1. Market Structure in Power Generation: The EU 12 Years After the First Electricity Directive Liz Hooper CLEEN Workshop, 11 June 2008 University of East Anglia, Norwich

2. Outline Background Data and methods National markets The EU market Key conclusions 2

3. The Value Chain in Power Generation Transmission Distribution Supply (retail) Product characteristics – low elasticity of demand – uneconomic to store – supply MUST equal consumption History matters 3

4. Legislative Framework The First Electricity Directive (96/92/EC) The Second Electricity Directive (03/54/EC) The Cross Border Electricity Trading Regulation (EC 1228/2003) The Third Package (2007) 4

5. Key Goals Market opening – consumer preference Sectoral regulation Free and equal access to networks – Reg TPA Vertical unbundling functional units Harmonisation rules/cross border trade 5

6. So... 6 Source: Sector Inquiry (SEC 2006, p111)

7. Present Study Data – 2004 plant level by ownership, technology, fuel – M&A EU electricity and gas 1999 to 2007 – Annual country level, import capacity, demand Methods – Structural analysis firm characteristics (market share, cross-border ownership, technology mix) – Market Share Matrix (Clarke, Davies et al. 2002) 7

8. Market Size and Reserve Margin 8

9. Concentration National Markets By standard metrics, markets concentrated Dominance presumed (Bundeskartellampt) – CR5 >.667all countries except DE (.65) – CR3 >.50all countries HHI –.12.18DE, UK, FI,HU – HHI >.18all remaining countries 9

10. Market Size and Concentration 10

11. Concentration EU Market 11 OriginFirmEU Capacity MW Share EU Market Cumulative Share EU Market Share IC Home Market Away Share Firm Capacity FREDF988820.19 0.930.03 ITENEL548090.110.300.930.00 DEEON 453310.090.390.220.45 DERWE 444010.090.470.220.45 PLPSE313920.060.541.000.00 SEVATTENFALL 287790.060.590.680.44 BE ELECTRABEL/ SUEZ 151210.030.620.880.08 Source: own calculations

12. Key Conclusions National electricity markets moderately or highly concentrated, even after 12 years of reform If not SEM, REM? Price convergence in TLC, Nordic. Prospects for SEE? Sector Inquiry and subsequent actions suggest determination of EC but EU CR5 =.54 and EdF owns 20% installed capacity (2004) 12

13. Next Question How has this picture changed over the past 10 years? Or, do we expect dominance in home markets to translate into dominance in EU markets? M&A database – all activity since 1998 13

14. Market Structure in Power Generation: The EU 12 Years After the First Electricity Directive Liz Hooper CLEEN Workshop, 11 June 2008 University of East Anglia, Norwich