EDF, Europe

EU summit yields limited energy reform

EU summit yields limited energy reform

18 Mar 2002 – European Union leaders meeting in Barcelona agreed on Saturday to open up European electricity and gas markets to competition for industrial and commercial customers by 2004. A decision on extending freedom of choice to domestic consumers was deferred.

The outcome reflects a compromise between the majority of EU states who would have preferred to press ahead with full liberalization in the energy sector in order to encourage competition and reduces prices and the French delegation. Led by President Jacques Chirac and Prime Minister Lional Jospin, the French argued against market opening, fearing a backlash from unions and public opinion ahead of presidential elections.

The decision to allow business users to choose their gas and electricity supplier is likely to erode the domestic position of state-controlled Electricite de France (EdF) and Gaz de France. France was able to include in the final agreement an acknowledgement the need to legislate separately for public service obligations and security of supply.

The EU Commission backed the agreement which although falling short of its goal of across the board deregulation, represents a step forward after France and Germany both blocked a timetable for energy market liberalization at the Stockholm summit last year.

France has argued that the German market is still very difficult to penetrate despite being 100 per cent open in theory. France has come under considerable criticism from EU partners over the aggressive acquisition strategy of EdF in EU countries which have liberalized while maintaining a tight hold on its own domestic market.

Current legislation already obligates France to open up 35 per cent of its market next year. The new proposals will mean that a further 25 per cent will need to be available to foreign and domestic competition.

EdF may welcome the development in that it weakens the arguments of those who might oppose future foreign utility investments.

Jose Maria Azar, the Prime Minister of Spain, holder of the rotating presidency of the EU presidency, hailed the agreement a significant and fundamental step. “We have guaranteed competition (and) better and lower cost services in such a vital sector.”

The EU leaders also agreed to the establishment of an energy regulatory function in each state. Although this should help new entrants, Germany was able to block the move to insist on the establishment of an independent national regulator.

Germany has supported liberalization as an important impetus for economic growth.

The Barcelona summit also agreed that each member state should be able to trade at least ten per cent of its electricity across borders and that most of the costs of the grid should be borne by companies. At present, eight per cent of consumption is traded across the EU.