Liberalisation of Energy Markets in Europe

Seminar Paper, 2002

17 Pages

Free online reading



1. Introduction
1) What Is The Energy Market
2) Why To Liberalize The Energy Market
3) How Is (Was) It Like
A) Renewable Energy Resources
B) Efficiency Of Energy
C) Energy Consumption In Transport Sector
D) Nuclear Safety
E) Taxation
4) Where Is The EU Energy Market

2. Electricity
1) The Actual Situation in the Member States During the Harmonisation of the Single Markets
2) The Interconnection

3. Gas, Oil, Coal Market
1) Our enormous dependence on fossil fuels
2) Geopolitical constraints
3) Domestic resources are running out
4) External dependence is increasing
5) The Commission’s Green Paper
6) Enlargement will not solve the problem

4. Some Critics Focused On The Process

5. Conclusion


The Terminology List

Green Paper – Nov. 2000-on the security of energy supply

Kyoto Protocol – set up in 1997, to protect the environment (on Climate Change Energy Policy)

Lisbon European Council – March 2000, on opening the market more quickly

Trans-European Energy Networks – (TEN) 1996, on economical and social cohesion. It includes separate programmes for transport, energy and telecommunication, it is working by a partnership between public and private sectors

Grids – the biggest consumers (energy customers, co-operators) of energy, mostly groups of states are called grids

CENTREL – one of the most important energy grids for EU, including Czech Republic, Slovakia, Hungary and Poland

UCTE – “Union for the Co-ordination of the Transmission of Electricity”, the main European Electricity grid, co-ordinates the technical interests of the TSO’s in 20 European countries (the EU [except Scandinavia, the UK and Ireland], the Czech Republic, Poland, Hungary, Slovakia, the Balkans and Switzerland)

CIS – Community of Independent States (grid)

EU – Russia Summit – Oct. 2000, gave a concept of energy partnership

European Energy Charter – promotes East-Western cooperation on energy

‘Northern dimension’ Action Plan – part of initiative actions to partner with Baltic Sea Region

IEA – International Energy Agency – EU organization

RES – Renewable Energy Sources

Synergy Programme – Community’s general relations with third countries

ALTENER Programme – 1993, renewed 1998, promotes RES in EU

White Paper – 1997, increase % of EU’s gross domestic energy consumption of RES and gives Strategy for EC’s Action Plan on RES (covers also European Transport Policy)

‘Take-off’ Campaign – integral part of Action Plan and Strategy for 2010, to get RES off the ground

SAVE Programme – April 2000, measures encouraging efficiency of energy

SURE Programme – nuclear safety and transport of radioactive materials

ETAP Programme – studies, analyses, forecasts

Negotiated System - Price system, in which all the prices are negotiated between undertakings and final customers.

Regulated System - Price system, in which all the prices between undertakings and final customers are regulated by the government.

Buy energy by Pool - Buy energy a day before need it. Prices change every day depends on the demand.

Public-Private partnerships - Private companies are responsible to build the infrastructure and the government gives them some concessions in exchange.

Private Finance Initiative: It is a join venture between private companies and government.

1. Introduction

1) What Is Energy Market?

- The Energy Market (of EU) covers coal, oil, nuclear energy and the most considerable for us ELECTRICITY (covering also the green energy) and GAS (still being liberalised)[1].

2) Why To Liberalize The Energy Market?

- The response is with all these reasons covered in main ideas of so called Green Paper (Nov. 2000). The EU’s aims are:

-to complete the single market,
-to increase efficiency and lower prices (before liberal., there were 15 separate national markets with monopolies and high prices),
-to ensure a security of supply,
-to ensure supply to all the customers in affordable (transparency) prices,
-to promote healthy competition (to make an equal access for all the companies to explore...),
-with respecting environment (according to so called Kyoto Protocol),
-there are new challenges which need appropriate energy strategies,
-there is a big energy dependence in the EU market (now 50%), which will grow (to 70% by 2030) when nothing is done (accord. to the Green Paper).

