DOC

The Liberalisation of Europe

By Kenneth Grant,2014-12-25 16:54
6 views 0
The Liberalisation of Europe

    The Liberalisation of

    Europe's Electricity Markets -

Is the environment paying the price for cheap power?

    May 2000

Written and Researched: Antony Froggatt

Executive Summary: Dr. Karl Mallon

Editors: Karl Mallon & Janet Dalziell

    A report commissioned for Greenpeace International

     1

EXECUTIVE SUMMARY: ....................................................................................................................................... 4

    INTRODUCTION: ..................................................................................................................................................... 7

    PART I: IMPACT OF MARKET LIBERALISATION: ........................................................................................ 8

    OWNERSHIP. ................................................................................................................................................................ 8 NEW CAPACITY. ........................................................................................................................................................ 12 IMPACT ON RENEWABLES......................................................................................................................................... 14

    IMPACT ON NUCLEAR POWER .................................................................................................................................. 16

    ENERGY SECURITY. ................................................................................................................................................... 17 KYOTO TARGETS AND CO2 EMISSIONS: .................................................................................................................. 18

    SUBSIDIES ................................................................................................................................................................... 19 CONSUMER CHOICE AND GREEN ELECTRICITY ..................................................................................................... 20

    PART II: STATUS OF ELECTRICITY MARKETS IN THE MEMBERS STATES OF EU. ........................ 21

    MARKET OPENING: ................................................................................................................................................... 22 AUSTRIA: .................................................................................................................................................................... 24 BELGIUM: .................................................................................................................................................................... 24 DENMARK: .................................................................................................................................................................. 24 FINLAND: .................................................................................................................................................................... 24 FRANCE: ...................................................................................................................................................................... 25 GREECE: ...................................................................................................................................................................... 25 IRELAND: .................................................................................................................................................................... 25 GERMANY: .................................................................................................................................................................. 26 ITALY: ......................................................................................................................................................................... 26 LUXEMBOURG:............................................................................................................................................................ 26 THE NETHERLANDS: ................................................................................................................................................... 26 PORTUGAL: ................................................................................................................................................................. 26 SPAIN: ......................................................................................................................................................................... 27 SWEDEN: ..................................................................................................................................................................... 27 UNITED KINGDOM: ..................................................................................................................................................... 27 ACCESS TO THE NETWORKS: .................................................................................................................................... 27

    UNBUNDLING ............................................................................................................................................................. 28 PUBLIC SERVICE OBLIGATIONS (PSOS) .................................................................................................................. 29

    AUSTRIA: .................................................................................................................................................................... 29 BELGIUM: .................................................................................................................................................................... 29 DENMARK: .................................................................................................................................................................. 29 FINLAND: .................................................................................................................................................................... 30 FRANCE: ...................................................................................................................................................................... 30 GREECE: ...................................................................................................................................................................... 30 GERMANY: .................................................................................................................................................................. 30 IRELAND: .................................................................................................................................................................... 31 ITALY: ......................................................................................................................................................................... 31 LUXEMBOURG:............................................................................................................................................................ 31 THE NETHERLANDS: ................................................................................................................................................... 31

     2

ORTUGAL: ................................................................................................................................................................. 31 P

    SPAIN: ......................................................................................................................................................................... 32

    SWEDEN: ..................................................................................................................................................................... 32

    UNITED KINGDOM: ..................................................................................................................................................... 32

    INDEPENDENT TRANSMISSION AND DISTRIBUTION SYSTEMS ................................................................................ 32 COMPETITIVE ELECTRICITY GENERATION. ........................................................................................................... 33 RECIPROCITY. ........................................................................................................................................................... 34

    CONCLUSION AND RECOMMENDATIONS .................................................................................................... 35

    MAIN REFERENCES: ............................................................................................................................................ 37

    ANNEX 1: .................................................................................................................................................................. 38

