Europe's Energy Market Now Open -- Sort of
The European Commission set the beginning of July 2007 as the deadline for having a completely open retail energy market in the European Union. Residential customers should be able to choose their power and gas suppliers, just as business users can. In most countries, they still cannot.
July 03, 2007
That deadline was yesterday, and there remain wide variations in openness among the 27 EU member countries. The UK has a fully open power market, but progress in other countries has been slower. Some barely made the deadline, and others haven't yet.
Freedom of choice means customers can pick energy suppliers based on preference -- by price, origin, or energy source (fossil, nuclear, or renewable).
State-owned vs. open competitionThe ideal of pure competition, first envisioned by the founding nations of the original European Community, has a history of being watered down -- an import tariff here, an agricultural subsidy there -- driven by the provincial interests of the members.
State-owned power and gas companies are the antithesis of EC-style pure competition, and they're common in Europe.
French president Nicolas Sarkozy is taking a stance in favor of national energy companies. The state-owned EDF and GDF utilities were partially privatized only last year, but the government retained a majority stake.
Progress, country by countryNonetheless, power company EDF is taking steps toward an open market. It has given all suppliers equal access to its grid infrastructure. It is forming a subsidiary to hold the combined distribution assets of EDF and gas company GDF, separate from their supply businesses.
Italy has approved a decree that requires energy companies to make a similar split between supply and distribution businesses, and to allow residential customers to choose energy suppliers.
Germany, France and Benelux (Belgium, Netherlands and Luxembourg) are seriously discussing a treaty that would combine their electricity markets by 2009. The region's total GDP is US$5.2 trillion, more than a third of the EU's combined GDP, and the five countries have a combined population of 180 million.
Challenges aheadAs promising as this progress sounds, there are many barriers to overcome before Europe as a whole can comply with yesterday's deadline. The unbundling of assets, country by country, is a difficult task. And regulation gets messy when cross-border exchanges of energy become commonplace.
For a more thorough analysis of EU full market opening, see this article by James Griffin, European utility analyst with UtiliPoint:
"EU Full Market Opening: The End of the Beginning" (2 July 2007)