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Christopher Burleson
Leslie Kay Ritchie
Jitesh Sharma
European Energy Restructuring:The Quest for a Competitive Single Energy Market
Presentation:1. Overview of EU and Restructuring Vision
2. Comparison of European Restructuring to U.S. Restructuring
3. Timeline: Implementation of EU Directives & Description of EU Energy Stakeholders
4. Impediments to Single Market & Recommendations
European Energy Restructuring:The Quest for a Competitive Single Energy Market
• EU Vision:
– To liberalize the electricity markets into a single, internal competitive model
European Energy Restructuring:The Quest for a Competitive Single Energy Market
• The EU has determined three objectives for a comprehensive European energy policy:
– (1) combating climate change
– (2) promoting jobs and growth,
– (3) limiting the EU's external vulnerability to gas and oil imports.
– News Release, An energy policy for Europe: Commission steps up to the energy challenges of the 21st Century, 10 January 2007.
European Energy Restructuring:The Quest for a Competitive Single Energy Market
27 Member States of the EU
1958Belgium, France, (West) Germany, Italy, Luxembourg, Netherlands
1973Denmark, Ireland, UK
1981Greece
1986Portugal, Spain
1995Austria, Finland, Sweden
2004Cyprus, Czech Republic, Estonia, Hungary,Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
2007Romania
European Parliament:
represents the EU’s citizens and is directly elected by them
Council of the European Union:
represents the individual member states
European Commission:
seeks to uphold the interests of the whole Union
The EU’s “Institutional Triangle”
European Regulators' Group for Electricity and Gas:
advisory body on internal energy market issues.
• U.S. Electric Power Markets (clockwise from top) – Northwest– Midwest– New York– New England– PJM (Beige)– Southeast– SPP– ERCOT– Southwest– California
Comparative Study:
U.S. vs. European Restructuring Models
Comparative Study:
U.S. vs. European Restructuring Models
Similarities between Europe & U.S. Restructuring
European Energy Restructuring:The Quest for a Competitive Single Energy Market
• Both Driven by Top-Down Political Maneuvering
• Both Protect Against Price Volatility
• Both Work to Ensure Sufficient Energy Capacity
Differences between Europe & U.S. Restructuring
European Energy Restructuring:The Quest for a Competitive Single Energy Market
• Structure of Market
• Infrastructure/Transmission Management
• Relative Capability of Facilitating Restructuring
• Comparative Success of Response to Transmission Discrimination
Liberalisation process – Timeline
1st L
iber
alis
atio
n D
irect
ive:
Dire
ctiv
e 96
/92/
EC c
once
rnin
g
com
mon
rule
s fo
r the
inte
rnal
mar
ket i
n el
ectr
icity
2nd L
iber
alis
atio
n Pa
ckag
e:
Dire
ctiv
e 20
03/5
4/EC
con
cern
ing
com
mon
rule
s fo
r the
inte
rnal
mar
ket i
n el
ectr
icity
3rd L
iber
alis
atio
n Pa
ckag
e: P
ropo
sals
issu
ed o
n 19
th Sep
tem
ber
1996 2003 2007 20??
Full
impl
emen
tatio
n of
3rd L
iber
alis
atio
n Pa
ckag
e?
Source: Union of the Electricity Industry, Eurelectric
Liberalisation process – Timeline
1996
European Regulators Group for Electricity & Gas
European Regulators Group for Electricity & Gas
2003
1st Electricity Directive: 96/92/EC
1st Electricity Directive: 96/92/EC
2nd Electricity Directive: 2003/54/EC
2nd Electricity Directive: 2003/54/EC
CEERCEER
Florence Forum
Florence Forum
1998 2004
Cross Border Trade Regulation Effective
Cross Border Trade Regulation Effective
2005
Directive on Electricity Security of Supply and
Infrastructure
Directive on Electricity Security of Supply and
Infrastructure
European Energy Restructuring:The Quest for a Competitive Single Energy Market
Key Indicators – Single market not working
• Significant price differences prevailing in the internal markets– Price difference of more than 100% for industrial users in some
cases
• Low level of cross border trades– Cross border flows was at 10.7% of consumption at the end of 2004– Increased only by 2% in 4 years
• Prices have been increasing instead of decreasing as part of increased competition in the market
• Lack of real competition – Switching by customers remains limited in most Member States – Choosing a new supplier from another Member State remains the
exception
Key Indicators – Single market not working
Prices in different regions Market share of biggest three producers
Key Indicators – Single market not working
Impediments for single market
• Insufficient interconnection between many Member States, leading to congestion
• Concentration and consolidation in the industry– Number of newcomers has decreased
• Independence of network operators– There is an inadequate unbundling between network and supply activities
• Vertical foreclosure– Vertical integration between generation and retail markets– long term power purchase agreements lead to illiquid wholesale markets.
• Lack of transparency– Survey shows that 84% people feel that they do not have current market information– Only a few TSOs publish all information related to network access and availability
• Lack of FERC like regulatory authority
Impediments for single market
• Insufficient interconnection between many Member States, leading to congestion
• Concentration and consolidation in the industry– Number of newcomers has decreased
• Independence of network operators– There is an inadequate unbundling between network and supply activities
• Vertical foreclosure– Vertical integration between generation and retail markets– long term power purchase agreements lead to illiquid wholesale markets.
• Lack of transparency– Survey shows that 84% people feel that they do not have current market information– Only a few TSOs publish all information related to network access and availability
• Lack of FERC like regulatory authority
What should be done?
• Investments in electricity generation and infrastructure
• Separate supply and production activities from network operation– Require strong national regulators to oversee the running of electricity and
gas markets
• Establish an independent mechanism for cooperation and governance among national regulators (FERC-like authority)
• Greater transparency in energy market operations – Create mechanism for transmission system operators to improve
coordination of networks operation.
Thank you!
Questions?
European Energy Restructuring:The Quest for a Competitive Single Energy Market