3) How Is (Was) It Like?

- Creating a Single Market – has been for long time a priority of the Community,

- by providing the most effective, safest and most

Competitive energy market,

- first step: taking measures to ensure the transparency of prices, facilitate the transit of gas and electricity,

- next step: remove certain restrictions – companies

Would enjoy equal access to explore.

- 1996trans-European Energy Networks created, to strengthen economical and social cohesion (made on Community guidelines to complete the internal market),

- contains some 74 projects of common interest in the trans-European electricity and natural gas networks, with total investment of EUR 18 000 mil. (essentially from EIB loans and ERDF aid)

- 1997 Commission Annual Report -major progress in the gas sector, the sector of electricity faces administrative, financial and environmental problems.

- 1996, 1998 – important move forward (in construction of single market)

- DIRECTIVES adopted on common rules for electricity and gas (respectively),

- Ensured FREE MOVEMENT OF EL., GAS within the Community

- 1999-2000 – electricity and gas markets opened up to major consumers

- Liberalisation of the market enjoyed some success, but the degree still varies greatly from one Member State to another…

- 2000 - Lisbon European Council (23, 24 March) made a call for energy market to be open more quickly

- 2001 – (March) Commission adopted a set of measures to OPEN gas and el. market

fully by 2005 (nowadays changed to 2007)

-measures include- communication -on the completion of the internal market

- draft Directive -amending the Dir. of common rules for the internal market in el. & gas.
- draft Regulation -on conditions for access to the network for cross-border trade in electricity.

-the measures provide an accelerated timetable conditions even more helping to genuine and fair competition and the creation of a s. m. which offers guarantees to the public, protects the environment and ensures a safe and affordable supply of energy.

a) Renewable Energy sources (res)

Play a key role in the diversification and sustainability of energy sources.

- 1993ALTENER Programme (renewed 1998)-promotes RES in the EU.

- 1997White Paper -strategy for EC to action plan for RES,

- prime objective=double the proportion of RES in EU’s gross domestic energy consumption from 6% in 1997 to 12% in 2010 (Commis. believes this is a realistic goal, but much more had to be done).

- Sept. 2001 - Council & Parliament Directive on the promotion of production of electricity from RES aims: increase the ‘green’ electricity in EU from 14% in 1997 to 22% in 2010.

- ‘Take-off’ campaign – internal part of the action plan and strategy for 2010,

- (‘to get RES off the ground’),
- catalyst for the development of key RESectors for which quantitative targets have been set for 2003,
- also includes RE partnerships (= voluntary agreements by public or private partners with the Commis. to achieve the objectives of the campaign).

b) Ensuring The Efficiency Of Energy

As the Green Paper says, in order to limit the energy dependence, it’s important to stress on influencing (limiting) growth of DEMAND rather than concentrating on energy supply. Therefore also the context of Kyoto Protocol focus on energy efficiency as it’s getting more important than ever before.

-April 2000- Action Plan To Improve Energy Efficiency

-covers SAVE programme – measures encouraging energy efficiency,

- main instrument for coordinating the Plan.

-under the Plan e. g. adopted:

-May 2001 proposal for a Directive on Energy Efficiency in BUILDINGS:

- covering–common method for minimum energy performance standards
-application of standards for new buildings and for major renovations of existing buildings,
-production of an energy performance certificate in the event of construction,
-sale and renting of a building,
-checking of heating and air-conditioning.

C) Reducing The Energy Consumption In Transport Sector

As 40% of energy is consumed in the transport sector (which is responsible for 28% CO2 emissions) the Green Paper is taking Transport Policy measures to Reduce Energy Consumption.

- Sept. 2001White Paper: ‘European Transport Policy for 2010: time to decide’

- covers 60 proposals, key instrument to change the present modal split.

