Electricity Reform in Europe

Electricity Reform in Europe

Towards a Single Energy Market

Edited by Jean-Michel Glachant and François Lévêque

The realisation of a European internal market for energy is still a work in progress. Written by leading European scholars and discussed with major energy stakeholders, this book presents a thorough analysis of the motives and methods needed to achieve a single European energy market.

Chapter 3: Addressing Market Power and Industry Restructuring

Lars Bergman

Subjects: economics and finance, competition policy, energy economics, industrial economics, public sector economics


Lars Bergman1 INTRODUCTION The basic rationale for European electricity market reform is the consumer benefits it can bring. These benefits may come in many forms. One is lower prices resulting from lower price–cost margins and more cost-efficient production and distribution of electricity.2 Another is a high degree of security of supply, in the short term as well as in the long term. A third type of benefit is environmental efficiency, that is, an environmentally friendly electricity supply system. A fourth type is sustainability, that is, an electricity supply system that in the long term does not critically depend on exhaustible natural resources. In this chapter we are primarily concerned with consumer benefits in the form of lower price–cost margins and a more efficient electricity supply industry. The electricity supply industry can be organized and managed in several different ways. In the past, vertical integration and central planning were the key features of the typical organization of a European country’s electricity supply industry. The EU electricity market directives, however, have induced a fundamental reorganization of the industry and major steps away from the central planning regime. Thus, in the emerging new era, competition, made possible and facilitated by unbundling and market integration, is expected to be the main driver to attain efficiency in electricity supply.3 However, in a system where competition is expected to play such a significant role, competition clearly has to be at least ‘workable’. By ‘workable...

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