The dangers of EU electricity liberalisation
The European Union: A New Model of Governance"An investigation in to some of the factors which pose a threat to the implementation of a successful EU wide liberalization of the electricity market",The basis for my essay was formed by David M. Newberg's article entitled 'problems of liberalising the electricity industry'. Newberg highlights the dangers of liberalisation, and points out that it could actually lead to higher prices. He draws a parallel between the European Commission's attempt to update the electricity objectives to under-write unbundling and full liberalisation, with the Californian Electricity Crisis.Newberg cites issues such as the lack of legislative and regulatory power the EU possess in order to mitigate generator market power. He also addresses the area of transmission and transmission capacity, and the bearings they could have on successful liberalisation. I would join Newberg's stance on the grave danger which liberalisation could present if not handled in a very skilled and astute manner by the relevant authorities. In addition to Newberg's worries, I will present some additional potential obstacles the EU will confront along the route to full liberali
However, this becomes difficult in the case of the EU. Through deregulation of power markets, the EU seeks to realise efficiency gains through exposing the generation segment to competition. (Completing the Internal Energy Market, 2001). The electricity and Gas directives, which were adopted in 1996 and 1998 and had to be implemented in February 1999 and August 2000 respectively, have gone some way to the continued pursuit of a single market in Europe without internal frontiers. The inability of certain countries to update their transmission grids could have serious effects. They were protected by the Treaty of Rome on account of the fact that they provided 'essential services of national interest to member states' (Newberg, 2001). Energy costs also represent a sizeable share of EU production, thus it is of utmost importance to ensure that energy costs are kept to a minimum in order to heighten EU competitiveness on a global scale (Completing the Internal Market, 2001). Therefore, if a regulating committee finds that a cartel is not in operation, who is not to say that this is simply the result of an incompetent investigation (Business and Finance, Nov 2002, pp32). Thus, effective regulation at the transmission level is a pre-requisite to successful competition and realising efficiency gain through deregulation (Tennbakk, 1999). Environmental considerationsAnother issue that I would like to highlight is the fact that liberalization of the electricity market takes no account of other important policy areas whatsoever. The cynics see it as a project doomed for failure. It is a natural economic principle that competitors with market power have incentive to behave inefficiently in order to maximise profits. Electricity is the most important source of energy and the electricity industry is one of the largest sectors of the economy in Europe. Newberg reinforces this point on the need for excess capacity in the market place in order to keep market power at bay, thus maintaining prices close to short-run marginal cost.
Common topics in this essay:
Transmission Grids,
Competition Authority,
Times March,
Index MMI,
Crisis Newberg,
Treaty Rome,
Times April,
Patrick Massey,
Internal Market,
Financial Times,
market power,
financial times,
electricity market,
transmission grids,
liberalization electricity,
liberalization electricity market,
regulate regulators,
electricity industry,
excess capacity,
'electricity islands',
natural monopoly,
eu wide liberalization,
wide liberalization electricity,
lack physical infrastructure,
internal energy market,
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Acceptance Essays
