European companies are important electricity consumers. Although they are a diversified group of consumers, they all profit from the liberalisation in the European electricity market thanks to the following positive consequences. First of all, the deregulation policy turns the traditionally monopolistic and vertically integrated electricity industry into separated and competitive entities, what generally results in technical innovations and lower electricity prices. Moreover, the creation of a single European electricity market entitles the companies to freely choose their power supplier.
The entry of European competitors in national markets increases the pressure of competitive forces on the incumbent electricity producers: studies show that larger market opening results in sharper price reductions and harmonisation of the electricity prices among the member states. Finally, the deregulation places the electricity consuming companies in a better negotiation position, what enables them to insist on higher service standards and improvements in energy efficiency.
But European companies also fear some negative effects of the liberalisation: instability in price and supply, lack of cooperation between the different sectors and the formation of an oligopolistic market structure with only a few multinational energy suppliers. For this reason, European companies are of the opinion that an effective regulatory policy is still necessary to steer the liberalised electricity market in the right direction.
The main requirements of European companies are: low electricity prices, a reliable electricity network integrated through Europe, adequate access to the network and sufficient grid capacity. The Californian electricity crisis demonstrates the disastrous consequences when an electricity market is imperfectly deregulated: severe energy shortages and inadequate pricing mechanisms lead to extreme price inflation. To avoid similar situations, the European companies emphasize that the following elements are crucial in an adequate deregulation policy.
First of all, an effective competitive environment should be created with several market players. Secondly, the access to the transmission and distribution network has to be guaranteed at lowest cost, with an insured sufficient quality and based on a non-discriminatory manner. Also the barriers to cross-border exchanges need to be reduced to install a real single integrated European market. Finally, the cost-efficiency of public policies needs to be increased to limit taxes on electricity.
Thus, the European companies expect the regulators to take the necessary measures to correct the imperfection of the market in order to constantly stimulate the competition. The liberalisation of the electricity industry can be compared to other Network industries. They all had traditionally a monopolistic market structure, which in the last decade has been transformed into a more open and competitive environment. Although the deregulation policies, adopted in each sector, have some common characteristics, the different nature of the network industries also leads to their industry-specific deregulatory aspects.
The most obvious similarities in the deregulation policies are: competition as the common objective; principles of transparency, non-discrimination and objectivity; a gradual 3-phased deregulation approach; the focus on vertical separation of the production chain; the continuous process of amendments in deregulation legal framework; and finally the convergence of the deregulation policies in network industries with complementary (rail and air) or substitute products (gas and electricity).
The crucial differences on the other hand are: different deregulation speed within different network industries and countries, various driving forces in each industry and different legal procedures (Directive or Regulation) to execute the deregulation. A unique and, from a deregulatory point of view, interesting feature of the electricity sector is its horizontal separation in power generation as well as the very difficult storage of the electricity as a product. Deregulation policies need to consider the common features of network industries and distinguish them from the industry-specific characteristics.
The European companies appreciate this approach, because it helps to obtain more synchronisation in the liberalisation of all the network sectors. The liberalisation (movement from monopolistic to competitive markets) of the electricity market is one point, but its privatisation (change of ownership structure from state-owned to private) gives rise to another debate. While the European commission is strongly in favour of liberalising the electricity sector, it has rather a neutral attitude with regard to the privatisation of the natural monopolies (transmission and distribution) in the electricity supply chain.
Both private ownership and state ownership have their pros and contras. On one hand, private ownership could provide very powerful efficiency incentives for management and thus increase the productivity in the electricity sector. On the other hand, some studies conclude that private ownership produces some cost 'savings', but that the benefits were not seen by consumers. In general, the European companies are in favour of privatisation under the condition that it will improve competitiveness in the electricity sector and cope with the basic electricity requirements of the companies in the long run.