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A Continent United? Some Thoughts on Prospects for a Single Energy Market in Europe

Fortnightly Magazine - January 15 2000

It has been 10 years since the Berlin Wall came down and Germany was unified. It will not take another decade for the unified European power market to emerge. As we enter the third millennium, the European power industry is well on its way to change. In European power the future belongs to the swift, the innovative and the financially strong - but above all, to those who can adapt to change.

Shannon Burchett is president of Dallas-based Risk Limited Corp., a provider of strategic management services, merger and acquisition support and risk-management expertise. Burchett can be reached at 972-245-8300 or at sburchett@RiskLimited.com.

[Sidebar by R. R. Johnson]

The E.U. Market Directive: A Closer Look

The December 1996 law establishes common rules for the organization and functioning of the European electricity sector.

New Generation:

* For certifying new construction, member states may choose between an authorization procedure and a tendering procedure.

* Where they opt for the authorization procedure, member states set criteria for certifying new construction in their territories.* Where they opt for the tendering procedure, member states conduct an inventory and publish estimated new capacity. An independent body would organize, monitor and control the procedure.

Transmission System Operation:

* Member states designate a system operator responsible for guaranteeing security of electricity supply.

* Member states set minimum design and operational requirements for system interconnections. These requirements must be non-discriminatory.

* The member state may require the system operator to give dispatching priority to installations using renewable or indigenous primary energy fuel sources.

Unbundling and Transparency of Accounts:

* Integrated energy companies must keep separate internal accounts for their generation, transmission and distribution activities.

* Where the member state designates as a single buyer a vertically integrated electricity company or a part thereof, the state must require the single buyer to operate separately from the generation and distribution activities of the integrated undertaking.

* Member states most ensure there is no flow of information between the single-buyer activities of the integrated company and its generation and distribution activities, except for the information necessary to conduct the single-buyer responsibilities.

Grid Access:

* Member states may choose between negotiated access, via voluntary commercial agreements, or the single-buyer procedure, whereby a single buyer is designated within a territory.

* Member states must take necessary measures to ensure the opening of their electricity markets.

* The national market shares are calculated on the basis of the U.C. share of electricity consumed by final customers consuming more than 40 gigawatt-hours per year. The share of national market will be increased progressively over a period of six years.

* Member states shall create mechanisms for regulation, control and transparency so as to avoid any abuse of market power.

Final Provisions:

* Member states must bring into force laws and provisions necessary to comply with the directive no later than Feb. 19, 1999.

* Belgium, Greece and Ireland may have additional time to comply with the law due to specific technical characteristics of their electricity systems.

The full text of directive 96/92/EC is available at www.europa.eu.int/en/comm/dg17/gazel_en.htm.