- 98% of energy consumption in transport= OIL (diversification is essential),

- Nov. 2001 – action plan + 2 proposals for directives to encourage the use of alternative fuels in the transport with regulatory and fiscal measures promoting biofuels. 1. directive: minimum percentage of biofuels from 2005,

2. direct.: allows possibility of applying a reduced excise duty for biofuels

D) Nuclear Safety

In 1957 EURATOM (European Atomic Energy Community) was set up due to Treaty of Rome. Number of tasks:-research into and development of the peaceful use

of nuclear energy,

-drawing up to uniform safety standards,
-creation of a common market,
-adequate supply of nuclear energy
-ensures not using n. e. for unlawful purposes.

EURATOM plays an active role -concluding many international agreements with third countries and organisations (e. g. IAEA - International Atomic Energy Agency),

-its SAFEGUARD OFFICE ensures not diverting nuclear materials from their prescribed use,

-its SUPPLY AGENCY implements the Treaty

(together with other EU institutions).

Non-technological Energy Framework Programmes

This incorporates SAVE, ALTENER, SYNERGY, SURE (nuclear safety and transport of radioactive materials) and ETAP (studies, analyses and forecasts), run until end of 2002.

-created to encourage changes, technological progress, mean of achieving objectives of Community energy strategy.

- ENERGY -supporting research, development and demonstration projects in the field of nuclear energy (under Fifth Framework Programme).

Nuclear safety has also a prominent place in negotiating with candidate countries.

TACIS, PHARE and to some extend SURE are involved in measures to improve safety in third countries.

E) Taxation Of Energy Products

2 proposals: 1) 1997 -global tax system-met an absence of political agreement between the Member States,

2)Nov. 2001 -proposal for directive allowing the application of reduced rates of excise duty on biofuels.

Green Paper also stresses that tax measures are needed to curb the present growth of demand.

4) Where Is The EU Energy Market?

This means not only the EU member states, but also some third countries (other energy GRIDS) are very important for the market.

- the interconnections with certain Mediterranean countries (Central and Eastern Europe and Norway),

- 1995 - the CENTREL electricity grid connected to the UCPTE grid,

- subjects to study of Community - UCPTE extension to the Balkan States and to CIS (as the gas links betw. East. and West. Europe),

- Euro-Mediterranean partnership has been set up.

- Synergy Programme – geared to general energy relations with the third countries.

- on the international level – all the main countries all over the world,

-Oct. 2000 - EU-Russia Summit –energy partnership concept

- European Energy Charter –(EU=signatory) promotes east-western en. cooperation

- other partners: Baltic Sea Regions (incl. ‘Northern dimension’ action plan), Balkan States, China, OECD, EEA, Gulf States etc.
- EU also represents wide range of international forums and organizations (e. g. IEA = International Energy Agency,..).

2. Electricity

1) The Actual Situation in the Member States During the Harmonisation of the Single Markets

The biggest problem in the liberalisation of the energy markets in the EU is that the liberalisation is not centrally implemented by the EU, but by the Member States itself. This is the reason for completely different levels of market opening in the EU. Some states (Great Britain, Sweden, Finland, Germany and Austria) have already a completely opened market, other states did already implemented the liberalisation to a quite high percentage and hope to finish the process during the nearest future (like The Netherlands or Spain), and other countries still have to make many efforts (for example France or Greece). These different rates of market opening in the EU result in a lack of real competition. But now, since November 25th, all Member States of the EU finally agreed at least a date of complete market opening. Till 2007, even every domestic customer must be able to choose his energy supplier. Also France agreed to this timetable, although France permanently had blocked such agreements in the past[2]. Thus we can hope that the problem of different rates of market opening will be solved in the near future. But there are still many problems. One is the different degree of forcing the liberalisation. All Member States except France, Greece and Luxembourg intend to go further than the market opening provisions laid down in the existing Directive. So it will be very difficult to have a real harmonised market, if there are all the time different willings to prevail the common targets.

