Annexes to COM(2004)863 - Annual Report on the Implementation of the Gas and Electricity Internal Market - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2004)863 - Annual Report on the Implementation of the Gas and Electricity Internal Market. |
|---|---|
| document | COM(2004)863  |
| date | January 5, 2005 |
Ultimately a key objective is for a liquid wholesale market to be developed. This will allow market participants, including potential new entrants, to buy and sell electricity freely to reconcile their generation and supply portfolios. However, power exchanges in most Member States are still insufficiently liquid in this respect. There is also an insufficient degree of transparency concerning the formation of pries in many wholesale markets.
Interconnection between Member States, of course, provides significant potential for increasing the level of competition. However developments in this respect have been mixed. Some groups of Member States, such as the Nordic countries, those on the Iberian peninsular and on the island of Ireland, have shown that it is not impossible to realise projects if there is sufficient political commitment. More general improvements should also result from the implementation of Regulation 1228/03 relating to cross border electricity transmission. The co-ordination of cross border capacity allocation through, for example, the ideas of “market coupling” put forward by the participants of the Florence Forum will increase liquidity and facilitate new entrants in national markets.
3.4 Price developments
With the exception of Italy, 2004 saw a convergence of wholesale prices at around the level of €30/MWh in both bilateral markets and standardised power exchanges. However, forward markets show that price increases are likely with prices for base-load[10] for 2005 significantly exceeding €30/MWh. In some respects, this represents a response to increased prices for primary energy sources on world markets.
Prices for end users, which also include network costs and a retail supply margin, have not converged. A wide range of price levels prevails in different Member States for final customers. Electricity prices for large users range from under €40/MWh in Latvia to nearly €80/MWh in Italy. Likewise prices for small customers and households range from under €60/MWh to over €120/MWh.
3.5 Conclusions
Much has been achieved since the introduction of competition including the establishment of the principles of regulated third party access, the separation of networks and a degree of integration of national markets into larger groupings. However, as has been identified in many previous reports of the Commission, the issue of concentration is now the most important obstacle to the development of more vigorous competition. While this persists, consumers may lose confidence in the market and call for tighter regulation. In this respect, the Commission’s recent prohibition decision on the acquisition of GDP by EDP and ENI[11] reflects an important precedent on how the Commission intends to deal with possible restructuring of the industry.
Independence of transmission system operators and an increase in the level of available interconnection is vital for the further development of electricity markets. Without such investments the contestability of the market will remain constrained and incumbent companies will retain a large part of their existing advantages.
Increased use of competition policy at national level, with greater transparency of the behaviour of participants in wholesale markets may also bring results and co-operation between national regulators, competition authorities and the European Commission also has the potential to deliver significant improvements.
4 EVALUATION OF PROGRESS IN THE GAS SECTOR
4.1 Summary
The creation of the internal gas market requires more integration and for the efforts to diversify supply to be further intensified. It is clear that those Member States which are poorly integrated with their neighbours and have limited availability of external sources have had more difficultly in developing competition.
By contrast, those which have a number of different sources available and which have also implemented capacity release seem to perform significantly better. As well as the UK, which has a mature competitive structure; and in Ireland where large users have had freedom of choice for many years, the best performance appears to be in markets close to a diverse range of resources such as Belgium, Denmark and the Netherlands. Italy and Spain have also made significant progress in the last year. In all the above mentioned Member States, it is estimated that at least 30% of large users have changed supplier. Of the remainder, only France is approaching such a degree of development, particularly in its northern regions. Progress in Germany and Austria is still very disappointing while the new Member States have a number of outstanding issues which are likely to hinder the functioning of competition.
4.2 Effective Regulation and Unbundling
For gas, fair network access requires not only cost-reflective access charges, but also flexible conditions relating to the nomination of flows supportive of new entrants. In general, an entry-exit system for both tariffs and booking of capacity on the transmission network is more conducive to developing a competitive market and most Member States are moving in this direction. However, in some cases, inflexible procedures without adequate use it or lose it mechanisms still represent a barrier to new participants in the market. High tariffs, particularly for the use of low pressure distribution networks, also continue to cause problems.
Balancing and storage regimes are also sensitive issues when it comes to effective market opening. Many regimes remain rather uncertain, particularly in new Member States. The failure, to date, to agree minimum standard procedures for access to storage at the recent Madrid Forum is therefore highly regrettable.
4.3 Market Structure and Integration
A key problem at national level is that there is often only a single company bringing almost all the gas to the market. This has an important impact on the potential for competition at supply level. Even if there are several suppliers, competition between them may be rather ineffectual if they are all purchasing from the same wholesaler.
Of course, to the extent that a wider European natural gas market can be created, this concern will be alleviated. Further development of the internal market has, however, been constrained by the continued existence of long term reservations of transmission capacity. The lack of coherence between the charging structures of individual transmission system operators has also prevented competition in some areas. To transport gas from Zeebrugge to, for example, Budapest would require the use of at least five different networks and the complexity of calculating the charge would be a significant disincentive to any network user.
4.4 Prices
Gas prices remain under the strong influence of international oil prices, often built into contracts between importers of gas and producing countries. The increase in oil prices during 2004 has therefore fed through to the gas market and wholesale natural gas has increased from around €10/MWh to some €12/MWh by late 2004.
Although wholesale gas prices are similar in most Member States, the latest information at retail level, published by Eurostat, still shows considerable divergence ranging from €10/MWh to €25/MWh for large users and from €15/MWh to €40/MWh for households.
