Liberalisation of European energy market not working as it should be

uSwitch.com has welcomed today's European Commission report into the state of the energy industry in Europe but says it must be actioned quickly.

The 18-month European Commission energy inquiry has identified a number of serious shortcomings which are currently impeding European customers from reaping the full benefits of a fully liberalised market. The Commission has delivered its proposal for widespread reform to ensure that the European energy market is sustainable and competitive, and security of supply is guaranteed.

Key problems identified in the report include high levels of market concentration, under-investment and lack of access to infrastructure, inadequate unbundling of networks and supply, lack of market integration and possible collusion between some energy operators to share markets.

Ann Robinson, Director of Consumer Policy at uSwitch.com, comments:“British consumers have benefited from competition for longer than most EU member states following the deregulation of the UK energy markets in 1998. But more than 50% of consumers still need to embrace the liberalised UK market and put pressure on energy suppliers to reduce prices and improve services.

“Lack of competition in Europe has had a serious impact on consumers in this country. In 2006, consumers paid an estimated £1 billion extra because expensive gas had to be taken out of storage. Had a proper European market operated, then gas would've flowed in from the rest of Europe and prices would have been lower for UK consumers.

“Energy is fundamental to the health and well-being of Europe. To gain full benefit, we need liberalisation and a proper market structure as well as greater transparency and better pricing information in order to deliver the full advantages of liberalisation to consumers. Also important is open access to gas pipelines and electricity transmission services. Europe must act as a united group to secure energy from sources outside the region to guarantee continuity of supply.

“To ensure a successful outcome following this review the EU will have to make full use of the European Commission’s powers under antitrust rules, merger and state aid control to maximise the impact of their enforcement action. At present, competition at retail level is limited as the duration of contracts for local distribution companies can act as a barrier for alternative suppliers to enter the market.

“It’s encouraging to note that the Commission has made it clear that it is willing to forcefully pursue any infringements of competition law in the energy sector.“

One of the key objectives of the 18-month European Commission energy inquiry was to rectify the current barriers to a free market by improving the transparency of the market and the formation of consistent pricing.

The following deficiencies in the competitive structure of current electricity and gas markets were highlighted in the report:

Structural conflicts of interest: a systemic conflict of interest caused by insufficient unbundlingof networks from the competitive parts of the sector

Gaps in the regulatory environment: a persistent regulatory gap particularly for cross border issues. The regulatory systems in place have loose ends, which do not meet

A chronic lack of liquidity, both in electricity and gas wholesale markets: the lifeblood for our markets is lacking and the market power of pre-liberalisation monopolies persists

A general lack of transparency in market operations in the sector