Another point is the big difference in the market structure of the EU-members. There are different degrees of the concentration in the generation of electricity. For example the three biggest generators in the UK have together 37% market share, in Spain 94%, and Greece has only one generator with 100% market share. Generators with a dominant market share (like in Greece) can hinder competition, if there is no strict regulatory control. Therefore some efforts are made to spread the generation capacity of dominant suppliers. But the EU also has to deal with a wide variation in terms of the number of companies operating with transmission and distribution. In the most cases, this is a legacy of the former system in the state. France, Greece and Ireland have only one national company with all transmission and distribution systems, but on the other side, Germany and Austria have regional operated transmission systems, and the distribution is based on municipal areas, so there is a huge amount of transmittors and distributors (->table). The other Member States are situated between these extremes.


illustration not visible in this excerpt

Source: European Commission, DG Energy and Transport: Commission Staff Working Paper. Second benchmarking report on the implementation of the internal electricity and gas market (= SEC (2002) 1038), in: sec_2002_1038_ en.pdf, p. 14.

The table also shows the level of customer activity in the EU-countries. It is obvious that there is a quite high rate of switching the supplier at the level of large customers in the completely opened markets. Especially the United Kingdom and The Nether-lands have a high customer activity. Smaller customers or households do not switch so often, except in the “pioneer state of energy liberalisation” (Great Britain), but the rates are increasing, especially in Germany and Austria. But the possibility to choose the supplier is still only implemented in few countries.

As a last point to these topic the different price developments should be mentioned. One of the most important expectations of a liberalised energy market is the falling of prices for customers. Indeed, especially in the United Kingdom, Germany and Austria the prices have fallen in all consumer groups. In Sweden and Austria, the prices for smaller commercial users even have fallen by 40% since 1999 – a very impressive development. But on the other side, there are also states with increasing prices, like Denmark, Greece and Ireland. These large difference is likely to be the result of differing degrees of market opening, variations in network charges and the overall pressure on incumbents from competitors. So this shows again the need of a accelerated liberalisation process with big efforts to harmonize the single markets.

2) The Interconnection

The described facts are substantial to get an internal market in Europe, but just by focussing on these aspects of liberalisation there would be 15 (or later even 25) several markets and not one big single market. Hence we need interconnections between the Member States. An “adequate infrastructure, and access to it under non-discriminatory conditions, is as much a pre-condition to the creation of an internal gas and electricity market as market opening itself.”[3] In comparison to other regions of the world, Europe has a quite good interconnection in electricity, in the year 2000 the share of cross-border electricity was about 8% of the total electricity consumption in the EU. But there are big differences between the countries.

GRAPH 1: Interconnection Capacity in the EU

Abbildung in dieser Leseprobe nicht enthaltenSource: European Commission, DG Energy and Transport: European energy infrastructure. Fighting congestion and building links, Office for Official Publications of the European Communities, Luxemburg 2002, p. 27.

Regarding graph 1, it is obvious that there are some countries with a high interconnection level of about 20% or more (Denmark, Sweden, Austria, Belgium, Finland and The Netherlands), there is than a group of two states (Germany and France) with a middle level of around 10%, and finally, some Member States with a low interconnection level between 3 and 7% of the total capacity (Italy, Portugal, Greece, Ireland, Spain and UK). This very low level prevents the completion of the internal market and has a negative impact on the security of supply. Therefore especially these countries have to make big efforts to increase their interconnection capacity. But the graph 1 also shows that some countries (The Netherlands, Italy, Portugal, Spain and UK) use their import capacity very intensively – this can be seen as an indicator for the need of increasing the present capacity.

