SINGLE EU ENERGY MARKET
Filip Černoch
FSS MU
Energy policy of the EU
First initiatives for IEM
 Since 1988, the Commission focused on:
 Harmonization of indirect taxation
 Price and investment transparency
 Competiton for public procurement
 TPA
 Integration of electricity and gas grids
 Application of competition legislation to the upstream part of oil and gas
exploration and production.
 + set of proposals demanding the institutional energy policy:
 Plans for an EU policy of supply security by the year 2005
 A European Energy Charter
 The official merging of energy and environmental policy from 1990
 Amendment proposals for the inclusion of energy in the treaty text.
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Increased role of the EC in the energy policy
 TPA implied that EC will supervise and define the conditions and tariffs
for such access
 EC controls the financing of energy projects – TEN - E
 Application of the rules on competition by countering the existence
monopoly companies
 More power regarding the interventions in the subsidizing of coal
production
 EC is perceived by lobbyists as one of the main energy policy-maker in
the EU
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Second liberalization package
 Unsatisfactory pace as well as targets, new legislation
introduced in 2003.
 „European national gas markets are characterized by high prices and tariff
differentials, a high degree of market concentration, insufficient unbundling, a lack
of market based balancing regimes, and ex ante regulation to name just a few. The
prices of gas and electricity are especially of concern. In some European countries,
natural gas increases its share in electricity generation. During the 1990’s the
European industry was paying 40% more for its electricity than its American
competitors“.
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Second liberalization package
 DIRECTIVE 2003/54/EC OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL of 26 June 2003 concerning common rules for the
internal market in electricity and repealing Directive 96/92/EC
 DIRECTIVE 2003/55/EC OF THE EUROPEAN PARLIAMENT AND
OF THE COUNCIL of 26 June 2003 concerning common rules for the
internal market in natural gas and repealing Directive 98/30/EC
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Unbundling of
networks
Access to
networks
Market
opening
National
regulation
First legislative
package
Separate
management and
accounts
Negotiated or
regulated terms
of access
Power: 35%
open by 2003
Gas: 33% open
by 2018
Mechanism for
regulation
Second
legislative
package
Separate subsidiary Regulated terms
of access
Power and gas
markets 100%
open by July
2007
Specific regulator
for energy
Second liberalization package
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Unbundling in the Second package
 Legal Unbundling: the transmission and distribution activities have to
be done by a separate “network” company; the network company must
not necessarily own the network assets but must have “effective decision
making rights” in line with the requirements of functional unbundling (no change
of ownership!)
 Functional Unbundling: where the network operator is part of a
vertically integrated undertaking, it shall be independent in terms of its
organisation (management separation) and decision making rights
from the other activities not related to that network
 Accounting Unbundling: relevance for DSOs which are not legally
unbundled (given the new requirement of legal unbundling); no derogation
is possible from accounting unbundling for smaller DSOs.
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The following steps of the European Commission
 EC sector inquiry (2005 - 2007) highlited some serious shortages
on the electricity and gas market.
 The persistence of great market concentration (Vertical foreclosure, just a few
interconection)
 Too little integration between MS markets
 Absence of transparent market information
 Unsatisfactory level of unbundling
 Customers are tied to the suppliers with long-term downstream contracts
 Solution = market transparency and caps on incumbents’ market shares, closing
the gaps between the responsibilities and competences of national regulators,
structural (ownership) unbundling.
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Non-functioning market: Incumbents’ reactions
 Failed expectations from the SEM:
 High market concentration and limited cross-the-border trade persist, slow progress
towards the competitive and liquid market
 Some incumbents lost part of the market, but mainly because of the pressure from
the governments
 Vertical foreclosure - the process where incumbent wittingly or unwittingly foreclose,
or close in advance, the availability of crucial inputs or assets to potential rivals.
 Long-term upstream supply contracts, long-term capacity contracts, long-term
downstream distribution contracts.
 2007 anti-trust investigation of ENI a RWE, 2008 GdF. RWE a E.ON willing to
sell their networks
 Market segmentation
 2002 request of 10% producing capacity in interconnectors.
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European Commission vs. companies
 Unexpected inspections of 25 companies in Austria, Belgium, France,
Germany, Hungary, Italy.
 Just in 2006 EC court proceedings against 17 states for inadequate
transposition of the 2003 directives.
 2007 - Investigation about Italy´s Eni and Germany´s RWE for shutting
the competitors out of their markets by underinvesting into the
transmission networks, capacity hoarding, charging high prices for access to
networks etc.
 2008 RWE sell its entire German gas grid, in 2008, Eon did the same with
electricity grids.
 http://www.youtube.com/watch?v=w5y5QuT7ye8
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Non-functioning market: Governments’ reactions
 Championing national companies – preventing foreign companies to buy
domestic ones.
