Reality check

European market liberalization: is it real or are we just paying lip service to it? It was one of the questions which sparked a hot debate at this years’ Power-Gen Europe in Milan.

The event was the ideal setting for tackling the many the issues still facing market liberalization. If there is any place in Europe which, due to high electricity prices needs competition; it is Italy. In his opening keynote address, Mr Antonino Craparotta, chief executive officer of Enel Produzioni noted that power prices in his country were significantly higher than the European average. And although he said that liberalization would reduce prices, he believed they might never get down to European levels because of the fuel mix in the country.

Such high power prices certainly make Italy an attractive market. During the conference, both of the big German utilities, E.On and RWE outlined why Italy presented opportunities for them. Wolfgang StraàŽ²burg, vice president of International Business Development, RWE AG, noted: “There is strong demand growth of between 2.5 and 3.0 per cent. It is the fourth largest European electricity market and is a key volume market for a pan-European player.”

Certainly Italy is one of a few key markets and its liberalization efforts will play a big role in how the European power market moves forward as a whole. Already the Bersani Decree has let new entrants into the Italian market but Italy, like many parts of Europe, still has a long way to go. As StraàŽ²burg noted: “Full liberalization is a pre-condition for an integrated European market”.

Strabetaburg was speaking at a special panel session called: ‘Where does EU market opening go from here?’, and on the subject of full liberalization, he went on to say that Germany’s market was 100 per cent open.

Some questioned whether Germany was in fact open. With Innogy recently being bought by RWE, I put the cat amongst the pigeons by asking one of the other panellists, Tony West, Innogy’s director of trading whether he thought Germany was an open market. West noted: “To have competition in a market, you have to be able to get access to the customer. Innogy was never able to do that in Germany.”

But West posed a broader question, asking whether market liberalization was real or whether countries were just paying lip service to it. And as expected, it was not long before the issue of France came on to the agenda. Yet Michel Francony, vice president of EDF made some interesting points. He noted that the French market was open and that some 190 TW can be imported into France. Surprisingly, he also noted that the EU was not doing enough to speed up market liberalization. “In a survey, 80 per cent of players say the EU is not doing enough. Unfortunately, we will need an EU regulator.”

The issue of whether a regulator was needed to promote liberalization is always a bone of contention. StraàŽ²burg argued that a regulator was not needed. He said that Germany had achieved 100 per cent market opening without one and was fully open to competition.

Tony West did not think the issue is whether a regulator is needed or not, but more: what is the ‘political agenda’ of the regulator? Or more accurately, the agenda of the government who puts the regulator in place. “Is it lower prices, is it promoting Green Energy?” said West.

While France and Germany may disagree on whether a regulator is needed, everyone is in agreement that supply and interconnection has to be addressed. In a separate session on cross-border trade, David Shipway, vice president, Trading, Duke Energy International, said: “Supply and interconnection capacity is fragile.” He also noted: “The French are clever. They are gearing up to be the hub of Europe by making it easy for traders. IT systems are good and their market is very liquid.”

So maybe France has its own grand plan for promoting an integrated, pan-European market and whether it is open to competition or not is a moot point. Francony believes that “France is open to competition. It is just that EDF is the most competitive on price, services etc.” And he may have a point. It may be that both France and Germany are open to competition. The fact that there are no foreigners in their markets could be because the incumbents are simply more competitive and know their customers best. Maybe that is the simple reality.

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