The Commission suggested that a minimum level of interconnection around 20% “would help eliminate segmented markets and lead to the creation of a real competitive internal market”[4], but the only agreement they could get was the target of at least 10% interconnection capacity in every Member State till 2005. To reach this aim, there are several projects to increase the interconnection capacity. For example, the interconnection between France and Spain is congested most of the time; the present capacity of 1100 MW shall be increased to 4000 MW. Another problem was Greece, it was only connected to the EU through the Balkan countries – a very fragile and instable system, so a sub-see interconnector cable to Italy was constructed and finished in 2001. Ireland has a comparable isolated situation, and a rapidly growing electricity demand is expected, so an interconnection upgrade to Scotland is planned. I could continue in enumerating examples, but I mentioned the priority projects, and this should be enough to get an imagination about the efforts of the TEN-Energy-programme.

But how does it work? And who is financing these projects? The TEN-programme works with partnership between public and private sectors, the private companies are assumed to provide the majority of the capital costs of the projects (the EU can co-finance between 10 and 20% of the total investment costs for Priority Projects of European interest), and the public sector mostly plays an enabling and facilitating role.

As I tried to figure out, there are still many problems in establishing an internal market, and the problems will be much bigger within an enlarged EU, but they are solvable, I guess. The candidate countries try to liberalise their energy markets with big results, for instance Hungary[5] and Poland are nearly at the same level of liberalisation as France. And there are already many interconnections between the EU-countries and the Candidate Members, and the Czech Republic, Poland, Hungary and Slovakia are also members of the UCTE, so there is already a quite busy electricity exchange.

illustration not visible in this excerpt

Source: <>

“The long-term objective of the Community is to create an internal market wider than the borders of the EU as it presently stands, rapidly including accession countries and, in due course, other neighbouring areas.”[6] So there are also efforts to develop the interconnections with these third countries. For example, the connections between Germany, Poland, Belarus, Russia, Estonia, Latvia, Lithuania, Sweden, Finland and Denmark, the so called “Baltic ring”, will become more developed by overground and submarine cables.

3. Gas, Oil, Coal Market

1 ) Our enormous dependence on fossil fuels

The dependence on fossil fuels (oil, gas and coal) is becoming ever more marked. This gives rise to a number of problems, among which we may list:

- the prices of oil and gas with their impact on our economy and the life of millions of companies, -
- the power attributed to the few external suppliers we have,
- pollution, of course, and finally, as we have witnessed recently,
- The risk of social upheaval when the markets spin out of control.

2) Geopolitical constraints

Geopolitical constraints weigh heavily on the energy sector. Europe imports 50 % of its needs. Around 2030 this figure will have risen to 70 %. These imports concern almost exclusively fossil fuels.

Europe can no longer be confined to each individual country; it must take place at European level. All Member States after all, share these constraints and environmental laws within the European Union, are being integrated. Since it was set up, the single market has been getting stronger. The role of European integration is precisely to avoid distortions of competition between Member States, particularly economic and fiscal distortions. The energy markets themselves are rapidly becoming integrated thanks to liberalization, if not to say globalization. The future enlargement of the Union where energy is concerned must be actively followed and monitored, as can already be seen in the area of nuclear safety. Finally, the Union needs to muster all its economic and political weight to face its major external energy suppliers. If we are to be taken seriously, we must present a united front.

Energy consumption is rising by 1 to 2 % a year. Dependence on non-EU countries is starting to rise above 50 % again. Our scarce domestic resources are beginning to run out; in the case of coal, we talk about ‘economic depletion’, as it is far too expensive to mine[7].

And to complete the picture, oil remains the favourite fuel of households, the services sector and transport. As luck would have it, this latter sector will witness a spectacular development in the near future. Let us look at all this in closer detail.

Transport, on the other hand, is without doubt the leader in energy demand. All the forecasts predict an explosion in the activity of this largest consumer of oil.

3) Domestic resources are running out.

The Union does not enjoy large domestic resources. Extraction costs more than elsewhere. We can expect our resources to steadily fall. The pace at which they run out will depend on world prices and technological progress. Enlargement will not improve this situation, except for coal.

Only the potential of renewable energy sources has not been exploited as much as it could be because of their high production cost. If we remedy that problem, renewable could be the only source for the future in the Union.

