[BETA] Fortnightly

Electricity demand in parts of Europe is on the rise.

The European Union (EU), unlike the United States, enters 2004 with neither a constitution nor a European regulatory agency to oversee the EU's "single market" goals in energy. The EU, however, faces many cross-border issues affecting trade in electricity and natural gas, just as the United States does. While the member countries of the EU have become more energy efficient, new investment in all segments of electric infrastructure still is needed. To fund this investment in the most efficient manner, a legal and institutional regulatory framework for the entire region must be established.

The EU has taken the position that the "liberalization" (or introduction of competition to monopoly) will be limited to certain segments of the energy process. Thus, competition is the selected method for the generation of electricity, the exploration and marketing of natural gas, and the marketing of both to the end consumer, whether residential, commercial, or industrial.

Energy statistics show significant investment opportunities as a result of the EU's push for competition. The most recently available figures from the Paris-based International Energy Agency, indicate that Western Europe consumes about 2.5 billion kWh, or 18.2 percent, of global electricity demand. In comparison, North America consumes about 30 percent, and Eastern Europe and the former Soviet Union consume 10 percent of global electricity.

The EU imports about 50 percent of its energy needs and is projected to import more than 70 percent by the year 2030. Energy consumption is expected to continue at the recent rate of 1 to 2 percent per year among current EU member states. The accession countries of Central and Eastern Europe are expected to consume at a higher rate as they experience economic growth in the 5 to 6 percent range.

The electric capacity situation at this time varies greatly within the EU, with some countries (France, Germany, the United Kingdom, and Italy) in a current oversupply situation, and others (Sweden and Norway) facing undersupply. A deficiency in transmission infrastructure does not make it possible to completely export from regions that are short of power to those with an oversupply of generation capacity, so more investment in both generating and transmission capacity is warranted.

The , published by the International Energy Agency (IEA), reports that the European Union will need almost 650 GW of new generating capacity (to meet new demand and to replace 330 GW of retired facilities) over the next 30 years. The investment needed is on the order of $525 billion. In addition, the EU member countries will invest approximately $120 billion in new transmission facilities during the same period. The distribution sector also will need to be built out and refurbished, at an estimated cost by IEA in excess of $413 billion. The IEA's report recognizes the important role of regulation. The IEA assumes that regulation will be adequate. It says: "Government, while providing a stable regulatory framework that allows investors to be rewarded, will need to monitor developments in investment to ensure that adequate infrastructure is built."

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