    ANNEX 2: OVERVIEW : EXAMPLES OF LABELLING OF CLEAN ELECTRICITY IN THE EU .......... 48

    Figure 1: Cross-Border Electricity Deals Involving European Firms By Target Region .............................. 9 Figure 2: Cross Border Electricity transactions by Bidder Continent: Number of Transactions in the first

    quarter 2000. ........................................................................................................................................ 10

    Figure 3: Cross-Border Electricity transactions by Target Continent Number of Transactions in the first

    quarter 2000. ........................................................................................................................................ 11

    Figure 4: Decrease in Electricity Prices in EU between July 1998-January 1999 ........................................ 1 Figure 5: Decrease in Electricity Prices between 1996-9 for Individual Member States. ............................. 1 Figure 6: Predicted Fuel Use in EU Electricity Production ........................................................................... 1

    Figure 7: Installed Capacity of EU's Wind Parks .......................................................................................... 1

    Figure 8: EU Dependency on Imported Energy .......................................................................................... 18

    Figure 9: Co2 Emissions by Electricity-Steam Sector in EU ...................................................................... 19

    Figure 10: Current and Predicted Market Opening in Individual Member States. ...................................... 23 Figure 11: Map Showing Countries in EU with Reciprocity Legislation ................................................... 34

Table 1: Cross-Border Deals Involving European Firms 1996-8 .................................................................. 9

    Table 2: Predicted Installed Capacity of Different Generating Capacities in Current EU States (MW) .... 13 Table 3: Renewable Electricity Targets In the EU White Paper. ................................................................ 15

    Table 4: Renewable Electricity Targets Shared Analysis Project. .............................................................. 15

    Table 5: Status of Nuclear Reactors in European Union at the end of 1999 ............................................... 17 Table 6: Summary of Legislation applying to each Member State. ............................................................ 22 Table 8: Minimum Liberalisation Thresholds for EU Markets ................................................................... 23

    Table 9 Member States Choices for Network Accessibility. ....................................................................... 28

    Table 10: Methods Deployed by Member States for Separation of Accounts. .......................................... 28

     3

EXECUTIVE SUMMARY:

    The key finding of this report is that the process of liberalizing the EU electricity market is introducing certain trends that are detrimental to the environmental objectives of the European Union. In particular, the expansion of renewable energy and the reduction of CO emissions are being hampered by the 2

    liberalisation process as it is currently being allowed to develop.

    In terms of volume of transactions, Europe has become a focus for the process of electricity liberalisation globally. Therefore Europe must also become the proving ground for integrating environmental considerations into this new model of electricity markets.

    The emergence of consumer choice that allows for Green Power schemes is so far appears to have been small compensation for some of the more worrying trends for human health, the environment and the wider economy that the process of liberalisation has set in motion. The problems arise from the inadequacy of current regulations in safeguarding clean production methods, efficient energy use and energy security. Strengthened regulation is needed to balance the adverse effects of the purely commercial, competition-based rules that are currently in place.

These key trends of concern identified in the report are:

1. End user price reductions - which will tend to drive increased consumption

    2. Price volatility - which weakens position of clean energy industry

    3. Market domination by major retailers regardless of environmental integrity of supply 4. Legally challenged renewable energy promotion mechanisms

    5. Energy insecurity - projected increases in fossil fuel concentration and import levels 6. Persistent inherent subsidising of non-sustainable energy generation

1. Price reductions

    The domestic and industrial consumer price of energy is dropping. This provides a disincentive to use energy more efficiently. In fact, the energy providers' ability to sell power at low cost reflects the fact that the polluter is still not required to pay for the damage to the environment that their use of conventional energy causes. The true cost of power must be reflected in the new market electricity production is to be de-coupled from rising COemissions and other environmental degradation. 2

    Recommendation 1: As competition generates various savings in the industry, there is more

    room for the incorporation of external (and currently under-acknowledged) environmental factors

    and costs. Mechanisms must be introduced which allow these currently external costs to be

    recouped from generators. This should have the effect of promoting renewable energy, Combined

    Heat and Power, and the switching to low carbon and non-nuclear fuel sources. It will also

    provide the necessary financial incentives for end-of-line consumers to increase efficiency. The

    recommendation is designed to create a more universal demand for clean, energy-efficient

    production and consumption.

