Table Of ContentEnergy, Utilities and Chemicals the way we see it
European Energy
Markets Observatory
2006 and Winter 2006-2007 Data Set
Ninth Edition, November 2007
In collaboration with
Contents
A Strategic Overview of the European Energy Markets 4
Towards a European Energy Policy 12
Competitive Power 17
Competitive Gas 43
Infrastructures and Regulated Activities 61
Sustainable Development 78
Strategy and Finance 85
Glossary 94
Country Abbreviations 97
European Energy Markets Observatory team 98
© Capgemini, Paris 2007 (print)
© Springer Science+Business Media B.V. 2010 (e-book)
Energy, Utilities and Chemicals the way we see it
Tables Country Focus
Table 2.1 Peak load, generation Table 3.12 Residential gas prices Key issues in Eastern Europe ...........................13
capacity and electricity mix (2006) ..................17 (January 2007) ...................................................60 Key issues in the Netherlands ..........................15
Table 2.2 Real margin vs. theoretical Table 4.1 Level of interconnections, bottlenecks Key issues in Slovakia .......................................21
margin (2006) .....................................................18 and priority interconnections (2006) ................61
Key issues in Switzerland ................................24
Table 2.3 Commodity prices .............................20 Table 4.2 Electricity TSOs, congestion
Key issues in Belgium ......................................28
Table 2.4 Projects of new generation methods and on-going projects of
capacities, in MW (2006) ...................................22 transmission lines (2006) ..................................62 Key issues in Sweden ......................................31
Table 2.5 Generation market Table 4.3 Transmission networks Key issues in France ........................................40
concentration (2006) .........................................25 ownership unbundling status (2006) ................66 Key issues in Germany ......................................47
Table 2.6 Electricity spot market prices ...........26 Table 4.4 Electricity TSOs investments, Key issues in Denmark .....................................73
in k€/cable km (2006) ........................................67
Table 2.7 Average electricity spot prices .........27 Key issues in Italy .............................................76
Table 4.5 Components of transmission
Table 2.8 CO prices on ETS ............................28 Key issues in the UK .........................................83
2 tariffs (2006) .......................................................67
Table 2.9 Map of electricity trading (2006) ......30
Table 4.6 Electricity DSOs, physical
Table 2.10 Electricity market opening infrastructures (2006) ........................................68
milestones (as of July 2007) .............................33
Table 4.7 Proportion of DSOs affected by
Table 2.11 Size of I&C and Residential EU Directive on unbundling in selected
electricity markets (2006) ..................................34 Member States (2006) .......................................69
Table 2.12 Electricity retail market Table 4.8 Regulatory formulae used
concentration (2006) .........................................35 by country regulators (2006) .............................69
Table 2.13 Electricity customers Table 4.9 Average tariffs and spread scheme
switch – Most active European markets ..........38 used by a sample of gas TSOs (2006) ................74
Table 2.14 Electricity customers Table 4.10 Average balancing penalties for
switch – Least active markets...........................39 all profiles and types of imbalances and at
Table 2.15 I&C electricity prices different levels of imbalances (2006) ..................74
(January 2007) ...................................................41 Table 4.11 Map of gas storage (2006) ..............75
Table 2.16 Residential electricity prices Table 4.12 Gas storage capacities (2006) ........77
(January 2007) ...................................................42
Table 4.13 Storage facilities projects................77
Table 3.1 Domestic gas production
Table 5.1 2020 EU climate change targets .......79
vs. imports (2006) ..............................................43
Table 5.2 Countries real emissions,
Table 3.2 Proven gas reserves (2006) ..............44
compliance to ETS and Kyoto (2006) ...............80
Table 3.3 Gas flows through pipelines
Table 5.3 Wind capacity (2006) ........................82
(TWh) and priority interconnections (2006) .......45
Table 6.1 Companies on the panel
Table 3.4 Map of LNG terminals and
and their main characteristics (2006) ...............86
