Gas and electricity: mixed report on liberalisation, October 2002

At the request of the March 2002 Barcelona European Council, the Commission has produced its 'Second benchmarking report on the implementation of the internal electricity and gas market'. Published on 3 October 2002, the report shows that some 70% of the European electricity market is currently open to competition and that the figure will rise to about 82% by 2005; for gas, the figures are 80% and 90% respectively.

In the year since the first benchmarking report was produced, the Commission believes progress has been made 'in a number of areas' for electricity, but that for gas it has been 'limited and more uneven'. Overall, small businesses and domestic consumers have tended to miss out on the benefits of competition.

The electricity market has seen a general opening up, an improvement in the degree of unbundling of network operators, and greater clarity and transparency in regulation. Austria, Germany and the Netherlands are amongst the Member States which have seen an increase in consumer activity among eligible customers; Italy, Spain and the UK have seen price reductions for large consumers. Amongst a number of issues giving concern are: the degree of unbundling, the continuing position of market dominance in some countries, and the lack of infrastructure to allow cross-border exchanges.

The gas market has also seen positive developments, with Italy, the Netherlands and Spain further opening their markets. Gas prices for eligible customers have fallen considerably - although due in part to falling oil prices.

Barriers to competition highlighted by the Commission's report include:

• all Member States except France, Luxembourg, Greece and Italy already intend to fully open their electricity and gas markets. However the unequal market opening that has resulted is leading to distortion of competition;

• tariffs and conditions for third party access to networks are unreasonable in some cases, in particular in Germany, where insufficient unbundling exists and where independent regulators have insufficient powers;

• the high level of market power among existing companies in many Member States, associated with a lack of liquidity in wholesale gas and electricity markets, impedes new entrants. This has led some countries such as Italy to initiate divestment and capacity release programmes;

• insufficient interconnection infrastructure exists between Member States and, where congestion exists, there are often unsatisfactory methods for allocating this capacity which favour vertically integrated incumbent companies.'

Proposals to further liberalise the gas and electricity markets are being discussed. The Commission - which published its latest proposal on 7 June 2002 - believes that the adoption of a new package of measures 'would be a major boost to the creation of a single energy market.'

On the day the Commission published its report, thousands of French workers from Electricite de France (EDF) and Gaz de France (GDF) demonstrated in Paris against their government's plans to partially privatise state utilities - fulfilling fears expressed at the Barcelona European Council - by the previous French government - that moves towards liberalisation would provoke protests.

Links:

European Commission:
	Commission report reveals patchy progress in opening of electricity and gas markets [IP/02/1423]
	Commission staff working paper: Second benchmarking report on the implementation of the internal electricity and gas market [SEC (2002) 1038]
	The Internal Market for Gas
	The Internal market for Electricity
BBC News Online:
	03.10.02: French protest against sell-off plans
European Sources Online:
	In Focus: Barcelona European Council agrees compromise deal on the liberalisation of electricity and gas markets, March 2002
	In Focus: European Commission launch new proposals to complete by 2005 the internal electricity and gas markets, March 2001
	Topic Guide: Energy policy

Eric Davies
KnowEurope Researcher,
Compiled: Friday, 4 October 2002

On 3 October 2002, the European Commission produced its 'Second benchmarking report on the implementation of the internal electricity and gas market'.