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Competition Lost

U.S. companies' international strategies turn sour, as Europe faces a future with an oligopoly of power companies.
Fortnightly Magazine - February 1 2003

have benefited far more had the European Union set the 2004 deadline for commercial and industrial customer choice a few years earlier, Easton says.

Some Observers Still See Opportunities

However, Easton wouldn't rule out the possibility of robust competition throughout much of the Continent and the United Kingdom.

The European agreement provides for unbundling of transmission and distribution functions, Easton says. "More than market power concentration, the access to the grid is the real critical thing for competition," he adds.

Even if incumbent utilities acquire and control vast amounts of generation capacity across Europe, open access would allow new players the opportunity to come in and attempt to build new plants more economically and run them more efficiently, Easton says. As older plants are retired and demand inevitably grows, the incumbents will face competitors, if interconnection and transmission access is provided, he says.

"It may well be that some merchant can come in and build a power plant more cheaply than the incumbent can," Easton says. "The more critical aspect here is rules and regulations providing grid access."

Even while open access may be granted within E.U. states, cross-border transmission capacity is often constrained. Transmission bottlenecks are especially critical on the borders between France and Spain; West Denmark and Germany; Belgium and the Netherlands; Italy, France, Switzerland, and Austria; and the interconnection between the United Kingdom and continental Europe.

The limits on transmission infrastructure result in Balkanized power markets for Britain, Central Europe, the Nordic Region, the Iberian Peninsula, and Italy.

Patting itself on the back, the E.U. and the European Commission say the E.U. energy ministers' decision to liberalize electricity and gas markets is nothing short of revolutionary and will give consumers full freedom to choose their energy provider. Perhaps. Yet, in its present form, consumers may get to choose from only a handful of European providers-competition in a much more limited form.



Europe's Big Players: A Reference

EDF (Electricité de France): The biggest and most aggressive European giant is pushing across Europe into virtually all major markets. The company has 31 million customers in France, sales revenue of more than 34 billion euros (including 23 percent outside France), and a power output approaching 500 billion kWh. In addition, EDF is in charge of the national transmission grid as well as the planning for future generating capacity.

Enel: Though it is the second largest electric power company in Europe, Enel faces domestic pressures for lower power prices in Italy. Enel and other generation plant owners in Italy are being required to reduce their capacity holdings. While the proceeds from the sales will be used to help Enel's Pan-European expansion program, Italy needs new plants. The government in 2002 moved to streamline plant permitting. While that could prove advantageous for competitors, in sheer size Enel has more than 50 percent of the market share in generation and more than 80 percent of the distribution assets in Italy.

E.ON Energie: One of German-based E.ON's six business divisions is the third largest power company in Europe and the largest privately owned European power company