North Sea oil will not last forever. It costs a lot to exploit the oil fields and reserves are limited. In the best case, these would represent a further 25 years of production or eight years of consumption at current levels. The costs of extraction are much higher than in the Middle East.

Natural gas from the North Sea is following the same pattern as oil. Here, however, we can at least count on the production of Norway, a member of the European Economic Area. Its reserves represent 23 years of consumption at current levels.

Community coal costs three to four times the world price. Reserves of this mineral are very extensive and will be even more so with enlargement. But the problem of competitiveness will lead the EU to cut production drastically. Practically only in the United Kingdom could coal production become competitive again. Lignite and peat are profitable, but do not make any significant contribution to EU energy production.

Europe holds 2 % of world uranium reserves. Given that world prices are very low, an increasing number of European mines are no longer competitive. Vast amounts of uranium exist on the planet.

4) External dependence is increasing.

If we consume more than we produce we will be obliged to either import more or to consume less. Even if we were to do that, we would never be self-sufficient in energy. The voluntarism energy policies (energy-saving, the nuclear programme, support for renewable, domestic production), which followed the first oil crisis, are no longer sufficient. Imports are therefore going to increase to deal with growing demand. In 20 to 30 years, we will be 90 % dependent for oil, 70 % for gas and 100 % for coal. And enlargement can only reinforce these trends.

The EU is an important customer on the international energy scene. In 1997, the bill for energy imports into the EU was EUR 120 billion. The EU absorbs 14–15 % of world energy consumption and is the biggest world importer of oil (19 % of world consumption) and of natural gas (16 % of the planet’s requirements). In 1999, the bill for oil in the EU was EUR 240 billion. The price went through the roof in 2000. More than half the sum paid ended up in the coffers of Middle East oil producers.

The Union’s present suppliers are not very numerous. Broadly speaking, we depend on the Middle East for oil and Russia and North Africa for gas. The products have to be paid for in American dollars. To that must be added the physical and political risks linked to the transport of energy products to Europe, which are more serious in the case of gas rather than oil. Geopolitical considerations are gaining ascendancy over economic considerations. In the present situation, we are less and less able to overcome our vulnerability.

5) The Commission’s Green Paper

The Commission’s Green Paper "Towards a European Strategy for the Security of Energy Supply5" has highlighted that the European Union currently imports 50% of its energy requirements. This interdependency is expected to increase to 70% over the next 20 to 30 years.

By fuel over the same period, imports of:

- oil could increase from 76% to 90%,
- gas could increase from 40% to 70%,
- and coal could increase from just over 50% to more than 70%.

The Green Paper notes that this global picture of increasing EU energy dependency will not change after enlargement. In addition to energy efficiency measures and new alternative energy sources, the Green Paper underlines the importance for the European Union of ensuring flexible, reliable and diversified external sources of supply. An important aspect of this is deepening the dialogue with all energy producer countries, including all matters of common interest and, in particular, protection of the environment (flexibility mechanisms) and technology transfer.

With specific reference to Russia, the Green Paper notes the undertaking that Russia is prepared to work towards improving the Union’s long term security of energy supply and that, for its part, the EU is prepared act as a facilitator to mobilize investments in the energy sector.

6) Enlargement will not solve the problem.

Enlargement will bring additional factors to play in the supply security debate. For example, import dependence on mostly one source – Russia; the dominance of solid fuels; different legal and regulatory frameworks; the predominance of state-owned, vertically integrated monopolies; low energy efficiency; obsolete technologies and persistent technical difficulties.

Enlargement will broadly confirm current trends – rising consumption, growing demand for conventional fuels and increasing dependence on imports. In addition, it will bring additional factors into play as a result of industrial and fiscal restructuring, replacement of outdated plant and ageing infrastructure and new opportunities for investment in advanced technologies and alternative energies. It will also accentuate import dependence and create the need for new pipeline links and transit connections, including with the former Soviet Union[8].

