US firm’s progress in Europe shows extent of market opening

Date: 07/01/1999

By Chris Johnstone

GIANT American energy company Enron is a corporate litmus test of the extent to which Europe's energy markets have opened up so far and where the EU's directive has still to make a real impact.

The Texas-based company, one of the biggest integrated gas and electricity players on the world market with assets totalling around €30 billion, launched itself on the European market in 1989 and has been in the vanguard ever since.

Unlike the locals, who have been ensconced in national markets, Enron reckons it can take a regional view of Europe's needs and become a major player in gas and electricity trading and production.

Enron has always had a foot in both energy camps. It judged, rightly, that electricity liberalisation would build up pressure for the gas supply market to follow suit as generators were forced by competition to choose the cheapest power sources.

It chose the UK as the beachhead for its move into Europe at the first signs of market opening in 1989, building a gas power station on Teesside capable of meeting around 4&percent; of English and Welsh energy needs, with a second station, around half as big, due to begin operating early this year. Its gas division supplies around 4,000 industrial and commercial customers.

Enron's follow-up step in 1993 took it to Germany - at that time still a relatively closed market - where it bought a stake in and jointly ran a 125 megawatt power plant. This mostly supplies a local industrial unit and feeds peak-time power into the local grid.

Last July, Enron became the first non-national company to be cleared to supply electricity directly to customers under Germany's April energy law, which broke down what amounted to quasi-regional power monopolies.

Nordic markets were next, where Enron has positioned itself as a trader and broker in volatile hydroelectric power across Denmark, Sweden, Finland and Norway.

It is currently negotiating with Italy's electricity giant ENEL to run two power stations as a joint venture between the two companies. The deal is partly aimed at diluting ENEL's dominant position, with its stake in the joint venture due to be completely spun off to Enron over time.

Rome has demanded that ENEL sells off just under one third of its generating capacity by the start of 2003 as part of a programme aimed at forcing down its market share for production from around 80&percent; to 50&percent;.

Enron also started trading in the Spanish electricity market at the start of 1998. Spain has boasted of its place in the forefront of EU electricity, with its efforts portrayed by the centre-right government as a showcase for what can be done.

The US company's officials add that it is no coincidence that the company has not so far ventured into the French market, which has not gone out of its way to welcome newcomers. It has also limited its involvement in the Netherlands because of the slow pace at which market opening is happening there.

Even in 'open' markets such as the UK, Enron is involved in battles to establish a free market for energy. It is contesting London's demands for a freeze on new gas-powered power plants which threaten to prevent it adding a further 2,400 megawatts to its production capacity. The British government freeze was imposed to try to protect the dwindling market for coal.

Enron has also challenged the German cartel office to rule on the refusal of the regional grid operator and rival electricity producer Elektromark to allow it to supply a large customer.

Elektromark argues it has insufficient transmission capacity, but Enron has used consultants to prove that such constraints did not, in the past, amount to an insuperable barrier to electricity trade.

In the long term, however, the company sees the ability to trade power as more interesting than its ownership.