Energy markets on a balance. An observational recommendation of the General Energy Council on the liberalization of the European electricity market. Advice to the State Secretary of the Ministry of Economic Affairs

Competition in former utility sectors has been a subject of hot debate in recent times. This also applies for the energy market, where the players are preparing for further liberalisation and in due course, possibly also for further privatisation. A number of trends are now emerging. The question is how these relate to the original reasons for and the objectives of energy market liberalisation. Will forms of competition develop, as envisaged at the start of the operation? Is it possible to protect public interests properly in the new situation? Although it is still too early to draw uniform conclusions, the Energy Council wishes to contribute to the debate on competition in the energy sector through this signal report. The report focuses on the electricity market. The Council signals on the basis of a detailed analysis that, under present conditions, there is a risk that the original objectives of competition in the energy sector will only be realised to a very limited extent, if at all. The Council regards this as a realistic risk. The cost of power from existing plants, particularly nuclear and coal-fired plants, has a major impact on the competitive position of energy companies and on national import and export positions. At present, market prices for consumers have fallen in many countries. They therefore take a positive view of the short-term effects of competition. However, the type of market expected to develop in Europe is a fairly static oligopolistic market, in which a small number of very large players will operate. Each of these will hold a dominant position in a particular region or jointly form an oligopoly in a region. This means that there will be little effective competition in the European market and consequently, few incentives for innovation and permanent cost reductions ('price' is one of the key objectives of energy policy). The main cause lies in the distinguishing features of the electricity product. The type of market that will develop affects the public interests of security of supply (the 'reliability' objective) and sustainable energy sources (the 'sustainability' objective), as well as the possibilities for protecting these public interest. The Energy Council also sees risks here. The Council regards these risks as reasons for a critical re-assessment. In the coming months, therefore, it will discuss the analysis in this advisory report: do the parties involved in the energy sector share the Council's views and concerns? On the basis of this debate, the Council wishes to consider solutions to the problems outlined here in the autumn of 2003