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Electricity and Gas Markets

Updated: December 2014

Electricity and Gas supply are part of EU's internal market, but as electricity and gas are quite different commodities than goods sold in shops, they have their own, regulation, describing how electricity and gas providers should act. The basis is that consumers should be able to choose their own supplier, but remain connected via the same gas and electricity lines to the network. Thus different suppliers must have access to send electricity and gas to the consumers on equal terms via the same network. With the regulation it is now much easier than before to buy gas and electricity from different suppliers, the fully integrated markets were not in place by the end of 2014. The market regulation is both good and bad for renewable energy, with easier grid access is a benefit while the limits to support renewable energy and the increased network costs are problems.

Index of this Page:

EU Energy Legislation Read

» Issues Discussed under Discussion for the Internal Energy Market. Read
» INFORSE-Europe Opinions. Read
» A Bit of History. Read

EU Energy Legislation

The EU gas and electricity markets are regulated by two EU-directives that tells the countries how to make the national legislation for their gas and electricity markets and two EU regulations on access to electricity cross-border exchanges and gas transmission networks. They are together called the "Third Energy Market Package". Even though the directives are from 2009, they were not fully in force as intended by the end of 2014.
The main elements of the regulations are:

• All consumers shall have a choice to buy electricity and gas the different suppliers they choose, via the existing networks as well as via direct lines.

• Energy companies shall separate production/supply activities from network (transmission & distribution) activities, either with full unbundling or with transmission activities carried out by an independent operator of the transmission system.

The transmission system operators shall be responsible for the long-term ability of the electricity and gas systems to meet reasonable demands for the transmission with due regard to the environment,

• All countries must have independent electricity regulators for electricity and gas. They shall ensure competitive, secure and environmentally sustainable internal markets in electricity and gas and shall not take instructions from the government. Among others, they shall help to achieve the development of systems that are in line with general energy policy objectives, energy efficiency as well as the integration of large and small-scale production of electricity from renewable energy sources and distributed generation. Further, the regulators shall facilitate access to the network for new generation capacity and remove barriers of electricity from renewable energy sources,

• More harmonization of technical standards, access to networks and others. This is gradually being developed

• Increased cooperation among transmission operators with the creation of organisations (called "networks" in the directive text) for electricity and gas transmission operators

• A European "Agency for the Cooperation of Energy Regulators" (ACER) was established with competences to oversee many parts of the legislation

• EU countries can impose on electricity (and gas) companies public service obligations (PSO) relating to security of supply, quality and price of supplies and environmental protection, including energy efficiency, energy from renewable sources and climate protection. In this way countries can use a levy on electricity to support activities to promote energy efficiency and renewable energy.

• Consumer protection for vulnerable consumers. Each country shall ensure that there are adequate safeguards to protect vulnerable customers, including the non-disconnection of electricity in "critical times". It shall also provide benefits in social security systems to ensure the necessary electricity and gas supply to vulnerable customers, or provide for support for energy efficiency improvements, to address energy poverty where identified, including in the broader context of poverty.

• Countries shall ensure the implementation of intelligent electricity and gas metering systems for consumers, but the implementation is subject to an assessment of which form(s) of intelligent metering is economically reasonable and cost-effective and which timeframe is feasible for their distribution.

• Countries shall ensure that network charges shall be non-discriminatory and not set according to (historic) contract paths.

Links to Directive Texts:
Directive 2009/72/EC concerning common rules for the internal market in electricity
Directive 2009/73/EC concerning common rules for the internal market in natural gas
Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity
Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks

Issues Discussed under Discussion for the Internal Energy Market

A big issue is that France and a few other countries have maintained an effective monopole structure in the power sector with one major power company and difficulties for other companies to enter the market.

The question of European physical integration is a priority, and recently the EU countries have agreed to give EU support for cross-border electricity and gas networks, even though this is environmentally questionable. Read about Trans-European Networks.

One big market with one market price is under discussion and in 2014 grid operators and power exchanges from 15 countries started a pilot project for joint electricity trading. It include the Nordic and Baltic countries, UK, Benelux, Germany, Poland, and Austria The market they agreed is a day-ahead market.

The internal electricity market gives little incentive to build new power plants to replace old one because of low power prices. To avoid power failures, it is discussed how to guarantee that there is sufficient power capacity available, in the case of peak load or of failure of a power plants or transmission line. The Commission issued in 2013 a guidance on public intervention to ensure sufficient power capacity.

The support for renewable energy is an important issue and often debated. The EU is in favour of development of renewable energy, but against intervention that distort the markets. The Commission has development a guidance paper and a State Aid Guideline.

INFORSE-Europe Opinions

It is important that renewable energy is given priority in the electricity and gas networks, following the previsions in the directive for this. This is both important when the energy is sold from local producers to the network and when the network is used for transport of energy from a renewable energy production unit to its owners. It must apply to both electricity and gas networks.

It is important that there is a democratic control of the regulation of the energy markets, so the regulates are not acting in isolation; but in dialogue with the democratic system and concerned citizens. This must be part of the governing structure of the national regulators and of the transmission system operators. This can be with Citizen's Utilities Boards, consisting of citizens that are elected to advice the regulators, which has been practiced with success in many states in the USA for more than two decades.

It is important that promotion of renewable energy is limited to sustainable forms and uses of renewable energy sources. Thus support should not be given to use of unsorted waste for energy, or to hydropower above 10 MW. It will be counterproductive to the development of the electricity market, if large hydropower is given favorable treatment by the regulators.

The complete separation of electricity production, transmission and distribution will be a benefit for independent producers, and thereby for the development of renewable energy. Among the different models for this separation, the best is the one with division in separate companies for production, transmission, and distribution of electricity.

It is important to stress that the choice of sources for electricity production as well as for gas supply is a competence for the individual countries that decides this via their national energy policies. This is not a competence of the market actors or others.

Countries should use the public service obligations (PSO) in electricity and gas supply to promote energy efficiency and renewable energy, including consumer information and development support, in a transparent system, favouring solutions with potentials for fast market uptake.

Finally, it is important that the protection of vulnerable consumers living in energy poverty goes beyond not to disconnect them during difficult times. The opportunities to bring consumers out of energy poverty with energy efficiency must be used, and tariffs must not penalize small consumers with high fixed charges or similar.

A Bit of History
The current "Third Energy Market Package was finally agreed 13. July 2009 with adoption of revised electricity and gas market directives. A year earlier, in June 2008, the EU countries had entered into a broad agreement on the content of the package, but it took a year to set out the details. And the proposal for the package was tabled by the EU Commission as early as September 2007. The rationale behind the package was to have more harmonised markets, independent regulators, and more separation between production, transmission, and distribution of electricity and gas.

The Second Energy Market Package with directives for electricity and gas markets was adopted in August 2003. It required electricity and gas markets to be open for consumers to choose suppliers. The proposal for the package was tabled in 2001 by the EU Commission.
It was supplemented with regulation of cross-border trade of gas, which was proposed as part of the "dark" security of energy supply package, December 2003 and that was adopted in 2005.

The first EU electricity and gas market regulation was adopted in 1996 with two directives after 4 years of negotiations.

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