 Hungary (Moll) vs OMV, Great Britain (Centrica) vs Gazprom….
 Retail market
 Regulated vs. free pricing in case of energy
 EK objected in case of Slovakia, where PM Fico threatened to renationalize Slovenske Elektrarne,
if they did not stop raising the prices.
 In 2006, EK went after Spain, France, Estonia and Latvia for regulating tariffs.
 Then EK went after Italy and Ireland for granting on discriminatory basis the right to an incumbent
to supply power at regulated price
 And again it went after Germany, Czech Republic, Poland, Slovakia, Lithuania and Italy for failing
to provide sufficient information on regulator tariffs. The same situation repeated in 2007, in case
of Commission against Spain and France.
 Regulating the regulators
 11
Ownership unbundling
 „This would be the greatest expropriation since the Bolshevik revolution“ – Bruno
Wllnofer, Chief executive of Tiwag, an Austrian utility.
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UK to FR 35
FR to DE 33,3
ES to FR (x) 32,8
PL to CZ 16,1
PR to ES 11,7
FR to BE 11
CZ to PL 10,1
SK to CZ 6,6
CZ to SK 1,1
DE to CH (x) 1
FR to IT 0,8
AT to CZ 0,3
CH to FR 0
IT to FR 0
BE to FR 0
DE to AT 0
Hours with congestion as a percentage of all
hours
Border 2005
SK to HU 100
FR to CH 100
DE to DK 100
NL to BE 100
FR to UK 94
DE to NL (x) 90,1
FR to ES 81,1
CZ to DE 68
NL to DE (x) 63,9
BE to NL 63,1
DE to FR (x) 41,3
CZ to AT 37
DE to CZ (x) 35,7
UK to FR 35
Third liberalization package
 http://www.youtube.com/watch?v=jF3Teoq4xmc
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Unbundling of
networks
Access to
networks
Market
opening
National
regulation
First
legislative
package
Separate
management and
accounts
Negotiated or
regulated
terms of
access
Power: 35%
open by 2003
Gas: 33%
open by 2018
Mechanism for
regulation
Second
legislative
package
Separate
subsidiary
Regulated
terms of
access
Power and gas
markets 100%
open by July
2007
Specific
regulator for
energy
Third
liberalisation
package
Ownership
unbundling, ISO,
ITO.
Regulated
terms of
access
Already
achieved
Ungraded and
harmonized
powers for
national energy
regulators
Third liberalization package - unbundling
 Separating networks from generation, production and supply
interests
 Ownership unbundling - OU means separating the ownership or the
operation of gas and power networks from other parts of the energy
business.
 ISO - companies involved in energy production and supply would be
allowed to retain their network assets, but would lose control over how they
are managed. Crucially, commercial and investment decisions would be left
to an independent company (ISO), to be designated by national
governments with the Commission's prior approval, to ensure a sufficient
level of independence.
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Third liberalization package - unbundling
 ITO model allows integrated companies to retain ownership of their gas
and electricity grids. However, they would have to give up daily management
of the grids to an independent transmission operator.
 Crucially, companies can retain commercial and investment decisions,
but will have to set up a framework for ensuring the independent operation
of the transmission network by:
 Setting up a supervisory body made up of company representatives, third-party
shareholders and representatives of the transmission system;
 agreeing a compliance programme setting out measures that prevent the ITO
from discriminating against suppliers using the grid;
 appointing a compliance officer with powers to ensure non-discrimination, and;
 introducing a mandatory cooling-off period for management staff who move
between the supply and generation company and the transmission operator.
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Third liberalization package
 Promotion of an internal energy market and the removal of
restrictions to trade between MS
 Agency for Cooperation of Energy Regulators (ACER) +
European Networks for Transmission System Operators
 The protection of the consumers have to be strenghtened
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Results of 3rd package
 Adopted in 2009 with 2 years to be implemented to the law of
MS – not enough data
 It seemed that prices are not going down (in UK the prices
have risen by 140% since 2004), but plenty of other reasons –
taxation, costs of distribution, costs of energy resources.
 But – at the end of 2011 still 18-20 had not adopted the
Package.
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Gazprom cause – antitrust proceeding
 Being acused of abusing its dominant position in CEE – fine up to 11 bn.euros (10
% of its annual turnover).
 The investigation covered Estonia, Latvia, Lithuania, Poland, the Czech Republic,
Slovakia, Hungary and Bulgaria.
 Gazprom allegedly hindering competition by:
 First, Gazprom may have divided European gas markets by hindering the free
flow of gas across member states.
 Second, it may have prevented the diversification of gas supply.
 Thirdly, it may have imposed unfair prices on its customers by linking the price
of gas to oil prices.
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Discussion
 Vertically integrated model, nevertheless, still considered as a viable model of
market management.
 Security of supply
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