Market Structure in Power Generation: The EU 12 Years After the First Electricity Directive

Liz HooperCLEEN Workshop, 11 June 2008University of East Anglia, Norwich

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

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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

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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)

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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

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So...

6Source: Sector Inquiry (SEC 2006, p111)

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)

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Market Size and Reserve Margin

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Concentration National Markets• By standard metrics, markets concentrated

• Dominance presumed (Bundeskartellampt)– CR5 > .667 all countries except DE (.65)– CR3 > .50 all countries

• HHI– .12 < HHI > .18 DE, UK, FI,HU– HHI > .18 all remaining countries

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Market Size andConcentration

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ConcentrationEU Market

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Origin Firm EU Capacity MW

Share EU Market

Cumulative Share EU Market

Share IC Home Market

Away Share Firm Capacity

FR EDF 98882 0.19 0.19 0.93 0.03

IT ENEL 54809 0.11 0.30 0.93 0.00

DE EON 45331 0.09 0.39 0.22 0.45

DE RWE 44401 0.09 0.47 0.22 0.45

PL PSE 31392 0.06 0.54 1.00 0.00

SE VATTENFALL 28779 0.06 0.59 0.68 0.44

BEELECTRABEL/SUEZ

15121 0.03 0.62 0.88 0.08

Source: own calculations

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)

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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

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Market Structure in Power Generation: The EU 12 Years After the First Electricity Directive

Liz HooperCLEEN Workshop, 11 June 2008University of East Anglia, Norwich