Virtual DisCos? Utilities might be stepping out,
but outsourcers could be cutting in.Wholesale competition and the prospect of competitive retailing are leading many electric utilities to turn...
been used by Bulgaria, Hungary, and Poland. An independent entity, often a subsidiary of the transmission system operator, becomes responsible for acquiring power (under long-term contract) from the generators and reselling power at regulated prices to distributors and suppliers. Countries often choose this approach to simplify the process by which generation can be made competitive without risking the economic viability of distributors. This model often is applied to consumers that are not yet eligible to choose their supplier, or those that have elected not to switch suppliers.
The second approach is the fragmented non-centralized model. The Czech Republic, Slovakia, and Romania are implementing this model. Such an approach is characterized by an unbundled and competitive generation sector, a market structure based on bilateral contracts (and sometimes supplemented by a wholesale day-ahead exchange), a fully independent transmission company, and distributors and suppliers that can purchase from any generator. An independent market operator is usually required for this model. In such a market structure, the allocation of wholesale energy costs is crucial. All three countries are still in the process of putting in place these market structures, though the Czech Republic is more advanced than Slovakia and Romania.
The third approach is the vertically integrated non-centralized model used by countries that are too small to have their own competitive market. This is the case in the Baltic countries (Estonia, Latvia and Lithuania 3), as well as in Slovenia. These countries generally continue to have one main actor in generation, a transmission company, and a couple of distributors, and the sector usually remains largely state-owned. The Baltic states are trying to create a regional transmission grid operator and dispatch center, which might result in a regional competitive market, much like Nord Pool in Scandinavia. However, this is not likely in the near or medium term. 4
None of the accession countries is in full compliance with the EU directives yet. Some of the non-compliance problems are structural. Several countries (Slovakia, Czech Republic, Hungary, Bulgaria, Estonia, and Latvia) still have one dominant utility in generation, which makes it potentially more difficult for a new entrant to penetrate the market successfully. At the same time, significant state ownership remains in many accession countries, including Slovenia, Estonia, Latvia, Romania, and Bulgaria, which does not help to foster competitive pressure to improve efficiency. And, although all accession countries have set up ostensibly independent regulators, real independent regulators (appointed to set terms with outside financing and full tariff setting authority) are rare: regulators in Romania, the Czech Republic, Hungary, Poland, and Bulgaria do not have full tariff-setting authority, potentially opening the tariff-setting process to political pressure. Regulators in the Czech Republic, Estonia, Slovakia, and Bulgaria are either not appointed for fixed terms, or do not have funding independent of the government. 5
In addition, certain regulations or practices are not in compliance with the EU directives. Cost-reflective pricing is not yet consistent across the region, as politicians resist increases in tariffs to keep voter support. Specifically, end-consumer tariffs are not yet fully cost-reflective in Hungary, Romania, and Slovenia. Another