In particular it is likely that dependence on gas among the new Member States will rise more quickly than among current Members, and that indigenous production of coal will be slashed. Both factors will aggravate import dependence, in particular from the former Soviet Union, the traditional supplier to Central and Eastern European countries. It will make the eastern part of the Union largely dependent on one supplier.

4. Some Critics Focused on the Process

The Commission decided that the Energy Market should be liberalized for competitions and productive reasons[9]. Liberalization of the energy market is an important step for the future develops of the Single European Market. But also, we have some doubts about the process and the result of it.

The first of all doubts is about competition. In the majority of the current member states, still exist some monopolies and it is really difficult that this situation change only because of the liberalization of the market. Also, high invest requirements are big barriers for new companies in this market and pressure to improve output can affect employment levels[10]. Will be the market able to create new competitors?

Another big issue is the price system for the costumer. What is the best system? Maybe “Negotiated system” could be one solution, but in this case it is easy for the big monopolies to fix the prices. So, we could decide to move to a “Regulated system” with the highest prices fixed by each government, but it’s relatively easy to find problems in this system, because Transmission and Distribution system operators buy the energy to the Generator by Pool and if they have to sell at level of regulated price probably they will go to the bankrupt (California process).

Over the next twenty years, the EU’s energy needs are expected to undergo major changes in both quality and quantity [11]. While growth in demand by 2020 will be approximately 10-15% in current EU Members, it could be more than 40% in the candidate countries. Powerful integrated energy networks form the essential backbone of the internal market and are a key condition for security of supply. The European gas and electricity market is already interconnected relatively well compared with other regional markets in the world. Even so, interconnections between Member States are often saturated and a number of Member States are isolated because of a limited capacity of interconnections with their neighbours. In addition, in many Member States, there is a delicate balance between imported capacity and production capacity. Now EU is importing 50% of it energy needs, but is expected that by 2020 the imported energy will be 70%. So, the question is: will market mechanism alone be sufficient to generate the additional capacity?

Although energy project completion rates are higher, the funding of new infrastructures is going to be complicated by the rapid growth in energy demand over the new few years. It will take 20 years to achieve that which is needed by 2010. Over the next 20 years €200 billion will be needed for natural gas infrastructure and tens of billions for electricity to respond the increasing demand for energy.

National and regional gas and electricity markets have diverse technical characteristics, which may present real barriers to the free cross-borders movement of gas and electricity. Even the quality of the product is affected by technical differences. In Europe there are differing levels of gas quality, different operational practices and different safety and security standards, as well as the different systems for balancing energy input and output in a network, which are applied by the industry and by operators across the European Union. These are not problems that can be solved by exchange only. There has until now been no systematic regulatory approach. So, Are voluntary guidelines on goods practical enough, or are harmonized regulations, standards and operating standards needed?

5. Conclusions

In our opinion, fair, non-discriminatory access to infrastructure for all operators is a prerequisite to open up the markets and establish genuine competition.

In response to the increasing new demand for energy, additional infrastructure must be built to strengthen the existing networks, pave the way for enlargement and ensure the development of cross-border markets likely to improve the security of supply, guarantee a high level of public service and maximize the benefits expected by consumers. The planning and development of new infrastructure should be based on a system of transparent governance. In liberalized markets, like the energy market, the potentially high cost of poor investment decisions must be avoided by setting in place a transparent planning system allowing for consultation of interest parties.

European standards may be developed, with decisive input of industry. Even if they are not mandatory in principle, such standards may serve as an essential point of reference. In the gas sector, where gas supplies of several different levels of quality exist, two main approaches are possible: harmonization by standardizing the quality of the product or technical developments to produce equipment capable for operating with natural gas of different quality levels. Both solutions will require considerable investment.

