Kroes geeft eerste voorlopige resultaten in onderzoek naar concurrentie in de energie-sector (en)

SPEECH/06/159

Neelie Kroes

Member of the European Commission in charge of Competition Policy

Speech at the First Annual Seminar and Conference on Energy Law and Policy

Brussels, 9 March 2006

Ladies and Gentlemen,

I am very pleased to be here at this First Annual Seminar and Conference on Energy Law and Policy. The conference could not have been better timed. As you know, three weeks ago we presented a Preliminary Report on the European Commission's inquiry into competition conditions in the energy sector. And just yesterday the European Commission published its Green Paper on an integrated European energy strategy, which my colleague Andris Piebalgs presented to you this morning.

I know that you have also already heard some of the detailed findings of the inquiry. I would like to use my time today to give you the full picture. Even more importantly, I would like to share with you some of the possibilities for the way forward.

But first, a few words about why the inquiry matters.

The liberalisation process and the Green Paper

Reliable energy supplies at reasonable prices are at the heart of the renewed Lisbon strategy on growth and jobs. A fully open, internal energy market is the best way to harness market forces to secure liquidity, efficiency and security across the internal market. It is one of the keys to the future performance and sustainability of the EU economy.

These objectives have long been recognised. Over the last decade the liberalisation Directives in the gas and electricity sectors have sought to open up the markets. Liberalisation of the European internal energy market sought to increase efficiency in the production, transmission and distribution of energy. It sought to reinforce security of supply and the competitiveness of the European economy whilst respecting environmental protection.

But we are clearly still a long way off that single market goal. So, when I took up office, I resolved to make the gas and electricty markets a priority target for an in-depth sector inquiry.

The inquiry does not question the underlying goal of an open, single EU energy market. Recently those who are not so keen on this objective have argued that a fully functioning internal market could prejudice security of supply. They say that an entirely open market would inhibit our ability to negotiate with external suppliers.

I disagree. A liquid, interconnected EU energy market is not only essential to mitigate risks linked to disruption of supplies for individual Member States, it is also the best way to secure future supplies. What better incentive could there be for external suppliers to maintain good relations with the EU, than the huge and stable demand generated by the second largest energy market in the world?

That market will generate incentives for energy and investment. Liberalised and competitive markets help send the right investment signals to industry - it is estimated that a thousand billion euro needs to be injected into this sector over the next twenty years. An open market will facilitate the development of alternative, environmentally friendly technologies. It will induce consolidation, breaking down local monopolies and promoting sustainable, efficient European champions. Consolidation must of course comply with our merger controls, but it will create world leaders who are better equipped to counter-balance dominant external suppliers.

These are among the core messages contained in the Green Paper the European Commission published yesterday. The Green Paper sets out ideas for developing a European strategy for a sustainable, competitive and secure energy policy. We are promoting competition between companies looking to become EU-wide competitors, rather than dominant national players. An approach based on 25 national energy markets is simply not sustainable. An integrated, competitive energy market is essential to support our growth and jobs strategy .

Sector Inquiry - Preliminary Findings

But we are not there yet. The preliminary findings of the inquiry confirmed our concerns - it identified five principal obstacles to competition in the current market:

(1) Market Concentration

Firstly, intense market concentration.

There is very little new entry in the markets. The old incumbents still have quite a firm grip and often retain their old, traditional territory.

(2) Vertical foreclosure

Secondly, a related problem: vertical foreclosure.

Long-term contracts and a lack of liquidity make access difficult for new entrants. There is a lack of available gas and electricity for alternative providers, so they cannot offer their services to consumers.

(3) Market integration

Our third concern is the lack of market integration in Europe.

Gas and electricity markets remain predominantly national. The old incumbents rarely enter other markets as competitors, and there is a lack of capacity on cross-border infrastructure for new participants.

(4) Transparency

The fourth problem is transparency - or rather an endemic lack of transparency.

Without more information on the markets, there cannot be a level playing field for market actors. Lack of transparency also undermines confidence in trading, and prevents market participants from being able to make informed choices.

(5) Price formation

Finally, there is the key issue of how prices are set.

Prices have increased dramatically over the last few months. There are, no doubt, several causes behind this. But one of them may be anti-competitive practices.

Long-term gas supply contracts traditionally link prices to oil or oil derivatives. These contracts fail to react to changes in supply and demand.

Large electricity consumers also consider that prices on spot and forward wholesale markets do not result from fair competition.

Way forward

These are, very briefly, the problems. Where do we find the solutions?

You have already heard my colleague Andris Piebalgs stress the need and the prospects for a real, integrated European energy strategy. As the Green Paper makes clear, if we are to achieve a fully functioning, EU-wide energy market, both regulatory and competition tools need to work hand-in-hand.

Regulation

The inquiry suggests that the existing liberalisation Directives in the gas and electricity fields have not been fully implemented. The Commission has already said that implementation of the current rules will be examined, and the need for new rules considered. This involves some key issues from a competition perspective:

Firstly, the consensus appears to be that transparency obligations need to be strengthened. Open, transparent markets create the right environment to encourage investments in ageing plants and infrastructure. They also facilitate the development and use of renewable technologies, by making more information available about the costs and investments involved.

Secondly, the remaining "grandfather rights" of old incumbents are still a concern - how to remove the obstacles presented by bottlenecks on cross-border infrastructure must be analysed and discussed further. I encourage competent national authorities to tackle this issue and release capacity wherever appropriate. Such a move would also be supported by a recent decision of the European Court of Justice on long-term import capacity reservations to the Netherlands.

Thirdly, there is a need to secure greater progress in regulation of the international segments of the gas and electricity grids. Purely voluntary co-operation schemes between regulators seem unlikely to secure the stable environment needed to develop and maintain international pipelines and interconnectors.

Finally, market structure remains a problem. Bundling of generation, supply, pipelines, grids, and distribution seems to be at the heart of the current market failure. When owners and operators of critical networks compete with companies that need to have access to these same networks, we cannot guarantee that the competitors will be treated in a fair manner. Personally I find full structural unbundling quite tempting. We should reflect further on this issue in a European context.

Competition law

I turn now to the particular role that competition law has in helping to remove some of the obstacles identified in the inquiry.

Market concentration is a core problem - there can be no alternative to meticulous scrutiny of future merger operations. In order to ensure consistency in the treatment of merger cases, the rules of the EU Merger Regulation may have to be reviewed and amended. The Commission will also continue to be very vigilant in the field of state aid control, as the sector moves into a period of major investments. .

To tackle problems such as vertical foreclosure and the hording of capacity, the help and support of our partners in the European Competition Network is essential. The Commission will do its homework: we will launch individual, antitrust investigations. But, we also count on national competition authorities, in cooperation with energy regulators, to act decisively when they find problems within their own jurisdictions.

Conclusion

Ladies and gentlemen.

An open and competitive, single energy market is crucial to creating efficient, effective and sustainable energy provision to customers, and to securing future energy supplies. In turn, secure energy supplies are key to sustaining economic growth and the generation of more and better jobs as quickly as possible - which we all want to see.

We do not yet have the energy market that the EU needs. The European Commission will play its part in rectifying this, and we encourage national authorities and regulators to continue their progress. We will use the existing enforcement mechanisms to ensure that the tools we already have are working at optimum capacity. And we will review the current regulatory system carefully to ensure that the best possible machinery is in place and is working in practice.

Thank you for your attention, and enjoy the rest of the conference.