flows (2006) ........................................................48
Table 6.2 Main electricity and gas
Table 3.5 Imports through
TSOs (2006) .......................................................87
LNG terminals (2006) ........................................49
Table 6.3 Profitability evolution (2006) .............89
Table 3.6 Map of gas trading (2006) .................51
Table 6.4 Total investment as a %
Table 3.7 Gas day-ahead spot prices ..............53
of sales (1990-2006) ..........................................90
Table 3.8 Gas market opening milestones
Table 6.5 Utilities sector compared
(as of July 2007).................................................55
with the European equity index
Table 3.9 Size of I&C and Residential gas (base 1 on Jan 1st, 1995) ...................................90
markets (2006) ...................................................56
Table 6.6 Sector performance (2006) ...............91
Table 3.10 Gas retail market concentration
Table 6.7 War chests 2006 vs. 2005 ................92
(2006) .................................................................57
Table 6.8 Major European Utilities (2006) ........93
Table 3.11 I&C gas prices (January 2007) ........59
European Energy Markets Observatory 3
A Strategic Overview of the European
Energy Markets
Editorial by Colette Lewiner
In 2006 and early 2007, energy issues adopting western lifestyles that Oil prices
have continued to be on the top of require heavy energy consumption. This situation of overall tight supply
political, industrial, financial and As a consequence, developing and demand for crude oil and refined
companies’ agendas. In this Editorial, world and emerging industrialized products, coupled with unsafe
we give our strategic analysis of economies will see their share of conditions in certain countries
the recent events in the light of world oil consumption rise from 42% (as in the Nigeria delta) and with
our 9th European Energy Markets of global oil demand to 46% by 2012. nationalistic attitudes in countries
Observatory’s results and share our like Venezuela, Bolivia and Russia,
thoughts on the path forward. Despite an increase of 25% in year has kept the oil prices high. The
over year exploration and production oil price peaked in August 2006 at
Oil market: the supply and expenses, the Major Oil Companies $80 and then descended to $50 in
demand balance will stay tight reserves fell 0.5% during 2006, with January 2007. Due to a mild winter
and prices trend should continue production down 1.7% from H1 2006 and a humid summer in Europe, and
to be on the upward side to H1 2007. The reserve replacement a mild summer in North America with
Supply and demand ratio was only 76% in 2006 (below no major hurricanes hitting the oil
The worldwide demand for oil was the companies’ objectives of 100%). industry in the Gulf of Mexico, the oil
sustained in the last 12 months, However, as the oil companies prices did not exceed significantly $80
boosted by Asian economies that start to see some pay-off from their per barrel. However, spikes are not
are using more fuel to power their large investments in recent years, precluded in the following months.
manufacturing industry. On a short the reserve replacement ratio is
term IEA forecasts a global oil expected to improve in 2007. For Trends in gas: Gas security
product demand at 86.0 m barrels/ these upstream projects the biggest of supply is threatened by the
day in 2007 (+1.8% over 2006) and constraints and challenges are access clashing Russian and European
on the longer term a 2.2% growth to human resources. In addition, Union strategies
a year from 2007 to 2012, up from as nearly all easy accessible oil has Moderate gas prices in Europe in 2006
their last forecast at 2% growth. been developed, technical challenges Due to the mild winter in Europe in
It seems that, behind the overall and geopolitical problems make 2006/2007, the gas prices decreased,
numbers the energy habits of the these exploration and production and natural gas inventories were full
planet were moving in two distinct projects riskier. As a consequence, at all-time-high levels and significantly
directions. In developed countries, the growth in future upstream above the five-year average. In Europe
and in particular in the European investments is expected to slow down the average gas prices have stabilized
Union (EU), obligations to conserve in 2007. This overall situation is not in general since April 2006 at around
energy and use renewable sources rosy, and it is clear that unless the (cid:4)20/MWh. These moderate prices are
of energy – both to reduce carbon worldwide economy will experience hiding real strategic issues.
