Mixed success for market-opening in electricity industry

Date: 04/05/2000

By Tim Jones

ONE of the more annoyingly Clintonite descriptions of last month's Lisbon summit was that it was a 'step change'.

After this first-ever jobs, dotcom, liberali-sation - take your pick - gathering of EU leaders, the Union was never going to be the same again. Market places long closed off from competition by protectionist foot-dragging would be opened wide. Resistance to full-blown energy market liberalisation would be blasted away.

The summit conclusions were, of course, much vaguer than that. All leaders managed to do was 'ask' the European Commission and their energy ministers to 'speed up liberalisation in areas such as gas, electricity, postal services and transport' and consider a report on this subject when they next meet in Oporto in June.

The report will have its gloom. Thirteen months after the EU's electricity market-opening legislation came into force, France has only just passed it into national law. In the meantime, domestic monopoly Electricité de France (EDF) has been on a spending spree elsewhere in the Union.

It is hardly surprising that French governments of whatever political hue have for so long resisted ending EDF's protected domestic market. After all, the company - Europe's number one electricity producer/supplier with sales of €32 billion and a 715-million-euro profit last year - still hands over 40% of this to the treasury in dividend payments.

But the firm's foreign ambitions - it wants to sell half its output outside France by 2005 - have caused intense resentment since reciprocal access was banned. EDF now owns the supply businesses for London and south-west England, accounting for 14% of the British market outside Scotland, and knew it was not going to be allowed to go further.

The acquisition of a 25% stake in Energie Baden-Wurttemberg AG (EnBW), Germany's fourth biggest electricity provider, was the end of the line. Keen to keep the expansion on track, EDF chairman François Roussely revealed that he would raise cash from re-listing some of his acquisitions including London Electricity, Brazilian operator Light or Edenor in Argentina, with Hidrocantabrico in Spain and plants auctioned by Italian utility Enel his targets.

Similarly, the way the German gas market is to be opened in the summer has infuriated energy-intensive industries. A government-brokered industry agreement will, says critics, protect incumbent producers by linking tariffs to transactions rather than published price lists.

The Commission was incredibly slow to act against EDF and, even when it did, it was more rhetoric rather than a straightforward action. The German gas market is unlikely to be so lucky. "The Commission has made it clear just how it feels about transaction-based pricing," says a national official. "They will not sit this out if nothing is changed."

However, the summit report should also stress how far the EU has come since the months of negotiations that ended with a minimalist electricity liberalisation deal between energy ministers in the summer of 1995. The most they foresaw was, from January 1999, allowing big industrial users consuming more than 40 GigaWatt hours (about 22% of the market) to shop around for the lowest-cost EU provider. In 2003, this threshold would fall to 9 GWh or 33% of the market.

Since then, the market has been blasted open. German energy prices have collapsed as competition has taken off between suppliers, with ferocious cost-cutting culminating in the protective mergers of Veba and Viag, and RWE and VEW. Belgium, which resisted liberalisation more than France and where incumbent Electrabel tried to tie customers into fixed 40-year deals, now intends to open its market in full.

The next stage will come in the autumn with an expected deal between members of the European Association of Transmission System Operators, power traders and regulators to fix cross-border tariffs. Being able to deliver power easily across borders and between regions is vital to the success of electricity trading markets which are under development in London, Amsterdam and Paris. Money will talk louder than any government heads in Oporto.

Article forms part of a survey 'Industrial liberalisation'.