2. Price volatility

     4

    So far, there has been inadequate protection at a European level for small but growing sustainable energy industries such as the renewable energy sector. Starting industries are considerably more vulnerable than established sectors and are currently exposed to short-term energy price volatility and price wars. This volatility is a predictable effect of the transition from captive (static) customers to contestable customers, and the simultaneous transition from many small and medium-sized suppliers to only few large suppliers. Adequate provisions for assisting vulnerable industries to manage the transition into the liberalised market have so far not been made, leaving Member States to individually fill the gap and protect their promising growth industries in isolation.

    Recommendation 2: Priority energy industries such as renewable energy developers must be

    provided with access to 'hedging' systems or other buffer mechanisms and funds to be able to

    secure contracts through years of severe price volatility.

3. Market Domination

    The dominance of Electricité de France (EdF) clearly demonstrates the vulnerability of the European market to national monopolies which use their secure home base to build regional monopolies. The degree to which a handful of players has come to dominate the current system indicates the degree of market dominance that can be anticipated, and the concentrations of financial and political influence that will result if this trend continues unchecked. In the light of inadequate environmental regulations, control and enforcement mechanisms at EU level, it can be expected that the shareholder demand for dividend in a competitive market will dominate any potential margin for environmental responsibility, unless that responsibility is legally imposed.

    Recommendation 3: The European Commission must consider establishing EU-wide

    environmental performance standards for electricity generators and retailers that include

    greenhouse gas emission and clean production criteria. Such regulation must specifically isolate

    any avenues for 'regulatory flight' which would otherwise allow retailers to trade from countries

    with the lowest environmental standards.

4. Threatened renewable energy promotion mechanisms:

    The European Commission appears to be at odds with itself in how to deal with the renewable energy sector. On the one hand, for the Commission‘s plans require this sector to supply 22.1% of electricity consumed by 2010. On the other hand, the European Commission is challenging the German renewable energy feed-in law. In light of this discrepancy it cannot be discounted that the up-coming guidelines on State Aid for environmental protection may also be used undermine the basic aim of the EU Directive on Renewable Energy (to boost renewable energy generation in the EU). The German feed-in law case may give an insight into the Commission‘s ambivalence towards actually promoting renewables: this lack of policy co-ordination is very damaging to Europe‘s new clean energy generation industries.

    Recommendation 4: Under current conditions in which the single electricity market is still

    heavily distorted by subsidies and where there is a lack of internalisation of environmental and

    human health costs, there is a need for mechanisms at an EU level to compensate the renewable

    energy industries that are adversely affected by this situation. At the very least, those schemes that

    currently exist at Member State level must be fully endorsed by all relevant parts of the European

    Commission until such time as these market distortions have been removed.

5. Energy insecurity: Increased fossil fuel concentration and import levels

     5

    Predictions of a gradual increase in Europe's fossil fuel imports show that the issue of energy security has not been addressed as part of the liberalisation process. Leaving Europe with a high-risk energy supply, and moved away from, rather than towards, increasing indigenous energy production through renewable resources.

    Recommendation 5: a) Disclosure : Regulations must be incorporated into the market that

    monitor, track and disclose fuels that are used for energy generation, and the source of those fuels.

    b) Containment : Legally binding mechanisms for limiting carbon-intensive and nuclear fuels and

    prioritising clean indigenous production of electricity must be adopted - the proposed Renewable

    Energy Directive is a suitable vehicle.

