The Creation of a Market for Retail Electricity Supply
AbstractIn this paper we discuss the EU policy on electricity markets integration by reviewing the experience of the Electricity Regional Initiatives. The regional approach to market integration delivered important results in areas such as coordination among national transmission system operators, implementation of market-based mechanisms for cross-border transmission capacity allocation and transparency. Furthermore, the inclusive governance process lead by ERGEG gave voice to all relevant stakeholders. However, there are indications that the regional model reached its limit when faced with the objective of coordinating day-ahead and real-time markets. The unanimity approach at the regional level made the intra-regional decision-making process extremely slow. Further, inter-regional integration issues have not been solved yet and attempts to tackle them by prioritising projects in some Regions weakened the pluralistic attributes of the regional model. The Third Legislative Energy Package has the potential to overcome some of these shortcomings by empowering pan-European institutions (ENTSO and ACER) and by involving Member States in the decision making process. Some weaknesses of the second-package, though, persist in the new framework. First, there are no provisions ensuring that ENTSO will have appropriate incentives to act in the interest of European consumers. Second, the Third Package perpetuates the separation between within-country congestion management – which remains a national issue – and cross-border congestion management – to be dealt with at the EU level. This two-tier approach is inconsistent with the highly meshed nature of the European network and is likely to result in inefficient market design. Further, the implementation of coordinated cross-border and national congestion management mechanisms requires considering geographically differentiated prices within countries, a politically unattractive result for most Member States.
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Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2010/57.
Date of creation: 09 Jul 2010
Date of revision:
retail competition; electricity regulation;
Other versions of this item:
- Littlechild, S., 2010. "The Creation of a Market for Retail Electricity Supply," Cambridge Working Papers in Economics 1035, Faculty of Economics, University of Cambridge.
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-03 (All new papers)
- NEP-ENE-2010-09-03 (Energy Economics)
- NEP-EUR-2010-09-03 (Microeconomic European Issues)
- NEP-IND-2010-09-03 (Industrial Organization)
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