Progress in creating the internal gas and electricity market

The European Commission (EC) have published a report from the Commission to the Council and the European Parliment concering Progress in creating the internal gas and electricity market [SEC(2008) 460]. The report  which was approved on the 15th April 2008 was published on the 17th April 2008 in the OJ (Official Journal of the European Union).

The report concentrated on the following:

  1. Implementation of legislation.
  2. Market integration.
  3. Concentration and consolidation.
  4. Price trends.
  5. Independence of network operators.
  6. Effective regulation by regulators.
  7. Customer dimension.
  8. and security of supply.

The report was very positive with reference to the trilateral electricity market coupling project, amongst others. The capacity allocation mechanism which guarantees energy flows in the right direction in relation to spot prices became operational in 2006 between France, Belgium and the Netherlands and dramatically increased the efficiency of dispatch of power production in the region.
These developments in regional approach allowed different levels of market development to be taken into account, with the common goal of realising the single market.

The relevance of energy to Europe's growth and competitiveness is steadily increasing. Reliable energy services at acceptable prices for both industrial and household users continue to be a key factor in social and economic development. The 1st July 2007 saw the full opening of national retail markets. From a legal perspective, all European consumers are now able to choose their supplier and benefit from competition. However, this report shows that, in practice, market integration is still far from a success. With very few exceptions, electricity and gas markets in the EU remain national in economic scope with limited competition.

Despite some encouraging improvements, notably on cross-border coordination at regional level, the overall analysis of progress on the internal market in electricity and natural gas shows that major barriers to the efficient functioning of the market still exist:

  • Insufficient implementation of European legislation remains a crucial factor. Improvement has to be driven by the Commission, Member States, regulators and industry together:
  • In parallel, national regulators must be empowered with a view to ensuring proper implementation of legislation by stakeholders.
  • Regulators themselves have to act on their own responsibility to encourage implementation of legal requirements. Harmonisation of regulatory best practice models across borders is certainly needed if practical barriers to cross-border trade are to be reduced. The Regional Initiatives driven by ERGEG and other similar projects at government level are positive contributions to this process.
  • The industry must observe the legal requirements without compromise. Implementation of European legislation does not allow for negotiations.
  • Regulated energy prices remain a major concern.

The major concerns in the various areas all share two characteristics:

  • Significant impact hampering the development of a well-functioning internal market in electricity and gas,
  • which cannot be solved within the existing legal framework.

The Commission presented a legislative package, on 19 September 2007, addressing these shortcomings.

What is Market coupling?

Market coupling is a way to integrate power markets in different physical areas while requiring minimal changes to the local arrangements. Under TLC the three power exchanges continue to exist as separate legal entities with their own trading platform, contracts and clearing.  The markets are nonetheless brought together by using the available transmission capacity to create a single regional market most of the time. The transmission capacity is used in an optimal way, enabling the best bids and offers to be matched from across the region.