dioxide emissions and maintain a down turn, the supply and demand
energy security – are expected to balance will be more and more While the EU is challenged by
ease pressure on oil supplies. difficult to reach with conventional issues related to gas supply, Russia
oil. Unconventional oils (such as tar is fighting the challenges related to
But that trend is being more sands, heavy oil, oil shale, biofuels, access to the market. This clash of
than offset by rapidly developing and the conversion of coal or natural agendas is threatening Europe’s
nations. While they still consume gas to liquid hydrocarbons) that security of supply
far less energy per capita, they are are more expensive and/or riskier Europe is highly dependant on
also manufacturing goods for rich to produce, will have to be rapidly imported gas. In 2006 the imports
countries, and they are increasingly available on the market. amounted to 54% with Russia
C. Lewiner (ed.), European Energy Markets Observatory, DOI 10.1007/978-94-007-0091-8_1,
4 © Springer Science+Business Media B.V. 2010
Energy, Utilities and Chemicals the way we see it
providing, through Gazprom1, around Many events in 2007 illustrate shareholding between Gazprom
25% of the total needs. According this policy: and E.ON-Ruhrgas: an additional
to the EU Green book2, 50% of ßThe December 2006 stand off gas supply contract to E.ON (until
Europe’s total supply will come between Belarus and Russia was 2036) was signed, access to the
from Russia in the year 2030. The ended by an agreement on a gas gas retail market in Germany
dependency on Russian gas varies price increase and on options for was agreed upon and recently a
from one country to another, and the Gazprom to acquire in total 50 % of joint ownership agreement was
most dependant countries are the Beltransgaz, the gas transportation concluded for Gazprom’s Siberian
former CIS members. This vulnerable company in Belarus; gas field Yuzhno Russkoye;
situation of the former CIS members ßIn May Gazprom and the Austrian ßGazprom entered into similar
explains why Russia is so powerful Oil and Gas Company, OMV, agreements in 2006 including
when engaging in stand-offs on their committed to control together the an extension of the Russian gas
gas supplies (Ukraine – early 2006 supply to Eni until 2035, common
Austrian gas distribution “hub”;
– and Georgia and Belarus – end development projects in midstream
2006). Because of Ukraine’s transit ßIn June, Eni (from Italy) and and upstream, and access to the
position, this January 2006 cut-off Gazprom agreed to develop the Italian retail market as of 2007;
triggered in turn cut-offs in many “Southstream” gas pipeline linking
ßIn July 2007 Gazprom’s UK
other European countries underlining Russia to Bulgaria through the Black
subsidiary announced the
Europe’s global fragility. Gazprom is Sea. This pipeline, that will be fed
acquisition of a second small
pursuing two main objectives towards with Russian gas, seems today more
distribution Company (Natural gas
the EU: increasing its control on gas credible than the “Nabucco” project
Shipping Services) following the
transportation pipelines and entering (supported by the EU) that has not
purchase of PNG’s in 2006.
the European retail gas markets. yet secured its sources of supply.
Control of the whole value chain The EU, has announced ownership
The pipeline control battle
unbundling measures on September
Again, many examples illustrate
Contrary to the European unbundling
19, 2007. These measures include
Gazprom’s strategy to control the
tendency, Gazprom wants to increase
a “reciprocity” clause to prevent
whole value chain (including retail)
its control of the Russian gas
foreign investors, including
and to reap the associated margins:
fields, and it wants to increase the
Russian companies, from taking
transportation pipelines from these ßTheir first deal was the creation of
over European gas and electricity
fields to Europe. Russia continues to the Nord Stream AG joint venture
transportation assets, thus
refuse to ratify the Energy Charter in December 2005 (Gazprom
responding to fears that Gazprom
treaty, and it continues to avoid any 51%, BASF and E.ON 24.5%
might grow to dominate the
commitment to open the pipelines to each) in order to build a pipeline
networks, distribution and retail.
other providers. In contrast to Europe and to transport gas from Russia
With divergent strategies, one can easily
this is a super bundling policy! to Germany through the Baltic
predict that the EU/Russia battle for
Sea. Coupled with this deal, the
gas supply and value chain control is
companies entered into cross
only starting.
1 Gazprom is the largest vertically integrated natural gas company in terms of reserves (61% of all Russian natural gas reserves and around 17% of global reserves),
production (85% of domestic production and one-fifth of global production) and transportation (it owns the world’s largest high pressure pipeline system).
It is controlled by the Russian Federation, which raised its stake in the company in June 2005 in its attempt to regain control over the country’s natural resources,
which are the backbone of Russia’s economy.
2 EU Green paper March 2006
European Energy Markets Observatory 5
The Oil and Gas actors game that we were made in China in 2007 at the While the situation differs between
are witnessing, will have a mid- CNPC offshore oil field in the Bohai European countries, the EU’s overall
term impact on the output of oil Sea and at the gas onshore field objective seems very ambitious to
and gas fields in Sichuan province). Funds have meet as a whole.
