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Electricity competition barriers must bre removed - Robert J. Jeekel, Eurometaux

Sir,
Regarding Comission threatens EU power giants, I completely agree with Claude Turmes and John Mogg on the ownership unbundling and that the forceful removal of all barriers to free competition in electricity markets should be a priority. When energy-intensive industries fully agree with the Greens, something very peculiar must be going on in society - and it is.  It is unacceptable that one-sided political forces are again blocking the way to fully competitive markets. Even in the most positive scenario - with all vital market plans introduced - implementation would surely take eight years. Only then could we have a practical implementation of this globally unique liberalisation experiment. 

But industry cannot wait for any new market regulations to take effect. Many long-term contracts are coming to an end and, if no action is taken, they can only be replaced by the current short-term unsustainable contracts and prices. Without any justified reason, the EU has become a high-risk area for new industrial investments for energy-intensive industries, while existing operators have begun to shut down production, leading to further EU de-industrialisation.

It is urgently required that any plans insist on EU and national authorities to encourage and define the measures whereby EU-based energy-intensive industries can survive. This requires transitional measures to be put in place until such time as there are properly functioning, fair and competitive markets. 

Unfortunately it seems that proper liberalisation and the demand-side are not represented in the new energy policy: more than just supply-based measures are needed at EU level.

The existing price-setting mechanism is a structural fault of the liberalisation process and should be transformed into a system in which an interaction of supply and demand fundamentals will again be possible, as in established functioning commodity markets. The price levels at the exchanges do not reflect market prices, as just a small percentage of consumption is traded by exchanges. 

This means that:  

• Short-term (eg balancing) prices should no longer be allowed to inexcusably function as a reference for longer-term contracts; 
  
• energy-intensive industries must be able to negotiate again, particularly in respect of long-term wholesale supply contracts, based on "arms-length" negotiations between producers and buyers - the European Commission should make it clear that it accepts such long-term contracts in the light of competition legislation; 
  
• the current exchanges will have to be modified in order to produce true long-term price curves, while having visible supply-demand fundamentals in the prices, and; 
        
• ownership unbundling of production and grid, but also the unbundling of power traders from producers, are both essential elements to start creating market competition and openings for new entrants. It is also important to have strong supporting measures for new entrants for base-load generation and for existing production capacity to be freed.

Lastly, it is highly questionable that the substantial pass through of CO2 opportunity costs in power prices by the power producers is excluded from the policy,  while this phenomenon is recognized and there was a preliminary ruling recently in Germany that RWE is abusing its dominant position because of this pass through. 

Robert J.  Jeekel 
Eurometaux
Brussels