Competition, Contracts and Electricity Markets
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Competition, Contracts and Electricity Markets

A New Perspective

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.
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Chapter 5: Vertical Relations and Energy Networks: Selected Issues

Gert Brunekreeft


Gert Brunekreeft1 INTRODUCTION 1 The focus of this volume is on vertical relations and contracts between commercial, potentially competitive, stages in the value chain such as generation and retail in electricity markets or commodity contracts in gas markets. This contribution takes a small side-step and focuses on the vertical relation between the commercial stages and the (monopoly) network. The European Union (EU) third energy package is in the process of being implemented (see EU 2009a, 2009b) and should be finalized by 1 March 2011. While the main aim of ownership unbundling was not politically feasible, it is possible that this issue may be further addressed in a future fourth energy package. The main focus of this contribution will be on the effects of ownership unbundling on infrastructure investment and usage. Above all, this concerns interconnector capacity. In 2007, the EU Commission presented the so-called sector inquiry,2 in which it assessed the developments of competition and liberalization of the European energy markets. The developments were deemed to be disappointing. The developments in electricity markets were slow but nevertheless encouraging, while in the gas markets the developments were simply too slow. This raises two questions which are addressed in this contribution. First, how much can (network) unbundling contribute to an improvement of lagging competition? Second, the situation raises the obvious question: why is there a difference between the two markets? Several explanations may contribute to the second issue. First, the liberalization of gas markets started later (1998) than in electricity markets...

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