Competition Policy in the Energy Sector Squaring the Circle?

The specific technical features of electricity and gas, both on the supply and on the demand side, make these sectors markedly different from all others. Because of the peculiarities of price formation in electricity markets, market integration need not benefit consumers even if it increases productive efficiency. Also, market power may be present in little-concentrated markets, while, conversely, the degree of concentration may in some cases have no impact on prices. The impossibility of storing electricity makes market manipulation and exploitative prices real risks in peak-demand periods, but it is very difficult to tell between abusive prices and the normal high prices that need to arise in such periods in order to cover the cost of peak investment. Finally, the Commission's wariness of long-term contracts and its insistence of ownership unbundling between transportation and other activities so far lack a solid justification. Regarding gas, while increased competition in downstream markets may foster the diversification of supply sources, it may also shift rents towards the countries owning natural gas reserves, and this tension calls for new, imaginative solutions.