Energy giants renew unbundling battle

The European Commission is in September expected to make a renewed push for ‘ownership unbundling’ forcing energy companies to separate their transmission networks from their generating facilities, according to a senior Commission source.

But ahead of the raft of legislative proposals due in the autumn, the main players are setting out their positions and trying to influence the Commission’s thinking.

EurElectric, which represents European electricity companies, is working on a position paper which will call for regional independent systems operators (ISOs) for groups of countries instead of ownership unbundling. With an ISO, the transmission network is functionally separate from the generating businesses of energy companies although there may be a degree of indirect ownership. An analyst at EurElectric explained that the association did not believe that ownership unbundling alone would lead to a liberalised market because unbundling would take place at national level. EurElectric’s favoured model for regional ISOs would involve a high degree of independence for the operator, according to the analyst. EurElectric’s position paper is still being discussed internally and is not being made public for the time being, although elements of it are expected to be confirmed at the association’s annual convention in Antwerp on 11-12 June.

But there are suspicions that EurElectric’s position is intended to ward off the threat of ownership unbundling which the major energy companies want to avoid.

Luxembourg Green MEP Claude Turmes said that integrating electricity and gas markets into cross-national regional markets was "the latest hype" in the EU internal energy market debate.

Turmes agreed that the idea of regional markets made sense but said that this did not weaken the case for ownership unbundling. "Improved co-ordination between grids and markets in close proximity would be a positive step for security of supply," he argued. It would make it easier to integrate wind-generated electricity into the current system, which is an essential step if the EU is to meet its own targets for renewables by 2020, he said.

But, Turmes warned, integrating national electricity markets into regional markets was "no silver bullet" for the more deep-seated structural problems in the EU energy market. The MEP argued that without full ownership unbundling "the market neutrality of system services will not be guaranteed". While at the moment power production and wholesale markets are dominated by a few big players, their "former monopoly benefits will be replaced by oligopoly rents to the detriment of consumers", Turmes said.

The MEP has looked at specific candidates for regional ISOs and concluded that "regional co-operation should not be viewed as a panacea for the deficiencies in the European energy market". He said that relying on regional co-operation would "considerably prolong the realisation of a competitive market in Spain and Portugal". The Iberian peninsula would have to wait a long time for a sufficient number of power lines across the Pyrénees. Spain and Portugal would be better off dismantling the duopoly of Endesa and Iberdrola than waiting for interconnectivity with France, he argued. Turning to the north-west market involving France, Germany and the Benelux countries, he said that the energy oligopoly in France and Germany was starting to embrace regional co-operation as a way of avoiding unbundling. Turmes also pointed out that setting up a five-country market would be a way of escaping national cartel laws. The German regulator is becoming increasingly concerned at the market power of the large energy companies.

Turmes concluded from these examples that "regional markets in themselves are not a solution". "What the EU needs is the political courage to undertake the necessary re-regulation of a deregulated market which is unfair and distorted," he added.

The MEP said that the energy market package that European Competition Commissioner Neelie Kroes and Energy Commissioner Andris Piebalgs will present in September needed "teeth". It should include ownership unbundling for transmission grids and pipelines, more rights for regulators and cartel authorities to prevent market domination as well as a way to include the cost from fossil fuel and nuclear power to create a fair market place for renewables.

"If EU policymakers do not take a lead on these issues, the deregulated energy market will continue to be a vehicle of generating windfall profits for Europe’s energy monoliths, at the expense of the EU consumer," Turmes said.

The European Commission is in September expected to make a renewed push for ‘ownership unbundling’ forcing energy companies to separate their transmission networks from their generating facilities, according to a senior Commission source.