On the negative side: also been made available to find
Oil and gas producing countries as hydrocarbons in politically riskier We estimate that3:
Venezuela, Bolivia and Russia tend countries, as illustrated by CNPC and ßThe energy conservation is really
to apply more and more nationalistic CNOOC recent agreements in Chad, THE key objective since it will
policies in order to reap a larger profit Sudan and Somalia. This should automatically drive CO reductions
from the high oil prices. result in higher oil and gas outputs. and the implementation2 of
decentralized renewable energies;
This short sighted policy is illustrated The market is also expecting more
ßThere is an urgent need to reform
by several events in Russia during 2007: hydrocarbon discoveries and
the Emission Trading scheme
ßAfter a long period of threats from production from the Statoil/Hydro mechanisms by:
the Russian government, Royal merger. This merger creates a
−Allowing the certificates to be
Dutch-Shell, Mitsui and Mitsubishi, worldwide leader in offshore activities
carried forward from one period
signed in April 2007 the agreement that is well-equipped to approach
to another,
by which they transfer their technically complex projects,
majority shares in the vast Sakhalin including those located in arctic −Establishing clear and coherent
II gas field to Gazprom; climates such as the Barents Sea. rules for the NAP quotas
allocations. Above a certain
ßAlso in June 2007 Gazprom forced
The EU Climate change 2020 threshold these quotas could also
BP – through the TNK-BP – to cede its
objectives: a good road map be auctioned,
control of the giant Kovytkafield field.
but very challenging to meet
−Better qualifying the projects
The general awareness about the
entering into the Clean
This nationalistic attitude is short
looming climate change threat
Development Mechanism to be
sighted as history has demonstrated
increased following the assertive
sure that these projects would not
that the resulting extra profits are
results by the Intergovernmental
have been done anyway,
used – at the best – to finance other
Panel on Climate Change (IPCC)
sectors and are rarely returning to the −Extending the Kyoto protocol
on climate change
oil and gas industry. At the same time, obligations and mechanisms beyond
In March 2007, the EU Ministers
the Oil and Gas Major Companies, 2012 to give a better visibility for
asked Member States to commit
tend to leave the countries that Utilities investing in large and long
to a 20% reduction in energy
implement such policies, thus term generation plants
consumption and Green House
depriving them from badly needed ßA strong political will, giving a clear
Gases (GHG) emissions, as well as to
technical and financial resources. priority to these objectives on national
reach a portion of 20% of renewable
The end result is a decrease of the oil industrial interests, is needed;
energies in their energy production.
and gas output which is worrying as
The horizon of this “three times ßThe cost of these policies should
it predicts a tense future supply and
20% objective” is 2020. It is a be evaluated in order to prevent an
demand situation.
short time frame for the building impact on Europe’s competitiveness;
On the positive side: large carbon free plants, for the ßThese types of measures should
industrialization, at reasonable costs, also be applied in other regions of
National Oil companies from
of CO sequestration equipments, for the world, especially in high energy
non-producing countries (such as 2
the renovation of a significant portion consuming areas such as North
China and India) are significantly
of the existing buildings and houses, America, China and India;
increasing their technical upstream
and for the switch of the present car
competencies and expanding their
fleet to electrical cars.
global reach. Some major discoveries
3 Climate change Point of View by Colette Lewiner
6
Energy, Utilities and Chemicals the way we see it
ßIf these big CO emitting countries period with a reduced number of free UK, several nuclear plants with
2
would not commit to reduction, certificates for generators and with old technology have to be closed
the EU efforts would represent just further significant reduction expected between 2009 and 2023, and there
a drop of water in the ocean while post-2012. is a need to build between 30 and
jeopardizing Europe’s development. 35 GW of new electricity plants in
In this case, the whole European Electricity security of supply in the next two decades, equivalent
scheme would have to be rethought. Europe has improved but the to about one-third of the existing
planned constructions will capacity5. This challenge, coupled
In June at the G8 summit, Europe deteriorate Europe’s CO with the British North Sea gas fields
2
and in particular Germany’s emissions situation depletion, explains why the British
Chancellor (who was at the time In our 8th EEMO edition4 we alerted government is seriously considering
chairing the EU) pushed the that the electricity security of supply launching the construction of new
participants to commit on greenhouse was threatened and that (cid:4)700 billion nuclear plants;
gases reductions. The breakthrough needed to be invested in new power ßMatch the “peak load” demand: In
was the declaration by G8 nations plants during the next 25 years. 2006 the European peak load
to aim to at least halve global CO capacity increase was 1.7%6. This
2
