Will ownership unbundling really work?

The Commission’s plan to create a truly competitive energy market through unbundling is unlikely to happen anytime soon. Simon Taylor reports.

The European Commission is adamant that the best way to create a truly competitive energy market is through ownership unbundling, separating transmission networks - "pipes and wires" in industry slang - from generating capacity, even though the proposal does not enjoy broad support from EU energy ministers.

Competition Commissioner Neelie Kroes told energy ministers at their Council meeting in Luxembourg on 6 June that "full separation of network ownership" was the best way to ensure fair access to the network, access for new entrants, independence of investment decisions and better co-ordination of operators. After a succession of ministers raised doubts about the necessity of full unbundling, Energy Commissioner Andris Piebalgs was forced to concede: "The majority is not with me."

Both the French and German ministers with responsibility for the energy sector expressed reservations about ownership unbundling. German Economics Minister Michael Glos said that full unbundling was not a "cure-all" for the shortcomings in the energy market and spoke instead in favour of closer co-operation among national regulators and network operators.

The German government continues to express concern that ownership unbundling would breach the country’s post-Second World War constitutional ban on enforced expropriation, which was drawn up to guard against Soviet-era mass nationalisation. Piebalgs argues that there are ways to approach full unbundling which would not breach constitutional rules.

Alain Juppé, who was briefly in June France’s super-minister for ecology and energy, stressed that the Commission should propose various options to tackle shortcomings on the energy market. Ownership unbundling should be just "one way", he said.

The Commission is facing the prospect in the autumn of its push for full unbundling being resisted by the two largest member states and potentially a good number of allies. The Commission has said that its approach will be to propose full unbundling as its preferred option, with the alternative being "intrusive" regulation, ie, far-reaching powers for regulators to ensure that vertically integrated energy companies are not abusing their position to shut out competitors.

But Kroes will keep up attacks on individual companies if they are suspected of anti-competitive behaviour. The Commission has opened in-depth investigations into Germany’s RWE and Italy’s ENI for allegedly shutting competitors out of the gas supply market. Kroes warned that more probes were likely to follow dawn raids at the offices of Germany’s E.ON Ruhrgas, France’s Gaz de France and Belgian, Austrian and Hungarian companies.

The Commission is also looking hard at regulated prices in a number of countries to see if they amount to state aid because low prices can keep out new entrants and favour incumbents unfairly. The Commission will keep up this constant pressure. But it seems unlikely that this approach or fear of heavy regulation will be sufficient to produce a change of heart in Germany or France. In Germany there is an internal debate about high energy prices, but this is prompting greater action by the national regulator rather than greater openness to ownership unbundling as a solution.

Getting an agreement on new legislation to improve competition on the market could take a year and any new laws would not be implemented for possibly another three to five years, meaning the current problems on the market would persist for several years to come.

Kroes’s focus on individual companies and their anti-competitive behaviour and other measures, such as the creation of regional independent system operators and strengthening the cross-border powers of regulators may address some of the problems in the medium term. But for the moment, full ownership unbundling across the EU’s internal market looks unlikely.

The Commission’s plan to create a truly competitive energy market through unbundling is unlikely to happen anytime soon. Simon Taylor reports.