23 february 2006 competition directorate-general sector inquiry on the gas and electricity markets...
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23 February 2006
Competition Directorate-General
Sector Inquiry on the gas and electricity markets
Dominik Schnichels, DG COMP
Inquiry under Art. 17 Regulation 1/2003
• Launched June 2005
• 3000 questionnaires sent
• One of the most extensive investigations under EU competition law
• Issues Paper
Preliminary Report
• Market concentration• Vertical foreclosure• Market Integration• Transparency• Price formation
Preliminary Report - Gas
Introduction
Hub Prices
02468
10121416182022242628
J an-02 J ul-02 J an-03 J ul-03 J an-04 J ul-04 J an-05 J ul-05
Price
(€/M
Wh)
NBP Day ahead Zeebrugge Day ahead TTF day ahead
Border Prices
02468
10121416182022242628
J an-02 J ul-02 J an-03 J ul-03 J an-04 J ul-04 J an-05 J ul-05
Price
(€/M
Wh)
Waidhaus EmdenTroll Baumgarten
Concentration
• High levels of concentration at wholesale level
• Incumbents largely control imports and domestic production
• Traded markets dominated by incumbents
Incumbent share of importsIncumbent share of domestic production
Austria 80-90% -
Belgium 90-100% -
Czech Republic 90-100% -
Denmark - 80-90%
France 90-100% -
Great Britain 20-30% 40-50%
Germany 90-100% 80-90%
Hungary 90-100% 90-100%
Italy 60-70% 80-90%
Netherlands 50-60% 90-100%
Poland 90-100% 90-100%
Slovakia 90-100% -
Vertical foreclosure – infrastructure • Gas infrastructure remains mostly owned by
incumbents and not sufficiently unbundled
• Long-term capacity reservations in “transit” pipelines and storage
Storage capacity booked long term
0%10%20%30%40%50%60%70%80%90%
100%
Cou
ntry
A
Cou
ntry
B
Cou
ntry
C
Cou
ntry
D
Cou
ntry
E
Cou
ntry
F
Cou
ntry
G
Cou
ntry
H
Cou
ntry
I
% o
f tot
al s
tora
ge c
apac
ity
Excluded from TPA booked capacity: less than 1 year
booked capacity: between 1 and 5 years booked capacity: 5 years and more
length not specified available capacity
Transit capacity– East/West axis
East/West axis: largely sold out until 2015
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Less than 2 years Btwn 2 and 5 years Btwn 5 and 10 years More than 10 years
Prim
ary
ca
pa
city
re
se
rve
d / u
tilis
ed
(%
of m
axim
um
te
ch
nic
al c
ap
acity
)
Incumbent-affiliate Producer Without contract Average unsold
Maximum utilisation
Prices – indexation
Heavy fuel oilLight fuel oil and gasoilGas price
Electricity price
OtherCoal price
Crude oilGeneral inflationFixed
UK
14,6%
16,2%
16,5%
40,1%
0,6%
2,9%
1,1%
7%1,1%
Western Europe
50,1%
0,6% 30%
2%
4,9%
4,6%2,6%5,2%
Eastern Europe
47,2%
2,1%
0,8%0,7%
48,1%
1,1%
Heavy fuel oilLight fuel oil and gasoilGas price
Electricity price
OtherCoal price
Crude oilGeneral inflationFixed
UK
14,6%
16,2%
16,5%
40,1%
0,6%
2,9%
1,1%
7%1,1%
Western Europe
50,1%
0,6% 30%
2%
4,9%
4,6%2,6%5,2%
Eastern Europe
47,2%
2,1%
0,8%0,7%
48,1%
1,1%
Heavy fuel oilLight fuel oil and gasoilGas price
Electricity price
OtherCoal price
Crude oilGeneral inflationFixedHeavy fuel oil
Light fuel oil and gasoilGas price
Heavy fuel oilHeavy fuel oilLight fuel oil and gasoilLight fuel oil and gasoilGas priceGas price
Electricity price
OtherCoal priceElectricity priceElectricity price
OtherCoal priceOtherCoal priceCoal price
Crude oilGeneral inflationFixed
Crude oilCrude oilGeneral inflationFixedGeneral inflationFixed
UK
14,6%
16,2%
16,5%
40,1%
0,6%
2,9%
1,1%
7%1,1%
Western Europe
50,1%
0,6% 30%
2%
4,9%
4,6%2,6%5,2%
Eastern Europe
47,2%
2,1%
0,8%0,7%
48,1%
1,1%
Conclusions
• Wholesale markets in the EU generally maintain the high level of concentration of the pre-liberalisation period
• Lack of liquidity and limited access to infrastructure prevent new entrant suppliers from offering their services to the consumer
• Transit capacity, crucial for market integration, could be used much more efficiently
• There is a lack of reliable and timely information on the markets, essential for healthy competition
Preliminary Report - Electricity
Introduction
• Prices increase significantly since 2003• Prices differ significantly between Member States
Electricity prices on the rise all over Europe Wholesale electricity price developments 2000-2005
year-ahead base load in €/MWh
0
10
20
30
40
50
60
70
80
90
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05
€/M
Wh
Germany
The Netherlands
UK
France
Nord Pool
UK
The Netherlands
Nord Pool
France
Germany
Concentration
• Incumbents control generation assets giving them scope to exercise market power by– withdrawing capacity or
– increasing prices
• Scope for influencing prices exists at a number of power exchanges (examples: I, E, DK)
FranceAvailable installed capacity
86,7%
8,2%
2,5%
0,5%
2,2%
Undertaking A
Undertaking B
Undertaking C
Undertaking D
Otherundertakings
BelgiumAvailable installed capacity
17%
83%
Undertaking A
Otherundertakings
Vertical foreclosure
• Many market participants complain about inadequate unbundling of network and supply activities
• TSO level:– Grid connection for new power plants– Interconnectors– Transparency
• DSO level:– Inappropriate switching procedures– Lack of ‘Chinese walls’– Discriminatory access tariffs
Market Integration
• Competition from imports is insufficient to erode market power of incumbents
• More interconnector capacity is needed• Many interconnectors are chronically congested• Long term capacity reservations reduce capacity
available for new entrants
• Revenues from auctions not used for interconnector expansions
Transparency
• The level of transparency varies widely between Member States
• 83% of market participants are not content with current levels of transparency
indispensable im portant or useful
not useful
TSO network 95.2% 4.8%
Interconnectors 91.8% 8.2%
Load 94.6% 5.5%
Balancing 90.7% 9.3%
G eneration (production) 86.2% 13.8%
G eneration (capacity) 94.1% 5.9%
Im portance of inform ation according to suppliers
Conclusions
• Markets remain highly concentrated giving incumbent operators scope for exercising market power/influencing prices
• Competition from cross-border trade does not so far reduce incumbents’ market power
• Market participants complain about insuf-ficient unbundling of network and supply activities which calls for further reflection
• There is a general consensus that more transparency is needed urgently
Closing remarks
Context
• Growth and Jobs strategy (Lisbon)
• Green Paper on energy announced
• High Level Group
Way forward for discussion
• Competition case priorities
• Review of regulation
• Unbundling
H
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