Liberalising the EU energy sector

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Industries and private households are in theory able to freely choose their energy supplier following the entry into force of EU directives in 2004 and 2007, but many obstacles remain, with a single European energy market still far from reality. To make up for the shortcomings, the European Commission has made further legislative proposals, including controversial plans to separate the production and distribution arms of large integrated energy firms such as France's EDF and Germany's E.ON.

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Overview

The first electricity and gas directives were adopted in the late 1990s, with the objective of opening up the electricity and gas markets by gradually introducing competition. The Commission has consistently argued that liberalisation increases the efficiency of the energy sector and the competitiveness of the European economy as a whole. But a number of stakeholders and member states, notably France and Germany, vehemently disagree with this assessment. 

While most member states had implemented the electricity and gas directives by September 2000, a 2001 Commission inquiry concluded that further measures were necessary in order to complete the internal energy market and to reap its benefits.

The second gas and electricity directives, adopted in June 2003, include 'un

bundling', whereby energy transmission networks have to be run independently from the production and supply side.

According to the directives, markets for all non-household gas and electricity customers are to be liberalised by July 2004. For private households, the deadline is July 2007. After these dates, businesses and private customers would theoretically have been able to choose their power and gas suppliers freely in a competitive marketplace.

But a competition enquiry in the electricity sector, published in January 2007, revealed some "serious malfunctions" in the market for industrial consumers (EurActiv 11/01/07). 

For example, market concentration still reflects the 'old' market structure, characterised by national or regional monopolies - usually dominated by vertically integrated companies - which control electricity prices in the wholesale market and block new entrants to the market. In the gas sector, "incumbents tend to control imports and/or domestic production," according to the Commission.

Corrective action was promised by the EU executive, which tabled a further package of proposals in September 2007. After long negotiations, the Parliament and the Czech Presidency struck a compromise deal on the legislative package on 23 March 2009.

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