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 7: Long-term Contracts in Electricity Markets: Long-term Contracting and Risk Management from the Point of View of a Large Consumer

Petter Longva

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

Extract

Petter Longva INTRODUCTION 1 The environmental policy of the European Union is particularly challenging for the power-intensive industry. The goals and targets are necessary for the climate, but increased costs on top of an already high European energy cost level may lead to capacity closure. Price increases due to trading in emission allowances are already a reality, increases in renewable support are being introduced, and increases in grid cost will be a direct consequence of enabling more renewable power generation. Power-intensive industries compete globally, and cannot retrieve cost increases through the prices of their products. Failure to implement consistent, long-term measures to protect European industries from such cost elements will lead to a phase-out of the industry. Without investment in new production lines with new technology, it will stagnate and face a gradual erosion of competitive strength and environmental credibility. Electricity market liberalization has turned out to be a mixed blessing for power-intensive industries. Ultimately, as the third package takes effect, competition in the electricity market will hopefully reduce the cost of power supply to the benefit of power consumers. In the short term, however, the Commission’s efforts to weaken the position of dominant generators by restricting long-term contracting has instead hurt the interests of power-intensive industries. Furthermore, real or artificial fear of intervention regarding the duration of long-term contracts has weakened the consumer interests in negotiations to renew existing supply contracts. 177 GLACHANT PRINT.indd 177 28/04/2011 10:15 178 Competition, contracts and electricity markets This chapter argues that: ● ● ● ● ● Foreclosure...

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