Series Title | European Voice |
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Series Details | 02/10/97, Volume 3, Number 35 |
Publication Date | 02/10/1997 |
Content Type | News |
Date: 02/10/1997 By A SINGLE electricity market in the EU is finally in sight, promising cheaper bills for European industry as it confronts a growing global challenge from Japanese and American rivals. Officially, the Union will not see free cross-border competition in electricity until 1999 - and even then it will be limited to the biggest industrial users accounting for only one-fifth of the market. But the UK and the Nordic countries have blasted open their markets and other member states, notably Germany, are responding to pressure to follow suit. Europe's electricity business today is barely recognisable in comparison with the fragmented and hermetically sealed industry of just five years ago. IVO, a Finnish power utility, is plotting a German invasion from a small office in Hamburg; German utilities are moving into telecommunications and cable television; US firms control eight of the UK's 14 regional electricity distribution companies and supply the bulk of Berlin's electricity requirements. Liberalisation is also seeping south into countries such as Italy and Spain, where monopoly, state ownership and protectionism have long been a way of life. Endesa, Spain's largest power group, is being privatised, private investors acquired 30&percent; of Electricidade de Portugal earlier this year and ENEL SpA of Italy has teamed up with a Texan energy conglomerate to break into the European market. The EU last year agreed to a limited degree of competition restricted to big industrial consumers, starting in January 1999. But just as few companies waited for the formal liberalisation of the telecoms sector, astute players in the electricity industry are already exploiting loopholes to gain an edge over their rivals. The fact that Helsinki-based IVO is talking to large German companies about supplying them with electricity, possibly from a power plant on German soil, is nothing short of revolutionary in a country where market shares and prices are rigged. “German utilities will face real competition,” said Kari Huopalahti, executive vice-president of power generation at IVO, who points out that Finland boasts the lowest domestic and industrial electricity prices in the EU and Germany among the highest. Big German utilities like Viag and RWE have woken up to the threat, recently agreeing to a ground-breaking deal which will allow free access to transmission networks. The opening up of the German market has sent a powerful message to member states which are dragging their feet on liberalising other sectors: when deregulation eventually arrives, foreign firms will benefit at the expense of domestic producers. “Electricity is like any other industry now,” said Huopalahti. IVO itself provides a text-book lesson in the benefits of liberalisation. The Nordic region boasts open competition (Finland, with a population of just over 5 million, has more than 100 electricity distributors), an electricity spot market and a flourishing cross-border trade. That freedom cost IVO its two largest domestic customers, pulp firm Enso-Gutzeit and the Outokumpu mining group, which signed long-term supply agreements with Vattenfall, Sweden's biggest electricity producer, two years ago. But it also enabled IVO to export power to its Nordic neighbours and buy into foreign firms, most recently Gullspangs Kraft, a Swedish utility. Big companies, frustrated at the delays in liberalising the electricity sector, are coming up with their own solutions. In Germany, foreign companies are the innovators: Opel, a General Motors subsidiary, is building a heat and electricity plant at its centre in Russelsheim in Germany, prompted by a survey which showed that the price of electricity varied widely not only from country to country but also within Germany. In 1996, energy costs at the car manufacturer's plant in Aspern, Austria, were nearly 45&percent; higher than at its factory in Luton, north of London. Meanwhile, Dow Chemical is building its own power station at its plant in Stade, Germany, to arrest the steady erosion of its international competitiveness. In an ironic twist, Germany's electricity cartel has helped to inject competition into the telecommunications market, as utilities use their sky-high monopoly profits and distribution networks to mount a challenge to Deutsche Telekom. The EU's hard-fought electricity directive states that large industrial companies which use more than 40 gigawatts of power an hour - accounting for 22&percent; of the EU market - should be free to choose their suppliers by 1 January 1999. A year later, the market above 20 gigawatts an hour will be opened and by 2003 the threshold will fall to nine gigawatts an hour. Few industry analysts expect this timetable to hold: they believe the impact of the first round of liberalisation will quickly trickle down to small and medium-sized firms as well as domestic households. The British market is bracing itself for total freedom next April, when 24 million households and 2 million small businesses will be able to shop around for the best offer from regional electricity distributors. Consultancy firm Coopers & Lybrand predicts that up to half of all households could switch suppliers. In time, the British experiment is sure to attract adherents across the EU. The benefits are too glaring to avoid: electricity prices in the UK tumbled by 7.4&percent; in the year to April 1997, while those in Italy rose 5&percent;, burdening its businesses with the most expensive electricity in the industrialised world, according to National Utility Services. The pressure is not just coming from within the EU. The central and eastern European countries bidding to join the Union are also forging ahead while some existing member states continue to drag their feet. The region is opening up fast: German utilities RWE and EV Schwaben plan to invest around 1.59 billion ecu in Hungary; a US power company is rumoured to be negotiating to take over the state-controlled electricity utility in Estonia; the UK's PowerGen plans to build a 230-million-ecu plant on the outskirts of Budapest; and Sweden is building a 288-million-ecu under-sea electricity cable to Poland. This frantic pace of activity is likely to provoke a lessening of protectionist sentiment in France to enable Electricité de France, the world's biggest electricity company, to cash in on the coming bonanza. |
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Subject Categories | Business and Industry, Energy |
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