Table of Contents

Competition, Contracts and Electricity Markets

Competition, Contracts and Electricity Markets

A New Perspective

Loyola de Palacio Series on European Energy Policy

Edited by Jean-Michel Glachant, Dominique Finon and Adrien de Hauteclocque

This book fills a gap in the existing literature by dealing with several issues linked to long-term contracts and the efficiency of electricity markets. These include the impact of long-term contracts and vertical integration on effective competition, generation investment in risky markets, and the challenges for competition policy principles.

Chapter 1: Energy Security and Long-term Arrangements

Jacqueline Boucher and Yves Smeers

Subjects: economics and finance, competition policy, energy economics, industrial organisation, law - academic, energy law


Jacqueline Boucher and Yves Smeers INTRODUCTION: SECURITY OF ENERGY SUPPLY IN EU POLICY 1 Security of supply, the mitigation of climate change and the completion of the internal electricity and gas markets are three major objectives of the European Commission in energy (EU 2006). The Commission has repeatedly invoked competition as the favorite instrument for achieving these goals (for example, EU 2007; Ungerer 2007, 2008). The statement that competition is an adequate instrument for achieving security of supply is puzzling. Notwithstanding its repeated assertions, the Commission never provided any formal support for this position. In contrast with several studies on the European Union emissions trading system (EU-ETS) and the internal energy market, no real economic analysis of security of supply, let alone of how competition can help achieve security of supply, exists today. The European project ‘Coordinating Energy Security in Supply Activities’ (CESSA) had security of supply on its agenda and was well staffed with economists, but it did not produce any economic analysis of the role of competition for securing energy supplies in Europe. Last but not least, security of supply has a strong flavor of public good that seems to contradict the recourse to competition: in a related area, we observe that questions about strategic oil reserves are not posed in terms of competition but rather as strategic actions with a heavy dose of public intervention. This is also the case for reliability of electricity supply (when interpreted in the sense of limited curtailments of supply but not...

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