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Is a single European energy market possible? Steve Thomas Professor of Energy Policy and Director of Research PSIRU (www.psiru.org),

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Presentation on theme: "Is a single European energy market possible? Steve Thomas Professor of Energy Policy and Director of Research PSIRU (www.psiru.org),"— Presentation transcript:

1 Is a single European energy market possible? Steve Thomas Professor of Energy Policy and Director of Research PSIRU (www.psiru.org), Business Schoolwww.psiru.org University of Greenwich

2 The UK debate UK still seen as model country for others to copy Since October, intense public debate on gas & electricity markets fuelled by anger at high prices and lack of competition Real electricity prices 80% higher than 2003, gas 140% higher Only Cyprus, Spain, Ireland has more expensive electricity (household excluding tax). For gas, UK near EU average 0.505/kWh vs 0.506/kWh 5 of 6 energy companies raised prices by about 10% in Oct/Nov claiming rises in wholesale prices and increased green levies A deal agreed for a new nuclear power plant expected to cost 19bn with a 35 year contract at double market price

3 The UK debate Reports of a high risk of black-outs in the next three years Two major retail companies fined by regulator for mis- selling in 2013 Fuel poverty (10% income spent on fuel & power) up to about 25% of households 31,100 excess winter deaths in 2012/13, up 29% Companies admit they have lost public trust – more unpopular than banks

4 UK proposals Ex-prime minster Major called for windfall tax, Ofgem said understandable public believe prices being driven by profiteering Archbishop Canterbury said public find price rises incomprehensible. Labour party proposed price freeze for 18 months after 2015 election, break-up of Big 6 and improvements to wholesale markets (Oct) Coalition proposed green levies (12% of elec, 8% of gas) be cut. Subsidies for poor paid from taxation not consumers, energy efficiency targets reduced (Nov) Debate still running

5 Issues Commissions position drawn from: European Commission (2012) Making the internal energy market work Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Wholesale markets Retail competition Security of supply Corporate concentration Meeting Greenhouse Gas targets

6 Wholesale market Commission: In short, properly functioning long-term and short- term wholesale markets (in particular, day-ahead, intraday, balancing and ancillary services markets), which reflect the economic value of power at each point in time in each area can steer investments to where they are most efficient An efficient wholesale market should provide: a reliable reference price; low entry barriers for new entrants; and investment signals for new generation No wholesale market meets this anywhere in world Low liquidity so prices unstable, power sold by self-dealing or long-term contracts (confidential), market concentration so markets easy to manipulate. No marker price, no investment signals, high entry barriers

7 Retail markets Commission: To make the most of the benefits the internal market brings, consumers, including individual citizens and small businesses, must be enabled, and feel incentivised, to play an active role in the market. UK highest switching rate in Europe (20% per year) but rate declining and serious disillusionment Companies frequently found misleading consumers Most consumers cannot find the best deal from a price comparison chart Is this a choice anyone wants, is it one we can use?

8 Security of supply Commission: The increased liquidity of wholesale markets has also enhanced security of supply in the EU In a free market, plant investment and retirement is driven by expectations of profitability. If a plant is needed to keep the lights on, but doesnt make a profit, it will be closed Pressure/blackmail from companies for capacity payments to ensure their fixed costs are covered Commission opposes capacity payments

9 Corporate concentration Commission: In eight Member States more than 80% of power generation is still controlled by the historic incumbent Big 6 companies dominate UK – 99% of retail and 80% of generation 4 of 6 are foreign – EDF, RWE, E.ON, Iberdrola Apparently healthier than most other countries but companies all raise their prices at same time and are not competing for customers

10 Meeting GHG targets Commission: From 2013 on, also the carbon market design is fully 'europeanised', thus enabling the internal energy market to facilitate the transition towards sustainable, low carbon and efficient energy systems by rewarding low-carbon investments [including Carbon Capture and Storage] and low-carbon fuels over carbon-intensive ones. Low-carbon sources more expensive than fossil-fuel options so wont be brought unless extra cost paid or insulated from the market Additional costs should be met by EUETS but it does not work and nobody expects it start working soon So plants built with Contracts for Differences (CfDs), Feed-in Tariffs (FiTs), Capacity Auctions. Logical conclusion is increasing proportion of market covered by plants covered by contracts outside the market


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