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DEREGULATING ELECTRICITY MARKETS:
THE FRENCH CASE
Presented By:Ahmad FahmyHuiping LiSofia Ait BellahSwati Singh
Generation (30% cost)● Production of energy● Cost and flexibility
Transmission (40% cost)● Transportation of electricity● Capital intensive● Continuous maintenance● Regulation of access fees
Distribution: (30% of cost)● Connection of high voltage
grid to the final consumer
Sales and services:
● Price and quality
Suitable for competition
Suitable for competition
Natural monopolies
Electricity Supply Chain
1989
History of Liberalization
1980
1990
2000
2010
Call for market liberalization
Deregulation for consumer for > 20 GWh
80% of the market deregulation+
Full Liberalization of the UK
UK vertical unbundling
Deregulation for consumer >40 GWh
EU directive announcement for a full liberalization
by 2005
Full liberalization of the European
market in energy
1980
19891999 2001
2000 2002
2007
Fully liberalized
Bound to full liberalization
FRANCE
Liberalization Map (2002)
Causes of Liberalization• European Union
integration • Solidarity between
the EU members
Political
• Avoid market power
• Lower prices
Economical
• Avoid cross- subsidization
• Equal choices of suppliers
Social
• Fully computerized systems
• Unbundling
Technological
• Higher resources with multiple interconnections
Security
• Reduction of the capacity
• Entrance of efficient companies
Efficiency
The French Case:EDF
Energy independence (world exporter and nuclear program)
Over capacity
Low electricity costs Market monopoly
France: Anti-liberalization• The Govenment and
EDF relationship• Ambition of globally
expand• Labor unions
Political
• Overcapacity • High market share• Profitable sector
( among lowest prices)
Economical
• Strong committment to serve customers: cross subsidization
• Job protection: public opinion
Social
57 nuclear reactors generating 75% of power for the country
Technological
• Public interest rather than market dominance (price volatility)
• Guarantee electricity supply to customers
Security
Low costs due to overcapacity and economies of scale
Efficiency
• Minimum requirements of liberalization
• Only 30% market open• Postponed the adoption
• Fully liberalized• Unbundled vertically• Generation -two companies.• Transmission -regulated
private monopoly. • Distribution -12 companies
• Fully liberalized• Negotiated third party
access
• Liberalized in phases• Nordic electricity pool
Measure and Policy
Alternatives
Negotiated TPA
Regulated TPA
Single Buyer Model
• Direct supply to consumers • Deal with transport tariffs and conditions• Subject to a dispute settlement mechanism. • Ensure respect of system security.
• Fixed tariffs by the relevant authorities• The tariffs are applied to all users of the network.
• A single entity will buy and sell electricity. • Ensure respect of services of general economic
interest. • Direct contract negotiations are only foreseen
Transmission and distribution:
How was the EU market liberalized
Between the European Commission & France
Time
M&A
• France government: Prolonged resistance• European Commission: Lacked the legislative
power
• EDF’s strategy: Mergers and Acquisition • European Commission: Approval of EDF’s international acquisitions→ EDF’s concessions in its domestic market
Effects on EU electricity prices
Effects on EU electricity prices
Effects on EU
Effects on EU
Pros of liberalization
New Pricing Model• Competition(low prices + no market monopoly )
• Competitive retail markets may provide new business opportunities
Economic Benefits
• Competitive energy industry• Attract new investors
Economies of Scale• Optimal to produce electricity for higher demand
Technological• Opportunity to decentralize power production with new gas turbines
• Changes in energy mix
Environmental Benefits• Decreasing use of coal/nuclear plants
• Increased utilization of gas stations
Diversification• Higher possibilities for commercial innovation
• Wide, equal customer choice
Utilities Trend
# offers (#
suppliers)
Fixed offers
Spot based offers
Dual fuel
offersGreen offers
Free products
or services
UK 59(22) 32 0 39 8 15
Spain 32(19) 2 0 0 15 0
France 29(11) 10 0 7 10 1
Finland 204(43) 110 16 0 63 5
Denmark124(23) 61 6 0 34 25
Diversification Switching Ratio
Energy Trends
Is there a dark side?
Economic Contradictions
High cost of setup
Very volatile prices
Natural market power of supplier
Complex Formulation
Centralized governance, independent system operators
Consumers are excluded
Slow economic growth
Low internal competitive market caused by problems of:• access to the network, • taxification issues • unequal degrees of market opening between members
Pricing discrimination
High prices for low income customers and rural clients
Industrial prices are less than household electricity prices
Lower opportunities for long term projects with low cost of capital
Stakeholders- Liberalized Electricity Market
Power Generation Companies
Power Transmission Companies
Power DistributionCompanies
Sales and Service
Customers
Effects on Stakeholders
Power Generation Companies
Power Transmission/ DistributionCompanies / Retail
• Natural market power• Essential role in policy deregulation• Increased energy mix• Economies of scale
• Competitive market• Diversification of
services• Higher efficiency• New entrants
• Lowered prices• Future prosumers• Free choice
Consumers
Regulatory Bodies
• Complicated policy formulation
• Complaints redressal forum
Final Thoughts
Need to take into consideration both the
benefits of the customers and the suppliers
Relation between price change and
liberalization cannot be substantiated
Highly fluctuating
demand
Low power of EU over countries
Need to take into consideration each country’s specification
Tempered strength of
regulation bodies
Vulnerable exercise of
market power by generators