The European Commission has made clear that it favours splitting up energy firms' production and distribution activities as the best way to ensure fair competition and lower prices for consumers. Speaking in February 2007, Competition Commissioner Neelie Kroes said full 'ownership unbundling' would solve the "inherent conflict of interest" that she says inevitably occurs when incumbents are told to grant access to their network to new competitors entering the market. Their self-interest, she said, is to impede access in order to protect their market share.
However, a majority of member states, led by France and Germany, have so far rejected the Commission's calls, saying that splitting up energy firms "is only one of a number of measures for accelerating the dynamics of competition". In particular, unbundling "is not a cure-all", said Germany's Economy Minister Michael Glos in a statement following a meeting of EU energy ministers in June 2007 (EurActiv 7/06/07). The UK, Denmark and the Netherlands, on the other hand, are active promoters of 'ownership unbundling'.
Eurelectric, the union for the EU electricity industry, says the liberalisation process has brought "considerable benefits" to Europe in terms of price and cost reductions as well as labour productivity gains. However, Eurelectric believes that it is vital to maintain the momentum and reinforce trust in the liberalisation process.
In particular, the power industry calls for the full and effective implementation of the liberalisation package by member states. Moreover, it says that regulation should be completed with guidelines on congestion management, harmonisation of transmission tariffs and a compensation mechanism for transmission system operators (TSOs).
The association of European Transmission System Operators (ETSO) has also called on member states to fully implement the electricity directive. In addition, ETSO says member states should ensure the provision of adequate electricity generating capacity to meet demand.
ETSO argues for consistent (although not necessarily identical) regulatory principles and practice between member states in order to promote the development of the internal market and economic efficiency. It also encourages the Commission to put in place draft guidelines on cross-border trade and congestion management.
The European Chemical Industry Council (Cefic), which claims to be the largest energy consumer in the EU manufacturing sector, said: "Progress in opening up markets […] since the entry into force of the liberalisation directives has been disappointing and small."
Cefic thus calls for "rigid and coordinated actions from the European Commission, member states, regulators and producers" to remedy the situation. It also points out that lack of liberalisation in the electricity market allows power utilities to pass on the additional costs entailed by compliance with the EU CO2 emissions trading scheme (ETS).
It says the scheme offers electricity utilities the potential to pass on all or part of the 'market price' of [CO2] allowances to electricity consumers by increasing power prices. Cefic warns that this unintended consequence of the ETS is damaging the EU's international competitiveness, especially for energy-intensive industries.
The metal industry trade association Eurometaux also says liberalisation has not prevented electricity prices from rising. As a consequence, Eurometaux says that the metal industry, which is a heavy consumer of electricity, has experienced a sharp deterioration in its competitiveness. "Plant closures and disinvestments have already been announced, attributable primarily to this unaffordable cost of electricity," it points out.
In Eurometaux's opinion, this situation is caused by distortions in the ill-functioning European electricity market. Electricity producers, it says, have adopted commercial practices allowing them to indicate prices that do not reflect cost fundamentals. Producers, it argues, have created the illusion of competition through wholesale trading, but in reality, the large producers continue to dominate the market.
"The current power-exchange model should be replaced by a true market design that allows cost fundamentals to be properly reflected and gives equal weight to all market participants," it says. Eurometaux also stresses the importance of freeing up existing capacity and opening markets to new entrants.
The European Federation of Public Service Unions (EPSU) says that the Commission's approach to energy liberalisation "contradicts the need for an energy policy that ensures more independence and is focused on achieving sustainable development."
EPSU Deputy Secretary-General Jan Willem Goudriaan notes that "serious issues of employment loss (300,000 over the last ten years), the emergence of a lack of qualified staff or the impact of competition on vulnerable users have not been addressed. More competition will not bring more investment to a sector that needs a very stable framework, not a policy that has a yo-yo effect. The result will be higher prices and a serious impact on all users."
The European Renewable Energy Council (EREC) calls effective competition in the European power markets a "myth". According to EREC, unless the existing distortions in the conventional energy markets are overcome, there will be no effective internal market for renewables to compete in. In addition, EREC criticises current unfair market conditions which favour conventional energies, such as through the Euratom treaty or failure to apply the 'polluter pays' principle.
In April 2005, Greenpeace published a report analysing the market shares of Europe's ten largest electricity utilities (EdF, E.ON, RWE, ENEL, Vattenfall, Electrabel, EnBW, Endesa, Iberdrola and British Energy). According to the environmental pressure group, the liberalisation process has worked in favour of these large established utilities as demonstrated by the wave of takeovers that ensued after the opening of the market.
New, green utilities, Greenpeace pointed out, have little chance of competing on an equal footing as the 'big ten' have enough influence in the sector to control prices. It said the situation is likely to continue, "because there is still no fair access to the [electricity] grid".
For specific stakeholder reactions to the Commission's 19 September 2007 proposals, please see our