6. Persistent inherent subsidising of non-sustainable energy generation

    There is significant cause for concern when substantial national subsidization of the conventional energy sector is combined with international liberalisation. Subsidies can be used to allow energy producers from non-sustainable sources (predominantly fossil fuels and nuclear) to undercut other players that use more environmentally sound energy generation methods. The fact that both the European Commission and the European Parliament are only now attempting to quantify subsidies in the electricity sector, shows that this issue has not been seriously considered to date.

    Recommendation 6: The European Commission must immediately call for the suspension of the

    billions of Euros that are currently given in annual (national as well as EU) subsidies to the

    conventional energy sector. Until such time as the Commission can prove that these subsidies

    have been removed from the market, compensatory mechanisms need to be introduced for small

    but growing priority industries like the renewable energy sector.

CONCLUSION

    Many of these recommendations can be addressed by the European Commission within the process of refining and adopting the Renewable Energy Directive and State Aid Rules, and should thus be acted upon forthwith. The European Council will assess the progress of the electricity market at its March 2001 summit in Stockholm. That summit will be a key opportunity to assess the success or failure of addressing the environmental holes in the single electricity market and applying appropriate corrective measures where necessary.

    Dr. Karl Mallon

    Director of Energy Solutions

    Greenpeace International

     6

Introduction:

    "Thus, history may consider the past decade as the "Golden 1990s" of the EU energy system for two reasons: a successful outcome of energy policy, in particular with regard to the internal market and the liberalisation of electricity and gas supply; and the coincidence of other factors such as the closer co-operation with the countries in economic transition, and major technical advantages in energy 1production, energy conversion and end-use efficiency."

    So says a recent report published by the European Commission. However the same page of this report refers to the need to adapt the EU's energy policy to the requirement of the Amsterdam Treaty to contribute to sustainable developments. It is further noted that in the light of the Amsterdam Treaty the EU has changed its energy policy to include sustainability as one of its three core principles, which are: -

     Security of supply - which aims to minimise risks and impacts of possible supply disruption on the EU economy and society.

     Competitive energy systems - to ensure low cost energy for producers and consumers to contribute to industrial competitiveness and wider social policy objectives.

     Environmental protection - which is integrated in both energy production and energy use to maintain ecological and geophysical balances in nature.

    Therefore the protection of the environment has become a key criteria by which to judge the long-term stability, and therefore success, of the Union‘s Energy policy. For the past few years much of the political and industrial focus has been on the emerging European energy market, with the introduction of the EU‘s electricity (96/92/EC) and gas market (98/30/EC) Directives. This briefing looks at the electricity market and has two objectives.

    Firstly, it reviews the status of the electricity markets in Member States one year after the Directive has entered into force. It highlights what mechanisms have, or have not, been introduced to comply with the requirements of the Directive.

    Secondly, it aims to show the consequences of a fully or more liberalised electricity market from an environmental perspective. At the time of the introduction of the Directive the European electricity market was rapidly changing. While it is difficult to make a clear assessment of the specific impact of legislation introduced under the Directive, certain trends are becoming clear. The importance from the environmental perspective is the impact these trends are having on the long-term stability of the planet. The report highlights some of these trends.

    At the Lisbon Summit in March 2000, the final declaration called upon the Commission to prepare by the Spring of 2001 a report which assessed the impact of speeding up the liberalisation of a number of sectors including the gas and electricity. This will be discussed at the March 2001 summit in Stockholm and is likely to amongst other things to highlight some of the problems that the current liberalisation process has brought.

     1 Energy in Europe, Economic Foundations for Energy Policy, The Shared Analysis Project, December 1999, European Commission, ISBN 92-828-7529-6, page 8.

     7

     Part I: Impact of Market Liberalisation:

    The huge structural and legal changes that have occurred in the electricity markets in Member states have not surprisingly affected the functioning the electricity industries. These changes can be seen in a variety of different fields, some of which are outlined below.

Ownership.

