). The aim was to create one integrated intra-European electricity market across all EU member states to reduce overall grid costs and benefit from cooperation in security of supply.
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A key step in this process was the unbundling of the European energy sector with the aim of decentralizing generation, transmission, distribution and retail activities. As a result of the debunding process, vertically integrated companies can no longer manage transmission and distribution networks to both generate, transport, trade and supply electricity.
This reclamation did not happen overnight and is not fully completed today. In the first energy package in 1996, only clearing accounts were required. It required vertically integrated companies to split bookkeeping according to different activities. This was clearly not enough to create a competitive market.
In the second directive introduced in 2003 (2003/54/EC and Directive 2003/55/EC), legal withdrawal was called for. It allowed a single company to operate in only one activity of the electricity value chain: generation, transmission, distribution or supply. It also called for all European consumers to be able to choose their supplier by 2007. But, because different companies could still be part of the same ownership, the owners of those companies still had quite a bit of market power.
In the third amendment of the energy package, which came into force in September 2009, the next step towards free competition was the introduction of de-ownership. This package is followed by the Energy Union winter package of 2016/17, which seeks to achieve a fully integrated, further decarbonized electricity market and ensure security of supply through cooperation and collaboration between EU member states. The third energy package is covered by the following legal instruments: Directive 2009/72/EC and Directive 2009/73/EC, Regulation (EC) No. 713/2009, No. 714/2009, No. 715/2009.
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In an ideal situation, both generation and supply of electricity are perfectly competitive activities. It means that no generation company can use its market power to influence the price of electricity in the wholesale market. This should ultimately lead to lower prices for the consumer. In the retail market, when suppliers sell electricity to contract households, free competition benefits the consumer. Households now have a choice to choose the provider that offers them the best rates and service.
In reality, perfect competition rarely exists. Especially in industries with large capital investments and large infrastructure – such as the energy sector – commercial activities are usually in the hands of a few large companies. For the energy economy, national regulatory bodies monitor the abuse of market power and quantify the degree of free competition with the so-called concentration ratio CR3. An analysis by ACER, the European Agency for the Cooperation of Energy Regulators, found that the level of market concentration in Italy, for example, is still very high, with Enel being the main supplier with a market share of more than 80% of household electricity. Supply.
Power grid infrastructure creates a natural monopoly – much like telecommunications infrastructure, railways or motorways. Because the construction of such a large infrastructure requires a high level of investment and extensive authorization, building a second network is almost impossible.
To ensure reliable operation of the network and to avoid abuse of market power, ownership alone is not sufficient. In addition, natural monopolies are regulated by an independent regulator. For example, Transmission System Operators (TSOs) and Distribution System Operators (DSOs) monitor access fees charged to producers who wish to connect their plants to the grid.
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While many countries in Europe secure electricity supply through a national grid, this is not the case in all countries of the world. Off-grid solutions are relevant to provide cost-effective access to electricity in many developing countries, especially in rural and sparsely populated areas. How to integrate these into the energy system and whether this should also lead to liberalization of natural monopolies in transmission and distribution is highly controversial.
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The TSO in Italy is Terna. While the transmission network is operated by only one company, the distribution network is divided into several geographical areas. The most important example of the total of 135 Italian Distribution System Operators (DSO) is Enel Distributione S.p.A., which covers more than 80% of Italian electricity demand. The most important local operators are A2A, ACEA, IRIDE, DEVAL and HERA. The national regulator of both the electricity and gas markets in Italy is AEGGSI (Autorità per l’energia elettrica, gas e il Sistema idrico). Ensuring transparency and competition in the energy market, protecting the interests of consumers and advising authorities on energy issues.
The German Agency for Renewable Energy was able to identify links between the opening of the electricity market and an increase in the share of renewable energy. With liberalization, consumers are free to choose their electricity supplier and as a result the number of electricity suppliers has increased significantly. AEE explains this correlation as the dismantling of old monopolies in the energy industry, often dependent on fossil fuel-based energy production, has paved the way for more innovative and environmentally friendly companies.
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Disclaimer: Next Kraftwerke takes no responsibility for the completeness, accuracy and truthfulness of the information provided. This article is for informational purposes only and does not replace individual legal advice.
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