impact of liberalization of the electricity market on energy efficiency, quality of supply and...

Impact of Liberalization of the Electricity Market on Energy Efficiency, Quality of Supply and Environmental Performance

Eric BONNEVILLEECI Webconference - 20 oct. 05

AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 2/21

Overview of the European Electricity Industry before liberalization

Definitions, historical steps, objectives / general energy policy

Focus on international experience Costs, benefits and impacts of liberalization• Electricity prices, market opening costs,• energy efficiency investments,

employment, • cross-border transmission and quality of

supply

Outline

AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 3/21

European Electricity IndustryGeneration and consumption in EU15

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European Electricity IndustryElectricity generation - UK

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European Electricity IndustryElectricity generation - Germany

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European Electricity IndustryElectricity generation - France

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The EU Directive of opening the marketDefinitions

Generation Transmission Distribution Supply

national / regional monopolies

Electricity Supply Industry

“unbundled” = vertical disintegrated

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1990 - Transparency of electricity prices Directive 1990 - Grid Network Directive 1996 - Guides for the Liberalization of the Electricity

sector 2003 - New electricity Directive

Implementation steps• 1999 - 26%• 2000 - 28%• 2003 - 33%• 2007 - 100%

The EU Directive of opening the marketHistorical steps

of national electricity consumption liberalized

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Three main objectives of the EU energy policy:• security of supply• economical efficiency • protection of the environment

Objectives of the liberalization:• improve efficiency + productivity• positive results on end-users + environment• prices decrease• security of supply

The EU Directive of opening the marketObjectives

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European pioneer (1983 - 1989)

NETA (New Electricity Trading Agreement)• goal of 50% price reduction• bilateral agreements

Concentration => vertically integrated companies

110 000 jobs lost between 1990 and 1995

Benefits breakdown (billions of pounds)• Government +1.2 to 0.4 • Shareholders +9.7 to 8.1• Consumers -1.3 to 4.4

Focus on international experiencesUK

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1998 - fully opened market no deep structural reform price decrease• 20% for industry• 5% for residential

Employment decline• 18 000 jobs 1993-1997• 64 000 jobs 1997-2000

reduction of the market actors only 0.1 to 0.5% of foreign producers

Focus on international experiencesGermany

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1992 - Federal Power Act => FERC authority to deregulate 1994 - liberalization process launched by the PUC 1996 - Californian Power Exchange 2000 - Electricity crisis with rolling blackouts 2001 - 10 billion USD needed to cover the fixed tariffs

contracts

small generation margin degradation of the reliability decrease of energy efficiency investments (1993-2000)

Regulatory agency created + price caps re-introduction

Focus on international experiencesCalifornia

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Costs, benefits and impactsElectricity prices - Industry

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Costs, benefits and impactsElectricity prices - Residential

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Costs, benefits and impactsMarket opening costs

• meter costs • IT systems • other network business costs

Queensland184 million $ over 5 years

UK121 million £/yr over 7 years

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Costs, benefits and impactsEnergy Efficiency Investments

more competitive marketshort-term price reduction €

Energy Efficiencyinvestments

“the market itself won’t deliver Energy Efficiency”

mandatory mechanisms

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Costs, benefits and impactsEmployment

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Costs, benefits and impactsCross-border transmission capacities

fully opened market high capital intensity and long horizon need for energy demand forecasts and planning

markets dominated by strong national players in 2004, only 10.7% of the electricity consumption

was exchanged between the 22 countries energy efficiency needed, education programmes “the European market will not exist” J.Syrota 2003

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Costs, benefits and impactsQuality of supply

Council of European Energy Regulators (CEER):• continuity of supply

• voltage quality

• commercial quality Liberalization / environmental improvements:

conflicting targets Increased competition and risk => lower costs security of supply: long term investments production planning

AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 20/21

Conclusion

Growing electricity - worrying issue Mismatched liberalization targets:• price decrease did not occur• lack of long term investments in energy efficiency• lack of new generation plants / transmission lines• no physical European market

Strong political strategy of reducing the energy consumption• Networks regulators• independent body agencies

AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 21/21

Thank you for your attention

e.bonneville@aere.fr

www.aere.fr