emissions by 2050. While failing to These investments are needed to: modest increase linked to the mild
set mandatory cuts in emissions, the ßMeet the electricity consumption winter has lead to an improvement
agreement could lay the groundwork increase: The electricity consumption of the real generation margins (7.6%
for a unified world response to increase in Europe was on an instead of less than 5% the year
climate change. Following this G8 average of 2 to 3% per annum at the before). This is good news that needs
gathering, the end August Vienna end of the 1990s, and the annual to be highlighted. However during
meeting was set to prepare for the growth of the present decade is the previous colder winters, the
UN Climate Change Conference expected to be lower than 2%. peak electricity demand has sky
in Indonesia (Bali) in December In 2006 the need for electricity rocketed, threatening the electricity
2007, which is aimed at achieving a has increased by 1.4% in UCTE supply and demand balance. To
comprehensive post-2012 agreement countries. This covers contrasted match these exceptional events,
(post-Kyoto agreement) that should situations: an increase of 2.5% in which some scientists are predicting
include all major emitters. At that Spain and a decrease of 0.8% in will occur at a higher frequency
meeting, the US representative said it France (mainly due to the large in the future, one needs to invest
will contribute to the next round of nuclear enrichment plant – Eurodif in peak load gas-fired plants that
emissions cuts, a first step to setting lower consumption) and of 0.1% in deteriorate the CO emissions levels
limits since rejecting the Kyoto the UK. Of course if the European and increase Europ2e’s dependency
Protocol six years ago. However, he Climate change objectives would be toward imported gas from Russia. A
did not say by how much the US met, electricity consumption would good alternative solution is to “shave
would reduce its emissions. decrease (instead of increase) well the peak” by making compulsory
below the 1990 level; the installation of smart meters
Following its March declaration,
ßReplace ageing plants: Programs for (and by giving the right incentives
the EU Commission announced
the replacement of ageing plants to customers to refrain from
that by December 2007, it should
have to be launched. The situation consuming during peak hours) or,
set bidding objectives at the 2020
is particularly urgent for nuclear as in the US, by allowing Utilities
horizon for each of its Member
plants with long approval and to remotely control certain of their
States. In the meanwhile all NAP
construction lead time (8 years in clients’ equipments;
(National Allocation Plans) have
average) and which require very ßIncrease the carbon free generation
been re-negotiated for the 2008/2012
large investments (more than (cid:4)3 capacity. Capgemini studies
bn for the 3rd generation reactor show that to reach the 20%
– EPR – 1,600 MW plant). In the decrease in CO emission, the
2
4 European Energy Markets Observatory 8th edition, a Capgemini study
5 British Government 2007 “white paper”
6 For UCTE countries covered in this 9th EEMO edition, please refer to the Countries’ Abbreviations page at the end of the document
European Energy Markets Observatory 7
European countries need to not This growth continued in 2006. −The European TSOs do not
only implement energy demand Planned projects for generation predict an electricity consumption
side management bold measures plants amount to a total capacity decrease at the 2020 horizon, nor
but also to push their utilities to of 190,000 MW, while the total even a stabilization! Electricity
modify their energy mix in order capacity of projects with applied is of course not the only energy
to decrease their dependency permits equals 165,000 MW. UCTE7 consumption mode. However this
on (imported) fossil fuels. This studies show that for the period illustrates how difficult it will be
could be tough for countries like 2007-2010, the generation capacity to reach at that horizon the 20%
Germany that exploit coal and peat adequacy does not seem at risk. consumption reduction objective!
domestic mines and have decided From 2015 to 2020, the electricity −81% of the planned generation
to phase out their nuclear plants. consumption growth is expected plants will be fossil fuelled,
Renewable energy (hydropower, to slow down but not sufficiently using coal or gas, which are CO
wind power, solar and biomass) enough to stabilize the level of load. emitters. This will worsen Europ2e’s
are carbon free sources. In 2006 In the UCTE conservative scenario, CO emissions situation. Again
their share of the primary energy the generation adequacy will be at the 220% CO emission reduction
has reached 6.5% (still far from the risk by 2014-2015. Yet in the “best objective see2ms far away!
20% objective). They will continue estimate scenario”, global adequacy
to grow – especially hydro and would be ensured until 2020, This short analysis shows that the
wind power – with the help of provided that further investments investments planned today are not
public subsidies. Nuclear energy than those already decided and consistent with the European climate
is the only carbon free source of known by TSOs8 are made. change objectives. To be credible, the
energy that can generate significant In this respect, one needs to be very EU and national governments need
amounts of schedulable energy. attentive as some factors could slow to realign their policies.
