dh firenze

Energy liberalisation and concentration in Europe: 

Energy liberalisation and concentration in Europe By David Hall PSIRU, University of Greenwich October 2002 (thanks to Anthony Froggatt for some charts)

Summary: 

Summary The companies Dimensions of concentration Market power Employment and prices Central and eastern Europe Some conclusions

The oligopoly: 

The oligopoly 3 leaders Others Disappeared or leaving UK companies –most taken over Fortum (Finland) – retreats to Scandinavia. Others not expanding: Portugal, Austria, Denmark Netherlands US companies –most gone or leaving Europe: Enron; NRG; Reliant; Southern; TXU; Entergy. AES: leaving UK reviewing rest.

Company restructuring in electricity and gas: 

Company restructuring in electricity and gas Concentration In each country; internationally; and across sectors Strategies of defending home dominance, buy into other countries/sectors Political and economic means eg France, Germany German energy company mergers are central RWE, E.ON affect all parts of Europe Elimination of competition is a key motive Not competing for same customers

Germany electricity – liberalisation and concentration: 

Germany electricity – liberalisation and concentration March 1999 Dec 2001 Source: Bower et al, Energy policy Oct 2001

Slide6: 

Electricity in Germany – liberalisation and concentration March 1999 Dec 2001 Source: Bower et al, Energy policy Oct 2001

EdF/GdF (France) (state 100%): 

EdF/GdF (France) (state 100%) EDF/GDF – 114,389 employees Largest in Europe, state-owend Semi-integrated electricity/gas operations Active in Europe (UK, Sweden, Switz, Hungary, Czech etc) Active worldwide (Brazil, Argentina, China, etc)

RWE (Germany) (priv): 

RWE (Germany) (priv) 154,000 employees, Euros 60 billion sales 1= German electricity company Europe no.3 in water (Thames Water), waste management (sold chemicals, telecomms) New purchases Transgas (Czech), Innogy (UK)

E.ON (Germany) (priv): 

E.ON (Germany) (priv) E.ON – 186,000 employees, Sales Euros 93 Billion. 1= German electricity company, formed in 2000 by merger of Bayernwerk/Preussenelektra (Veba/Viag) Europe: UK (Powergen 2001), Sweden (Sydkraft), Switzerland, Hungary, Czech republic, Latvia (gas), Russia Gas: buys Ruhrgas, 1/3 share in Slovak Gas

4 Dimensions of concentration: 

4 Dimensions of concentration Internationalisation RWE, Eon, EdF spread into Scandinavia, Baltic, UK, Switzerland, Austria, Italy, central Europe gas and electricity takeovers in central Europe: Czech, Slovak gas; Czech, Hungarian, Slovak distributors; Czech, Hungarian, Polish generators Vertical integration – eg UK, Sweden Electricity and Gas combines Eg E.ON-Ruhrgas, Fortum, Tractebel, EdF/GdF Also Italy - Enel and ENI crossover; UK multi-energy suppliers – Centrica etc – and merged grids. Multi-utilities – Suez, RWE, Eon, Vivendi

Vertical (re)-integration: 

Vertical (re)-integration Scandinavia (Norway, Sweden, Finland) Vertical integration – Vattenfall, Fortum buy distributors France Vertically integrated state monopoly (EdF) Belgium Tractebel/Electrabel own stakes in distributors UK Vertical re-integration of generators and suppliers British Energy, AES not vertically integrated,crisis Germany RWE, Eon dominate generation, transmission, and retail supply Eon CEO says vertical integration ‘essential’

Concentration of multi-utilities: 

Concentration of multi-utilities

Some joint ventures: 

Some joint ventures

Controlling the markets: 

Controlling the markets California – market gaming by 7 companies controlling 49% of generation Similar dangers in Europe Sweden: Nordpool prices double in year, Vattenfall raises prices 40% in 4 months Spain: investigation into price surges UK: retail household market does not reflect fall in generation costs Germany:corporate strategies to gain market share, cut capacity, then raise prices

California crisis – prices and revenues: 

California crisis – prices and revenues

Power companies and political connections: 

Power companies and political connections

Not real competition…recent events in the UK: 

Not real competition…recent events in the UK Retail prices fall for business, not for households Crises of AES, British Energy, TXU Only 10-15% of electricity traded, rest is long-term tied System needs override market Eg rush approval of Eon purchase of TXU State subsidies and privileges remain Eg UK subsidise British Energy, Expansion by merger, not competitive entry EdF, Eon, RWE buy companies (and customers) Bad selling techniques Difficult to manage

Some social effects of liberalisation: 

Some social effects of liberalisation Prices most affected by fuel costs, not liberalisation Prices fall as much in 1990s in less liberalised markets Gains to business consumers: lower prices No gains to domestic consumers: zero sum? Less easy to develop renewables, ‘green’ energy Employment losses Costs of competition - £730m (€1170m) in UK Problems of instability, power cuts, price spikes Fines in Scandinavia, Spain: fear of California

Financial issues: Paying for energy: 

Financial issues: Paying for energy Financial distortions: to finance tax cuts (UK model) to reduce debts (eg Berlin) MNCs use local finance or World bank, not own capital Multinationals get guarantees from public sector – Power Purchase Agreements (PPAs) Public sector can raise finance

Contradictions in privatisation in CEE: 

Contradictions in privatisation in CEE Keep integrated monopolies to maximise value of sale Czech republic re-integrates CEZ and distributors for sale Privatisations can conflict with competition Eg Hungary, Croatia, Poland IPPs, also India, Dominican Republic Creation of regional markets or regional system Trading may destabilise, not create synergies Trading may cut capacity to maximise opportunities for profit Cf Estonia/Latvia discuss merged state company (cf privatisation to NRG) Hungary: tensions between privatisation, prices, employment, profits Disputes over employment, pay Legal action by companies to protect profits Tensions over price rises

Colonisation or development?: 

Colonisation or development? Colonial model CEE energy just extends market for existing and future energy companies from western EU Liberalisation and privatisation open markets Eliminate potential competitors eg Hungary MVM fragmented and bought by competitors (=UK) Development model Devloping fair and sustainable sytem Envisage possibility of regional/subregional cooperation Long-term planning, social considerations allowed Avoid destabilising effects of trading

Some ways forward (WRI recommendations): 

Some ways forward (WRI recommendations) reform to achieve public aims Fairness, price, renewables, security finance to support public aims, not to lead State holds risk: privatisation needs guarantees, subsidies Evaluate all options for raising finance Avoid selling for highest price transparent, public debate and governance Build social consensus before investors build reform on public benefits agenda Eg user efficiency > social and environmental gains (eg Sofia public buildings) Evaluate security, cooperation