By Kathleen Davis, associate editor
Last month Utility Automation & Engineering T&D took a look at the basics of the Western European power market. This month we talk to Tanja Rudolf, the information & communication officer for the DG Energy & Transport section of the European Union, about how the EU looks at the European grid and its various players.
UAE: How would you characterize the major (Central/Western) EU market players in T&D? The good? The bad? The ugly, even?
EU: The opening of electricity and gas markets has been an ongoing process since the late 1990s, beginning with the partial opening to industrial customers with the first electricity and gas directives. The second set of directives will extend market opening to all customers by the first of July 2007. Transmission and distribution companies have to provide for third-party access. The Commission’s progress reports have shown a considerable amount of variation in how far effective competition is being achieved. (See this online source for more information: http://ec.europa.eu/energy/electricity/index_en.htm.)
Many network companies have made considerable progress in unbundling and non-discrimination. For example several member states-such as the Netherlands-have totally separate transmission companies for both electricity and gas. Others have been slower to make progress (especially at distribution level) and the commission was obliged-in April 2006-to launch a number of infringement cases in this respect, including Austria, Czech Republic, Estonia, Finland, France, Greece, Italy, Lithuania, Poland, Slovakia, Spain and Sweden. Most of these are related to unbundling of distribution systems. (See chart, pg. 57, for selected information. Complete information on cases can be found at this online source: http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/06/format=HTML&aged=1&language=EN&guiLanguage=en.)
UAE: How will the 2007 liberalization deadline impact European utilities in Western Europe? (What are the major hurdles for the major players, so to speak?)
EU: Separation of network businesses from the other parts of a vertically integrated company is a fundamental change in the way the business is organized. This often requires a change in philosophy that is used to being run as a vertically integrated monopoly. It requires the learning of new skills and procedures for the staff affected. For example, what might previously have been seen as competitors will now be the customers of the network company.
UAE: Is there one country that’s a shining example of how T&D liberalization should work? Is there one that should serve as a warning?
EU: Clearly, some member states have a longer history of market opening and have had time to address many of the various questions that have arisen. The UK is an obvious example of this, although this does not mean to say that it is perfect. By contrast, until recently, the experience in Germany has been profoundly disappointing, particularly for gas. Unbundling measures had not been implemented and it was very difficult to get access to networks. The establishment of the Bundesnetzagentur has already improved the situation in this regard and rapid progress is now expected.
UAE: Germany has no unified grid operator. How much of a problem will that be? Can the Bundesnetzagentur help with that, as the regulatory body?
EU: The commission now sees reasonable progress in Germany with the establishment of a proper regulatory function. The commission would like to see much more integration of grid operation across the EU, not just in Germany. Clearly, however, a situation [like Germany’s] where there are four power grid companies and five-plus gas network operators has the tendency to segment the market unnecessarily.
UAE: Which company would you name as the top European utility in terms of preparation for liberalization? In terms of investment potential?
EU: It is not really the role of the commission to judge the performance of the companies. However, at European level one of the key themes is diversification in terms of energy supplies and in terms of overall strategy. What is good for the EU as a whole is probably also good for individual companies and those with the most flexible and diverse range of options are likely to be the most successful in the long term.
UAE: How much investment in infrastructure will UCTE require to keep the interconnected grids running smoothly? Are there certain areas in which that investment should be concentrated?
EU: The total investment in the European Economic Area (that is the EU, Norway, Liechtenstein and Iceland) electricity transmission infrastructure is at present â‚¬3.5 billion per year. Cross-border interconnections amount to 4 percent to 5 percent of this total. In the next decade, the total investments are expected to reach â‚¬4 billion per year, whereas the forecast for cross-border connections is around â‚¬200 million per year. In case that substantial sea floor connections and integration of wind parks, in particular off-shore wind parks, into the electricity grids will be implemented, this sum will be substantially higher and can reach â‚¬300 million to â‚¬400 million per year.
UAE: The EU has had issues with France’s attempts at liberalization and competition. Is France beginning to work out those issues, or are there more complicated hurdles ahead?
EU: France is not the only member state where the commission has seen particular problems; so, it is not really appropriate to single it out in this way. For example, it has an effective regulator, and both gas and electricity transmission systems are separated quite effectively in legal and functional terms. One of the key issues for the future is the need to phase out regulated end-user prices and to address the dominance of the largest energy companies.
UAE: How is TERNA doing with the Italian grid?
EU: The commission has not received many negative reports in terms of the activities of TERNA as Italian grid operator. The main issues that still need to be solved relate to the mechanisms for allocating capacity at the Italian border. Currently this is carried out in a non-coordinated way between Italy and neighboring member states which is not satisfactory.
UAE: Is MIBEL set to go full force this year, uniting Portugal and Spain?
EU: The commission is keen to see MIBEL up and running which should occur in the next 12 months. It will enhance competition in both markets which are otherwise somewhat isolated from the rest of the EU. The commission also expects associated reforms in both member states relating to the organization of wholesale markets and the relaxation of regulation of end-user prices.
UAE: What else is the EU focusing on when it comes to the European grid?
EU: The commission is examining a number of options for the further improvements in the regulatory framework. The objective is to better integrate the functioning of individual national markets. The existing regional initiatives of regulators need to deliver rapid results in this respect. Another theme is to ensure a higher degree of consistency between regulatory functions and to ensure an appropriate level of European regulation for certain issues, avoiding leaving gaps in the framework. A key issue in many respects is the degree of transparency and disclosure in order to mitigate the effects of market dominance.
A full 2006 report, including country reviews, on electricity markets in European can be found at: http://ec.europa.eu/energy/electricity/report_2006/index_en.htm