Countries such as Finland and down or stop these investments. Let
France have made the decision to us mention: Are we moving towards fluid
build a third generation nuclear electricity and gas markets? Do
−Supply constraints for power plant
plant (EPR) and construction has we need a third European
components;
started. Many others – such as the Directive?
−Scarcity of consented sites;
UK, Slovakia, Lithuania, Latvia and Power exchanges continued to grow
Estonia – are seriously considering −Tight European engineering and in terms of volumes traded and
the construction of new plants. construction of human capacity; “product” diversification
Worldwide, many nuclear plant −Increasing costs driven by this Still further development is needed to
constructions are flourishing. 30 scarcity -as an example costs to reach the target of a fully converged
plants are under construction build new coal power stations (fully integrated) European wholesale
and 290 are planned. Carbon would increase by 30%; market – with a harmonized price. The
sequestration needs “lighthouse” −Earlier plant decommissioning; introduction of two new exchanges,
projects to demonstrate its economic Belpex (Belgium) and OMIP (Portugal/
−Last but not least: political risks
and technical viability and then it Spain) is a step in the right direction.
and lengthy procedures impeding
has to be deployed. In our opinion, The trilateral market coupling of
investment plans.
no new construction of gas or coal Belpex optimizes cross-border inter-
plants should be accepted without a This analysis shows that the connector capacity by allocating
financial provision for future carbon security of the supply situation is day-ahead border capacities using
sequestration installations. evolving positively. However the three countries’ power exchanges at
ßDo the planned investments match the situation is much less rosy when the same time, leading to somewhat
comparing these projections to the
security of supply and climate change harmonized prices. This is expected
EU Climate change 2020 objectives:
objectives? Our Observatory shows to be extended to the Nordic regions,
that investments in infrastructures Germany and the UK as reinforcement
started to grow again in 2005. of interconnections is made.
7 UCTE Union for the Coordination of Transmission of Electricity
8 TSO: Transmission System Operators
8
Energy, Utilities and Chemicals the way we see it
After years of low investment levels, ßThere are only two sustained that the market transformation takes
European TSOs have engaged in models that are applicable for this time and that the customer churn
increased investments, albeit with market and both need research and rate increases very slowly. We shall
a focus on domestic markets consideration: ITSO (Independent measure in the following months
That said, there are no noticeable Transmission System Operators) the real impact of this deregulation
improvements of interconnections or in or deep ISO (Independent System milestone.
the removal of bottlenecks at priority Operators);
interconnections. The list of prioritised ßThere are no ‘off the shelf’ solutions In 2006 it is estimated that less than
projects has remained roughly the to this issue and each model has 10% of electricity eligible customers
same since 2002 despite a financial benefits and challenges that need have used their freedom, which is the
encouragement from the EU. EU to be adapted to local specifics; same percentage as 18 months ago.
funded projects were worth roughly There are much contrasted situations
ßThere are key differences between
(cid:4)11 million in 2006, but these were in different countries: the most active
the gas and electricity markets in
all feasibility studies, and as such electricity markets are the UK (over
Europe. Gas security of supply
they did very little to lower the actual 15% of customers switching), and
remains paramount. In this respect,
current congestion challenge. Sweden and Norway (more than
the “reciprocity” rule requested
5% of customers switching). In the
should prevent non-EU companies
Unbundling: the “third Directive” Netherlands, Belgium and Denmark
to take control of strategic pipelines;
consequences there is some switching activity. The
ßThe success of any of these new
The above established facts show that other markets are dormant. The gas
models requires clear market rules
progress towards a truly liberalized markets, which have lower switching
and new interrelated systems as
European energy market is very rates, are even less dynamic!
well as efficient and low cost data
slow. In order to accelerate the pace,
exchanges mechanisms.
the EU Commission announced on Key barriers to switching include
September 19, 2007 a new legislative the lack of powerful and competitive
On July 1st 2007, the residential
framework draft aimed at ensuring oriented regulators, the lack of
markets’ liberalization “did not
that all generators and retailers have intensive direct marketing, customer
create the expected
fair access to the transportation unawareness, the privileged access
breakthrough”; however it is
networks. In other words they of the incumbent Utilities to cheap
too early to judge
proposed and want to impose new generation and below market price
On July 1st 2007, residential
schemes for ownership unbundling; regulated tariffs.