4.5 Conclusion
Gas markets remain subject to significant rigidities in many cases, usually as a result of the continuing lack of integration between national markets. Without cross-border competition, the existing incumbents can easily protect their position. Furthermore, inappropriate balancing and storage regimes and high distribution tariffs also make it difficult to change supplier in several countries.
5 SECURITY OF SUPPLY
Electricity
Overall, the situation regarding electricity generation adequacy in the Member States of the European Union is satisfactory. Although 2003 experienced some difficulties, the position in Italy and Spain has now improved considerably as new capacity has been brought on line. However the Nordic countries still have a relatively tight situation[12].
Special measures exist in a number of cases to encourage investment in generation capacity. Many Member States have some form of explicit capacity payments while Norway and Sweden also have a form of capacity option scheme. Others have some form of capacity support in the configuration of balancing markets or in the procurement of reserve capacity by the TSO. Finally, some Member States have used the possibility of a tender process.
Development of interconnection is also required in a number of cases to ensure effective use of available generation capacity and to reduce the strain on the system caused by congestion at certain key bottlenecks. The European Union is still some way from the objective fixed by the European Council at Barcelona that cross border interconnections should represent at least 10% of production capacity in each Member State by 2005. It is for this reason that the Commission has proposed in the draft Directive on Electricity Security of Supply and Infrastructure, that the degree of co-ordination should be increased and the role of national regulators be enhanced in relation to the question of interconnections.
Gas
For the time being, import capacity into the European Union would appear to be more than adequate to serve demand. As long as capacity is available there are already strong incentives for producing countries and EU suppliers to conclude contracts to serve increasing gas demand. At present, therefore, there are few very specific measures currently being implemented in this area at a general level. In the medium term, a number of projects, particularly for LNG terminals are either in progress or being considered. It is expected that such investments will be forthcoming without specific support measures.
6 PUBLIC SERVICE AND USER/CONSUMER PROTECTION
By July 2007 all customers will become eligible customers having the possibility to choose the most attractive electricity and gas suppliers. In this context it is important that the opening of the market provides customers with the same degree of reliability regarding the provision of electricity and gas and at least the same degree of transparency and comprehensibility relating to the way they are charged for this service, whether they chose to change their supplier or not. Similarly with regard to the provisions of the Directives on labelling of energy sources, Member States will need to ensure the smooth implementation of this requirement so that customers are able to make an informed choice.
Some households and small business have expressed the perception that informed customer choice is often not possible as price comparisons are either not available or difficult to understand. Improvements on this issue are required and industry and regulators need to ensure that meaningful information on prices and services is available in an objective and transparent manner.
As well as ensuring the fulfilment of the above conditions of the Directives, the Commission’s other main concern is that public service obligations should not distort the market and should allow equal access to customers for suppliers. In this regard, the possible distortive effect of regulated end-user prices has already been noted.
7 ENVIRONMENTAL ASPECTS
The internal energy market will need to develop in a manner consistent with the Community’s sustainability objectives. This means that the necessary incentives to support the penetration of renewables, the reduction of emissions and demand management need to be maintained. Liberalisation also offers the opportunity for new innovative players to enter the market and enable market differentiation strategies, for instance on the basis of environmental characteristics.
Information provided by the authorities in Member States show that such policies are continuing to have an effect. In excess of 7000MW additional renewables and efficient CHP generation capacity was added to companies’ portfolios during 2003, the majority of which was in Germany and Spain. This represented well over 50% of new generation capacity added in 2003. The prospect of further development is significant with new technologies such as micro-cogeneration beginning to appear on the market. Many Member States also continue to follow an active approach to demand management through fiscal incentives.
8 CONCLUSIONS
Europe is in the process of creating a wide energy community, going well beyond the borders of the Union based on common rules and practices. Member States need to maintain their commitment to this objective in the decisions they make regarding the implementation of the Directives and restructuring of the industry. It is only be doing this that the objective of a competitive and secure market will be achieved.
With this in mind, the issue of investment in infrastructure and the sound operation of networks, in support of the competitive market, remains a critical issue. Although some of these issues have been addressed the concerns which were expressed in previous Communications and the proposed Directive on Infrastructure and Security of Supply remain pertinent and progress, in some form or another, is required on this issue.
The role of independent regulators remains a crucial component of the introduction of competition and their decisions relating to network tariffs and other important market rules will continue to shape the development of the market. In this context it remains important to ensure that authorities have sufficient resources and competences.
Whether the improvements made under the Directives are adequate to achieve the objectives of the internal market remains to be seen, especially if Member States take a minimalist approach to the transposition of the current legislation. One thing that is certain is that in the new global environment of higher primary energy prices it is more important than ever for the Community to live up to its commitment to a competitive market.
[1] Directives 2003/54 and 2003/55
[2] Regulation 1228/2003
[3] European Council Conclusions 24/3/2000 ( English ) Nr: 100/1/00 23-24 March 2000
[4] For example: “Qualitative study - European consumers and services of general interest in the EU 25 (December 2003), DG Health and Consumer Affairs”
[5] EU productivity and competitiveness: An industry perspective: Mary O’Mahony and Bart van Ark (ed.) for DG Enterprise, European Commission 2003
[6] Directives 96/92, 98/30
[7] COM (2003) 741
[8] COM (2003) 743
[9] In this table the most important obstacle for each Member State is identified. However this does not mean that other obstacles do not exist.
[10] Baseload implies delivery of a constant amount throughout 24 hours
[11] Press release IP/04/1455, 9 December 2004
[12] Based on data released by transmission system operators. For example System Adequacy Forecast 2004 – 2010, UCTE, December, 2003: UCTE System Adequacy Retrospect 2003, UCTE June 2004.