France and Germany lead unbundling opposition

France, Germany and seven other member states have written to the European Commission to say that forcing energy firms to sell off their transmission and distribution networks is not the only way to bring more competition to the EU’s energy sector.

A letter sent to European Energy Commissioner Andris Piebalgs on Monday (30 July) from economics ministers from nine countries says: "The idea of complete separation of production and distribution as the only key to the development of the internal energy market for electricity and gas should be avoided."

The letter was signed by French Economics Minister Jean-Louis Borloo and his German counterpart Michael Glos as well as their colleagues from Austria, Bulgaria, Cyprus, Greece, Latvia, Luxembourg and Slovakia.

The Commission is planning to present new legislation at the end of September to promote further liberalisation of the EU’s energy markets. It strongly favours ownership unbundling as the best way to ensure that new entrants can get access to transmission networks and to prevent energy giants exploiting their control over transmission and distribution assets.

But the countries which signed the letter argue that ownership unbundling has not been successful in lowering prices or ensuring adequate levels of sufficient investment. They say that full unbundling should be only one of a number of options.

In June seven countries, including the UK, Sweden and the Netherlands, wrote to the Commission asking it to go ahead and propose full unbundling.

A Commission spokesman said that the Commission still believed that full unbundling was a more effective approach than creating independent systems operators, an option mentioned in the letter. Independent systems operators (ISOs) run transmission networks but are fully independent from power-generating firms even though these can still maintain shareholdings in ISOs.

The spokesman said that the ISO option would imply very strong central control at EU level and constant regulatory supervision. "Regulators would have to intervene permanently," he said, adding that even then there was no guarantee that it would have the desired effect.

The spokesman said that the letter was positive because it was the first time countries which had been most critical of unbundling recognised the need to examine and improve the existing unbundling regime, or legal unbundling, as well as the need for structural measures and greater regulatory powers. Under the current energy market legislation, energy firms’ transmission and distribution businesses have to be legally separate entities from their power generating operations.

"Things are moving in our direction," the spokesman added.

France, Germany and seven other member states have written to the European Commission to say that forcing energy firms to sell off their transmission and distribution networks is not the only way to bring more competition to the EU’s energy sector.