Bringing power to the people

Date: 08/09/05

Two MEPs discuss the way ahead for the EU's tightly controlled gas and electricity markets

Market concentration is stifling competition for gas and electricity in many EU countries, says Claude Turmes

In principle the liberalisation of the EU energy markets should lead to lower prices for consumers.

The creation of national regulators working in parallel with the European Commission, which is benchmarking their progress, should lead to lower charges on networks, which is the first price component of gas and energy.

The figures that we have show that this is starting to happen, despite the fact that some countries such as Germany have been very slow to transpose the rules and its national regulator is only now getting up and running.

As a result, I am quite optimistic about prices, but one weakness is that small consumers are still not well represented and able to give their views to the national regulator.

Each of the 25 member states needs an energy watchdog like the body set up in the UK, which can strengthen the ability of these smaller consumers to represent their views vis-à-vis the regulators.

Concerning the prices for production and retail, however, the picture is a little different.

In certain markets, prices have actually risen and there are several reasons for this.

Rising oil prices have rubbed off on gas prices, although this is largely due to speculation rather than actual changes in cost structure, as only 3% of electricity production is oil-based.

Speculation around carbon dioxide trading can also affect the price of electricity, even though in reality utilities have actually received free CO2 allocations for their coal-powered plants so should not need to raise electricity prices for this reason.

Some people also think that trading gas and electricity as commodities pushes up the price, but I personally think that liberalised markets need price signals from the power exchanges.

In my eyes, the real problem of rising prices comes from the continued market concentration in Europe. On Friday (9 September), I will present an update of the concentration of the electricity market in the EU, based on a report carried out by the Applied Ecology Institute in Berlin.

This report shows that concentration in the EU's most relevant markets is even worse than it was in 2002.

In France, Germany and Italy, there is still one dominant company, or at the most only a handful of players and this is stifling competition in the market.

We need stronger market surveillance at a national level. I also welcome the fact that the Commission's competition department (DG Comp) is engaged in looking at any cartel activity in the energy sector and I hope that their work will yield results as we have enough indications that there could be a problem.

But most importantly, we need a third package of legislative measures. I think that new legislation should reintroduce those points that the European Parliament added during the second round, for which I was rapporteur, but which did not end up in the final draft.

They would have forced 'ownership unbundling', whereby the owner of the electricity grid would have to be owned by a company other than the firm producing or retailing in that market.

Grids are natural monopolies through which all electricity runs, regardless of who is producing it. And the problem is that companies like France's EDF or Germany's RWE own the company that operates the grid.

As a result they can influence the order of merit of power producers and will of course always favour their own production.

The Parliament's amendments would also have taken concrete action against concentration, such as obliging companies to sell a certain amount of their production capacity to let smaller competitors into the market.

Only with serious measures like these will we see real liberalisation in Europe and a sustained reduction in prices for our consumers.

• Luxembourg Green MEP Claude Turmes is a member of the Parliament's committee on industry, research and energy.

Bottlenecks in the ownership of transmission networks hamper competition in gas and electricity markets, says Jorgo Chatzimarkakis

Liberalising the energy markets has been on the European agenda since the early 1990s and is a good idea. In Germany a law enacted in the 1930s prevented competition on the electricity and gas markets.

So until the end of the last century, consumers were puppets in the claws of energy monopolies.

In the mid-1990s, the European Commission began to work on the Herculean task it had set itself of bringing competition to European energy markets. Several directives followed which would ultimately break the existing monopolies. In Germany, they initially enabled many new energy companies to emerge and grow fast, while prices dropped sharply. But today, the situation is almost depressing.

The average costs for power have risen again, overtaking pre-1990s prices and only a few players are left in the market, with four big companies controlling large parts of the supply side and nearly all the transmission networks. Why has the liberalisation of energy markets failed to secure the gains made initially? Why has it ultimately not changed anything at all? Politics and systemic issues have combined to guarantee failure.

To begin with the politics: German politicians made several mistakes. The Greens, who came to power in 1998, attempted a so-called modernisation of the German energy structures. That meant, in Green ideology, to build windmills even in areas with nearly no wind at all and to squeeze the big energy suppliers by forcing them to buy the generated power for prices way above those of the market. It also meant closing down cheap nuclear power plants and raising energy taxes. Up to 40% of the German energy prices are made up of taxes and the like. These ate up all that was gained from liberalisation.

The German government decided at first against the establishment of a regulatory agency. Without a watchdog, the still surviving big energy suppliers were quick to create an oligopoly, leading again to high prices. All this shows that liberalisation measures on their own cannot achieve much and are only a first step. If they are not accompanied by a coherent energy policy, consumers will never benefit from them.

But politicians are not the only one to blame. If liberalisation is only about the possibility of buying energy from any supplier throughout Europe, which has been achieved in the EU, it forgets the other side of the coin, namely that the transmission networks for gas or electricity remain private property, meaning that high prices can be charged for their use. This systemic conflict, also present in the railway sector, has to be tackled, if liberalisation is to bring the benefits it promises.

In the longer term, energy prices will only be determined by liberalisation and to a small extent by competition issues. Especially in the field of gas, no European law will be able to influence the most crucial aspect of the game: the exploiting countries. Europe lacks raw materials and does not have enough to meet its energy demands. European power suppliers are dependent on the countries that extract gas or oil which are able to set prices high as there are only a few to possess these commodities. Meanwhile, the worldwide demand keeps on rising. And when prices rise, the benefits of liberalisation vanish.

This is not to say that the Commission should give up its work.

The liberalisation of the European electricity and gas markets is of course an important step in the right direction. But it requires a powerful watchdog, able to scrutinise the markets and correct, to some extent at least, their failures. To that end, a strong European regulating agency could be established.

To be coherent and bring the promised benefits to the consumers, the main goals of our energy policy must remain the lowering of consumer prices and enhancing sustainability by minimising the effect of our dependence on external suppliers through a smart energy mix.

• The German Liberal MEP Jorgo Chatzimarkakis is a member of the Parliament's committee on industry, research and energy.

Two MEPs discuss the way ahead for the EU's tightly controlled gas and electricity markets.