1
The Changing Fortunes of the EU’s Energy Market
Antony Froggatt
2
Unrestructured Electricity System
Regulator
Generation Transmission Distribution (Integrated Utility)
Customers
3
Restructured System
Regulator Electricity
Exchange
Transmission System Operator
Customers
Distribution System
Retail
IPP Utility Producers Electricity
Import
Municapal Utility
4
EU Legislation
• Directive 96/92/EC concerning common Rules for the internal market in electricity.
• Transposition by February 1999
• Directive 98/30/EC concerning common rules for the internal market for natural gas
• Transposition by August 2000
5
Opening of Energy Markets in EU
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Austri
a
Belgium
Denmar
k
Finlan
d
Franc
e
Germ
any
Greec
e
Irelan
dIta
ly
Luxe
mbo
urg
Nether
lands
Portu
gal
Spain
Sweden UK
Market opening -Electricity
Market Opening - Gas
Minimum Requirement -Electricity
Minimum Requirement - Gas
6
New Directives 2002
• The Energy Council will discuss on 25th November, next version of Directive.
• This will then be sent to European Parliament for Second Reading
• Then possibly to Conciliation, if difference occur between Parliament and Council
7
Main Points of New Directive• Commission proposing to merge electricity and
gas directives.
• Market Opening: Non domestic by 1st January 2005, domestic 1 year later.
• Legal separation of TSOs and DSOs
• PSO
• Electricity Labelling
• Ownership
8
Impact on Price• Electricity prices for domestic consumers
fallen 2% on average in last decade; but for commericial consumers by 12%
• Gas prices, increased for domestic by 15% but for commercial by 40%
• In UK, wholesale price fell by 18% between 2000-1, but prices for domestic fell by 2.5%, giving retails additional profit of €600 million
9
Development of Energy Prices in EU - 1991-present
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
1991
Jan-Ju
n
1991
Jul-D
ec
1992
Jan-Ju
n
1992
Jul-D
ec
1993
Jan-Ju
n
1993
Jul-D
ec
1994
Jan-Ju
n
1994
Jul-D
ec
1995
Jan-Ju
n
1995
Jul-D
ec
1996
Jan-Ju
n
1996
Jul-D
ec
1997
Jan-Ju
l
1997
Jul-D
ec
1998
Jan-Ju
n
1998
Jul-D
ec
1999
Jan-Ju
n
1999
Jul-D
ec
2000
Jan-ju
n
2000
Jul-D
ec
2001
jan-
Jun
2001
Jul-D
ec
2002
Jan-Ju
n
Eu
ro/k
Wh
3
4
5
6
7
8
9
10
Eu
ro/G
igaj
ou
le Elec - Industry
Elec - Domestic
Gas - Industry
Gas - Domestic
10
Employment Levels
• According to EPSU, over last decade over 250 000 jobs lost in electricity sector.
• Similar losses might be expected in Gas sector.
• More losses in EU expected, as major firms, such EdF and GdF are partially privatised.
11
Level of Employment in EU Electricity Sector
0
100000
200000
300000
400000
500000
600000
700000
800000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Job
s
UK
Sw eden
Spain
Portugal
Italy
Ireland
Germany
France
Finland
Denmark
Belgium
12
Employment in Central Europe
• The introduction and preparations for liberalisation directives is expected to have bigger impact in CEE than in EU.
• In the period 1995-2001 there has been a 30% loss in jobs in Czech Republic and Hungary, compared with an EU average over the same period of 20%.
13
Employment Levels in Czech and Hungarian Energy Sector
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
1995 1996 1997 1998 1999 2000 2001
Czech Rep.
Hungary
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Mergers and Takeovers
• In past years a few companies have increased their dominance of the energy and utilities sector.
• This concentration dynamic has reached a dramatic level during the last two years with acquisitions amounst largest EU companies rising from €3.5 billion to €42 billion, a 12 fold increase.
15
Combined Acquisitions of EdF, Eon, RWE, Enel, Vattenfall, Endesa and Electrabel, 1996-2001
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
1996 1997 1998 1999 2000 2001
Mill
ion
€
16
Electricity Market Shares in Western Europe 1998-2002
20 20 20 19 19
7 7 9 10 12
8 89 9
1110 10
9 884 4 3 6
83 3 2
4
4
3 3 44
4
3 3 43
4
3 3 33
3
39 39 37 3427
0
10
20
30
40
50
60
70
80
90
100
1998 1999 2000 2001 2002*
Other
Iberdrola
Endesa
Electrobel
National Pow er
Vattenfall
ENEL
EoN
RWE
EdF
17
Mergers in CEE
• The same dominant countries are active in CEE, either directly or through strategic alliances for example with Gazprom
• In many ways the region is being divided up between French and Germany companies.
18
Investors into Energy Sector in Prospective EU Members
0
5
10
15
20
25
30
Edf/Gdf RWE Eon/Ruhrgas Vattenfall InternationalPow er
Tractobel Gazprom
No
of
com
pan
ies
Slovenia
Slovakia
Poland
Lithuania
Latvia
Hungary
Estonia
Czech Republic
19
Security of Supply
• The liberalisation of gas and electricity industry has resulted in dominance of gas in new build of electricity.
• This is because, gas and inparticular Combined Cycle Gas turbines, are quicker to build, cheaper to run and cleaner than other conventional power stations.
20
Capacity of New Power Plants within the EU in August 2002
62220
2012 8002659
1000
0
10000
20000
30000
40000
50000
60000
70000
CCGT Coal Gas Cogen Nuclear
21
Impact on Renewables
• In 2003, Member States must transpose the renewable energy directive into national law.
• This set, non-binding, targets of the EU, of 12% of energy (22% of electricity) from renewables by 2010.
• Wind power has been particularly successful in recent years.
22
Wind Power Cumulative Capacity in EU
629 8441211
16832515
3469
4772
6458
9645
12822
17319
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
23
• Despite this, renewables are not significantly increasing their share of electricity production.
• Because electricity demand is still increasing
• New renewables only play minor role in EU electricity
• Directive, targets are ambitious, but essential
24
Development of Renewables in EU Electricity
12
12.5
13
13.5
14
14.5
1991 1992 1993 1994 1995 1996 1997 1998 1999
%