     2It has been noted by PriceWaterhouseCooper amongst others - that the limited transmission capacity

    and the relatively high cost of transmission make large-scale exchange of electricity relatively unlikely. In particular the trade in electricity may play a relatively minor role when compared to that in electricity companies. The extent of this trading can be seen on a global and European level. Another analysis by PriceWaterhouseCooper concluded that in 1998 global cross-border electricity company deals were 3worth around $50 billion in 89 separate transactions.

     4Analysis undertaken for the Shared Analysis Project, Electricity Industry and Market Dynamics showed

    that in the years 1996-8, there were 180 international transactions involving European firms, with a total transaction cost of $84 billion. It is interesting to note the movement by European investors away from the Asia Pacific region back to their home markets. In 1996 Asia Pacific accounted for 43.7% of the total investment, but only 7.2% in 1998. However, Western Europe as a site for investment rose from 18.4% in 1996 to 35.8% in 1998, making it the most popular region for investment.

    Somewhat surprising is the relative lack of investment in Eastern Europe from 1996 onwards. It can be assumed that the majority of the investment had already occurred in the more central states, e.g. Czech Republic, in the years prior to 1996 when their electricity industries were being privatised. In addition the lack of investment in the former Soviet Union is likely to be an indication of investor caution, given the slow progress of reforms and low cash payment rates for electricity.

     2 Power Revolution, PriceWaterhouseCoopers, November 1999, page 5. 3 Utility News, March 1999, PricewaterhouseCoopers, [recheck source]. 4 The Shared Analysis Project, Economic Foundation for Energy Policy, Volume No 8, Prepared for the European Commission, DG XVII, Electricity Industry and Market Dynamics, prepared by Instituto de Economia della Fonti di Energia and the Science Policy Research Unit, Sussex University, October 1999.

     8

Figure 1: Cross-Border Electricity Deals Involving European Firms By Target Region 50

    45

    40

    35

    30Western Europe

    Eastern Europe

    25Former USSR

    Latin America

    20North America

    Middle Central Asia15Asia Pacific% of total Value of Deals/yearAfrica10

    5

    0

    199619971998

Table 1 shows the domination of the European market by a small number of firms. Only six firms have

    been involved in more than ten transactions during the three years monitored by the Shared Analysis

    Project.

Table 1: Cross-Border Deals Involving European Firms 1996-8

    Company Number of Transaction

    Electricité de France 20

    National Power 18

    Tractebel-Electrabel 18

    Imoatran Voima Oy 15

    ENDESA Grou 8

    IBERDROLA 9

    Union Fenosa 8

    RWE Energie 8

    PowerGen 7

In 1999 a larger number of transactions are expected to be recorded, including a significant number of

    take-over deals. Interestingly the Electricité de France is now the largest supplier of domestic electricity

    in the UK, following its take-over of London Electricity and the South West Electricity Board.

     9

The trend for increasing investment into and by European utilities was confirmed in a recent briefing 5prepared by Pricewaterhouse Coopers and published in the Financial Times in April 2000. The analysis

    showed that in the there was increased activity in the Global cross border electricity market in the first quarter of 2000 over the same period in 1999, an increase from 20 deal and $8.6 billion in 1999 to 37 deals worth $10.5 billion in 2000. As can be seen in the graph below the most active companies were the European‘s which secured 54% of all deals however, firms from the US secured the largest share of the

    deals by value.

    Figure 2: Cross Border Electricity transactions by Bidder Continent: Number of Transactions in

    the first quarter 2000.

    Asia-Pacific

    3%

    North AmericaEurope43%

    North

    AmericaAsia-

    PacificEurope

    54%

    The Pricewaterhouse Coopers analysis also showed that Europe remains the most active area of the world for the transactions to occur, as can be seen in the graph below. Although, once again, if the transactions are analyses by value, the US is the most attractive region with $3.8 worth of deals compared to $3.1 in Europe.

     5 Acquisitions rise in global electricity sector By Andrew Taylor, Utilities Correspondent, Financial Times, April 27 2000

     10

Report this document

For any questions or suggestions please email
cust-service@docsford.com