How joining the EU may transform the Central and Eastern European electricity sectors
Bridgett Neely is a senior consultant with London Economics International and A.J. Goulding is president of London Economics International. London Economics International has conducted more than three dozen projects analyzing valuations, strategies, market opportunities, and potential transactions involving Eastern and Central European assets.
It is not coincidental that energy assets are for sale across Central and Eastern Europe the same year that 10 new countries join the European Union (EU). New member states had to demonstrate significant sector reforms to qualify for EU membership. These sectors have historically had miserable economic results due to artificially maintained low prices, poor and often corrupt management, and significant political interference. On this dawn of EU expansion, we assess accession countries' progress in meeting the EU energy directives, the remaining hurdles to further liberalization, and obstacles for private investors.
European Union Framework
The objective of EU electricity legislation was to create an internal market for energy, thereby maximizing competitive forces in generation and supply and developing a non-discriminatory environment in transmission and distribution, with the ultimate ambition of improving efficiency and reducing costs for end consumers. Directive 1996/92/EC served as the key legislative catalyst for market deregulation. Electricity Directive 2003/54/EC replaced it and put in place more explicit regulations regarding regulators and the independence of grid operators. Other EU energy legislation addresses environmental issues, such as meeting the EU's commitment to the Kyoto Protocol by increasing the amount of renewable energy used and reducing environmentally harmful emissions from power plants.