customers of nearly all EU countries
either full unbundling (ITSO) or
an Independent System Operator became eligible to choose their Retail electricity prices vary widely
model (ISO). They also announced supplier. This event that has been among EU Member States
prepared for many months by the
an increase in the National In 2006, the yearly wholesale average
Utilities was well managed technically
Regulators power, the creation of year over year electricity prices
as the new processes and IT
a European regulating agency (as grew by 12.6%. This average growth
systems were in place. Furthermore,
for Telecommunication sector) and combined with market dynamics
there were no significant supply
reinforced cooperation between pushed the prices up in all retail
disruptions. However, it did not
transmission System Operators. markets. In many EU countries the
create the expected breakthrough,
residential prices increased year over
Capgemini analysis concludes that9: which was for the change to give year between 5 and 12% with very
birth to fully fluid and competitive
ßUnbundling alone is not enough, contrasted situations: a 12 to 20%
retail markets. Our experience at
other measures would also need increase in countries such as the UK,
Capgemini on markets which have
to be implemented to achieve the Norway, Sweden and the Netherlands
been fully deregulated for some years
objectives; and a flat – or nearly flat – evolution
already (United Kingdom, Sweden,
in countries such as France, where
Norway and the Netherlands) shows
regulated tariffs are sill broadly used.
9 Unbundling Point of View by Colette Lewiner and Oskar Almen
European Energy Markets Observatory 9
Our research show a staggering range is linked to the oil one. Within the As a conclusion, we can say that while
of retail prices, for the residential residential segment, the greatest hike the wholesale electricity and gas prices
segment, from (cid:4)0.06 to almost (cid:4)0.20/ happened in the UK (30%), while tend to converge in Europe, that is not at
kWh with the cheapest prices in Czechs enjoyed a decrease of 5%. all the case for retail prices. In addition,
Poland, France, Finland and Spain. As was observed last year, Germany, there are no clear correlations between
The most expensive electricity is in together with Denmark, Ireland and market opening and price level. Market
Norway, Ireland, the Netherlands the Netherlands, have the highest deregulations are by far not the
and Germany. These four countries prices for their residential clients. Irish only factor accountable for the price
were already those with highest households paid gas at (cid:4)80/MWh. The trends in electricity and in gas.
average residential prices in our Baltic States enjoyed the lowest price
previous report. also for household gas, priced at (cid:4)20- Mergers and Acquisitions: why is
25/MWh. the market consolidation slow?
Despite a stabilization in wholesale Incumbent Utilities that are losing
prices, retail gas prices have One could try to correlate price market share in their historical
increased, and are very variable levels with the degree of market geographies started, more than a
across the EU openness, but consistency is difficult decade ago, cross border acquisitions
The increase of oil prices has driven to find. Prices in the UK are high (e.g. EDF in the UK, Germany, Italy,
the rise: the average oil price has although the market has been open Switzerland and Eastern Europe;
gone from $54/barrel in 2005 to since 1996 (and it has also one of E.ON in Nordics, Benelux, Spain,
$65/barrel in 2006. This 20% hike the lowest concentration levels in Italy, France and Eastern Europe)
has been passed on, (to various Europe). Instead, the Baltic regions and we expect that this consolidation
degrees) to retail gas prices, on the that are opening their markets now should continue. However despite
basis that supply is regulated by long still enjoy the lowest prices. This war chests being at record levels,
term contracts in which the gas price lack of correlation is explained by and despite the big mergers
the interference of other factors with announcement which was made
the price levels, such as history (for in early 2006, no mega deals were
former CIS countries), transportation closed in H1 2007. There were two
costs, short-term supply and demand mega mergers announced in late 2005
dynamics, regulated tariffs or and in early 2006: Endesa’s supposed
subsidies, among others. takeover by Gas Natural and then by
E.ON; and the Suez/Gaz de France
merger. They were real sagas, and it is
only now, after more than 18 months,
that we can figure out the end of
these stories. Under the Spanish
Government’s push, a so called
Spanish solution was adopted. The
E.ON/Endesa deal did not happen
and Enel from Italy and Acciona from
Spain have become Endesa’s owners.
Following the French President’s
will, Suez and Gaz de France finally
agreed on September 3, 2007 on their
merger’s conditions. This merger
will give birth, probably in H1 2008,
to one of the three top Utilities in
Europe. Even friendly mergers such
as Essent-Nuon were stopped during
the lengthy merger process. These
cases illustrate the complexity of
the situation as different European
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