In energy sector, most investments are likely to come from private companies and financial institutions. European financial aid schemes may have a catalyzing effect in some cases. The important thing is to create a favourable climate to investment. Charging for network use must enable the network to be developed. So, if the action of the natural monopolies on the energy market must be regulated in order to enable investment, the competitive sections of the market must not be subject to price control, which might discourage new investments. Role of the state is to establish the political and legal frameworks needed for the network to be developed, in particular by promoting the major gas supply infrastructure projects in and outside the European Union. Public-private partnerships (PPP) are examined and tested formula in some sectors. Several European countries (France, Italy and Spain) have used this method, granting concessions for new infrastructure. Concessions and PPP s have their limitations. In order to circumvent the limitations of concessions, a number of other schemes have been developed, especially in the United Kingdom, such as Private Finance Initiative. PFI schemes have an advantage over conventional concession schemes, which are based on the financial balance of the undertakings rather than transferring risks.

On November 25th European ministers finally agreed a date for complete liberalization across the EU. All business users will be free to choose energy suppliers by July 2004, and this right will be extended to all domestic users in 2007. The two biggest consequences of the energy liberalization are likely to be cheaper prices and a wave of corporate mergers, maybe even across European borders. We hope that finally this process will be a complete success, especially for all customers[12].


Enlargement, in:

Energy, in: dep_en.pdf.

European Energy Market. Overview, in: en/lvb/l27001.htm.

Eising, Rainer: Liberalisierung und Europäisierung. Die regulative Reform der Elektrizitätsversorgung in Großbritannien, der EG und der BRD, Leske und Budrich, Opladen 2000.

European Commission, DG Energy and Transport: European energy infrastructure. Fighting congestion and building links, Office for Official Publications of the European Communities, Luxembourg 2002.

European Commission, DG Energy and Transport: Commission Staff Working Paper. Second benchmarking report on the implementation of the internal electricity and gas market (= SEC (2002) 1038), in: 2benchmarking/ sec_2002_1038_ en.pdf,

European Commission, DG Energy and Transport: Energy in Europe. European Union Energy Outlook to 2020, Office for Official Publications of the European Communities, Luxembourg 1999.

The Economist: Electric shock. At last, a single market. Maybe, in: The Economist, Nov. 30th-Dec 6th 2002, p. 58.

Ward, Graham/Allen, Simon/ Davies, Henry: How Restructuring assists Liberalisation of Electricity Markets, in:

Green Peace: Europe Letter, in:

Official Document for Barcelona 2002, in:


[1] European Energy Market. Overview, in: en/lvb/l27001.htm.

[2] The Economist: Electric shock. At last, a single market. Maybe, in: The Economist, Nov. 30th-Dec 6th 2002, p. 58.

[3] European Commission, DG Energy and Transport: European energy infrastructure. Fighting congestion and building links, Office for Official Publications of the European Communities, Luxembourg 2002, p. 25.

[4] European Commission, DG Energy and Transport: European energy infrastructure. Fighting congestion and building links, Office for Official Publications of the European Communities, Luxembourg 2002, p. 28.

[5] Ward, Graham/Allen, Simon/ Davies, Henry: How Restructuring assists Liberalisation of Electricity Markets, in:

[6] European Commission, DG Energy and Transport: European energy infrastructure. Fighting congestion and building links, Office for Official Publications of the European Communities, Luxembourg 2002, p. 32.

[7] Energy, in:

[8] Enlargement, in:

[9] European Energy Market. Overview, in: en/lvb/l27001.htm.

[10] Green Peace: Europe Letter, in:

[11] Official Document for Barcelona 2002, in:

[12] The Economist: Electric shock. At last, a single market. Maybe, in: The Economist, Nov. 30th-Dec 6th 2002, p. 58.

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Liberalisation of Energy Markets in Europe
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Liberalisation, Energy, Markets, Europe
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Stefan Solle (Author)Angel-Aguilar Villalon (Author)Jarmilla Slaninova (Author)Kaspars Ponemeckis (Author), 2002, Liberalisation of Energy Markets in Europe, Munich, GRIN Verlag,


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