Conditions for making competition work in the Central European electricity market Dr. Reinhard HAAS Institute of Power Systems and Energy Economics, Vienna University of Technology 7th European IAEE conference, Bergen, August 2005
CONTENT: 1. Introduction: The European electricity sub-markets 2. Unbundling and transmission 3. Excess capacities in generation 4. Mergers in EU-15 5. Perspektives for price development 6. Open issues 7. Conclusions
1. INTRODUCTION Competition: expectations of EC -> very simplified assumptions on strategic behaviour of generators / grid operators! General lack of competition: in generation and supply in every country and sub-market In wholesale markets: strong suspictions regarding exertion of market power in every sub-market
EUROPEAN ELECTRICITY SUB-MARKETS 6 7 1. UK and Ireland 2. Nordic countries t 3. Iberian market 4. Italy 5. Western Europe 6. Eastern Europe 7. South-Eastern Europe
2. UNBUNDLING AND TRANSMISSION UNBUNDLING REQUIRED BECAUSE: to ensure that potential new generators are not discriminated from access to the TM grid and to avoid cross-subsidization of generation by transmission. SUFFICIENT TRANSBOUNDARY TM CAPACITIES: to ensure a larger market
MAXIMUM PERCENT USE OF TRANSMISSION CAPACITY SLO - IT ES-PO SK - HU CZ - DE AT IT CH - IT FR - DE FR IT 0% 50% 100% 150% 200% %/ye ar
GRID BOTTLENECKS IN EUROPE Average wholesale electricity price 2003 [ /MWh] Bottlenecks Market separation 33 37 39 33 25 33 27 31 32 32 53
Luxemburg Slowakia Czech Republic Switzerland Netherlands Spain France Austria Germany Belgium Slovenia Portugal Italy Poland N.A. N.A. N.A. N.A. TRANSMISSION INVOICES Direct Indirect 0 2 4 6 8 10 12 14 EUR/MWh
Continental Europe: Type of access to transboundary transmission capacities FR DE / DE - FR AT DE / DE AT NL DE DE NL FR IT / IT FR FR BE / BE FR NL BE BE NL FR ES ES PO / PO ES SK HU SL IT CZ AT CZ DE AT IT Type Priority list / Pro-rata /Partly auctions Priority list Auction Auction Pro-rata Priority list / Pro-rata Auction Auction Priority list New method foreseen Auction Auction (short term), Pro-rata (long term) Auction Auction Pro-rata Source: ETSO
260000 3. EXCESS CAPACITIES Central Europe 220000 Gross capacity MW Net capacity 180000 Load 140000 100000 1995 2000 2005 2010 2015 2020
Eastern Europe 70 60 50 EASTERN EUROPE: LOAD VS CAPACITY TRENDS Net capacity Gross capacity GW 40 30 Load 20 10 0 1995 2000 2005 2010 2015 2020
Italy 90 ITALY: LOAD VS CAPACITY 80 Gross capacity 70 60 GW 50 40 Load Net capacity 30 20 10 0 1995 2000 2005 2010 2015 2020
4. MERGERS IN EU-15 Electricity sector National and Cross-border M&As in the EU 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 47 10 88 14 10 13 42 5 10 22 19 27 3 3 1998 1999 2000 2001 2002 2003 2004 National M&As Cross-Border M&As
NUMBER OF LARGE GENERATORS IN EU-15 HEW VEW Fortum VEAG EnBW Pow er Gen Iberdrola National Power British Energy Endesa Ele k tr abe l Largest European generators 1999 Fortum Iberdrola National Power British Energy Ende s a Largest European generators 2003 Bayernwerk Elektrabel Vattenfall ENEL PreussenElektra RWE ENEL Vattenfall RWE/VEW E-ON Major mergers and aquisitions EdF EdF/EnBW 0 100 200 300 400 500 TWh 0 100 200 300 400 500 TWh 17 11!
5. PERSPECTIVES FOR PRICE DEVELOPMENT Price, costs (EURO/MWh) Average costs Strategic or monopoly prices? Long term marginal costs? time Short term marginal costs?
Wholesale price development 90 Spot market prices (Central Europe) 80 70 60 EUR/MWh 50 40 30 20 10 0 Feb.99 Aug.99 Mär.00 Okt.00 Apr.01 Nov.01 Mai.02 Dez.02 Jun.03 Jän.04 Aug.04 Feb.05 Sep.05 APX (NL) /MWh EEX Mix /MWh POL-X /MWh Italy
Market power? A marginal cost model Marginal cost model spot market base 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 EUR/MWh Jän.99 Apr.99 Jul.99 Okt.99 Jän.00 Apr.00 Jul.00 Okt.00 Jän.01 Apr.01 Jul.01 Okt.01 Jän.02 Apr.02 Jul.02 Okt.02 Jän.03 Apr.03 Jul.03 Okt.03 Jän.04 Apr.04 Jul.04 Okt.04 Spot market price Base EEX EUR/MWh Marginal costs Base Model EWI Köln EUR/MWh Marginal costs Base Model TU Wien EUR/MWh
CAPACITY DEVELOPMENT: MODEL BOTTLENECK MW, Preis Generation capacity Start Liberalisation Excess capacities Start construction of new power plants Demand Price time
cent/kwh 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Perspectives for price development Spotmarket Base (Coal price +2%/yr, Natural gas price +5%/a) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Short term MC historical Base (c/kwh) Short term MC scenario (c/kwh) Spot-Base historical (c/kwh) Long term MC historical Base (c/kwh) Long term MC scenario (c/kwh) Spot base scenario (c/kwh)
8. OPEN ISSUES Balancing: Unfavourable for importers and new participants, Balancing: what are proper area sizes? Luxemburg, German sub-areas, France? How to ensure sufficient TM capacities? How to harmonize regulatory governance? How to deal with further privatisation in the light of increasing concentration and market power?
Current attempts to intensify competition are quite different: Italy and France: Intensify auction of virtual capacity Germany: new regtulatory authority installed, to facilitate access to the grid for IPP s and other new players; Spain: White paper suggest divestment of generation capacities Eastern Europe: competition is to be encouraged by transboundary trade
9. CONCLUSIONS To bring about effective competition it is necessary to conduct European-wide correct unbundling to avoid market power over the grid to ensure prevailance of excess capacities resp. demand-side measures avoid further mergers and cartelisation, divest capacities, provide incentives for new generators? harmonise (transboundary) conditions for access to the grid;
9. CONCLUSIONS Eastern European impact only if TM capacities are extendend Enhance transparency; Privatisation as a crucial issue? Who will buy EdF (in the long run)?
FURTHER INFORMATION: Homepage: eeg. tuwien. ac. at E-Mail : Reinhard.Haas @ tuwien. ac. at