Europe: progress towards energy market liberalization is too slow

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28 June 2011, Gas, Electricity

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Having set a target of creating a single energy market by 2014, the EU has devised several "packages" with the aim of enabling competitive, sustainable, and secure energy supply. The hope is that European consumers will benefit from the growth and development of the internal market, which will encourage investment in infrastructure, liquidity in the market, higher trading levels, and greater competition.

The third package in particular seeks to break up the monopolies of vertically integrated energy suppliers by unbundling their networks, increasing public service obligations and consumer protection, and by giving national regulators more power and independence. Given that many infringements under the previous second package still remain open, the pessimistic assessment of the third package's progress is even more worrying.

The European Commission (EC) cites progress in a number of other areas, such as convergence of prices, a decrease in gas prices for member states with diversified supply, and better co-operation among power exchanges and transmission system operators. However, given that the deadline for transposition into national legislation passed almost four months ago, the question arises as to whether the EC has enough power to influence national energy policies across the EU.

Datamonitor believes that while the EC and national policies will continue to drive much of the harmonization, initially real market integration will only occur on a small scale - starting from a regional basis - driven by energy market participants seeking to leverage their knowhow and capabilities across European borders. Given the continuing challenges in the European energy market, companies will want to compete in more than just their home market to justify investment decisions. National policymakers should act fast unless they want to be overtaken by commercial realities.

Source: Datamonitor

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