In pursuit of an integrated energy market

Proposals for the third EU energy liberalisation package are only to be presented by the European Commission in September. It will take years before any new legislation comes into force.

In the interim, energy market operators and regulators are moving ahead with other initiatives to pursue greater integration of the EU energy market.

Una Shortall of Ergeg, the European regulators group for energy and gas, says that the coupling of national energy markets, known as ‘regional initiatives’, are the way forward.

There are currently ten regional energy market initiatives, seven in the electricity sector and three for gas (see table right). They have been welcomed by Energy Commissioner Andris Piebalgs. He described the signing of a memorandum of understanding between five countries for the central west regional market, as a "positive step towards the creation of a single European energy market" which would bring lower prices, increased security of supply and attract investment in new generation capacity and transmission infrastructure.

Piebalgs said that the agreement on a trilateral joint market of France, Belgium and the Netherlands last November had led to the creation of a power exchange in Belgium, more efficient use of interconnectors and price levels in the three countries had converged.

Competition Commissioner Neelie Kroes also welcomed the central-west initiative although she also sounded a warning about the potential for anticompetitive behaviour when transmission system operators (TSOs) co-operated more closely. "If the TSOs remain integrated with supply businesses there is an obvious risk that such co-ordination will lead to conditions which favour collusion," she said. Kroes insisted that while regional energy markets were a step forward, they did not do away with the need for ownership unbundling.

The European electricity industry association Eurelectric sees regional independent system operators as the best way of achieving the goal of a competitive EU energy market with free and fair access to new entrants. Eurelectric President Rafael Miranda said on 11 June that the right way to ensure both the independence of operators and market integration was to incorporate TSOs’ transmission tasks into an independent entity - a Regional Independent Operator (RIO). "A RIO model would be more likely to achieve the desired aims - independence of decision-making plus active market integration - than the Commission’s preferred option, forced separation of transmission assets," said Miranda.

But Luxembourg Green MEP Claude Turmes has been strongly critical of the industry’s preference for regional ISOs, calling them the "latest hype" in the energy debate and saying that the central west initiative was a "regional cartel" which would "allow the big German and French companies to squeeze the market".

Shortall says that although regional initiatives can help with integration they do not remove the need for ownership unbundling because vertically integrated TSOs would not have the incentive to invest to tackle congestion.

Over the coming years the role of regional market initiatives will become more important and will play a part in gradual integration across the EU. But it is clear that the underlying arguments about the effectiveness of ownership unbundling will not go away.

Energy markets

• Electricity Regional Energy Markets

Central-West: Belgium, France, Luxembourg, Germany, Netherlands

Northern: Denmark, Finland, Germany, Norway, Poland, Sweden

Atlantic: France, UK & Ireland

Central-South: Austria, France, Germany, Greece, Italy, Slovenia

South-West: France, Portugal, Spain

Central-East: Austria, Czech Republic, Germany, Hungary, Poland, Slovenia

Baltic: Estonia, Latvia, Lithuania

• Gas Regional Energy Markets

South: France, Portugal, Spain

South-South-East: Austria, Czech Republic, Greece, Hungary, Italy, Poland, Slovenia

North-West: Belgium, France, Denmark, Germany, UK, Netherlands, Poland, Sweden

Proposals for the third EU energy liberalisation package are only to be presented by the European Commission in September. It will take years before any new legislation comes into force.