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24 April 2007 - The European Commission (EC) has concluded that the European Union's wholesale electricity market is not yet functioning properly following a report on its energy sector's competition.
According to the EC the study, which was carried out by an external consultant, found that fuel costs have contributed to the increase of EU electricity prices since 2003, but that wholesale electricity prices are significantly higher than would be expected in perfectly competitive markets.
The study carried out a detailed analysis of the wholesale electricity markets of Belgium, Germany, Spain, France, the Netherlands, and Great Britain for the period 2003 to 2005. The study looked at how many operators are effectively competing on the EU market on an hourly basis, analyzing both available installed capacity and effective generation.
The EC said that the study also looked at the difference between what the price of the market was in the 2003 to 2005 period and what it would have been if the markets in Germany, Spain the Netherlands and Great Britain had been perfectly competitive. The study calculated the 'mark-up' charged by utilities by simulating a perfectly competitive market.
According to the EC, the study shows that the mark-ups vary over time and between member states but they are generally higher in Germany and Spain and lower in Great Britain and the Netherlands. Due to insufficient information, the study did not draw conclusions for France and Belgium.
The EC also said that an examination of the impact of fuel prices showed that the largest price rises are in the Netherlands and Great Britain, essentially due to the large fleet of gas-fired plants in those markets. Meanwhile, the regions which had higher mark-ups were less affected by fuel price rises.
The study also looked at the relationship between the number of operators competing at a given time and the mark-ups, and concluded that the more needed generators are, the higher the mark-ups in the market become.
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