Monday, February 07, 2005
Electricity Market Liberalisation and Energy Efficiency
Author: Lazaros Exarchakos
Hello!
What follows is a try to gather and mix information from paper reading about energy efficiency in liberalised electricity markets in the EU. I tryed to chop it for making it easy to read it, so if something is not clear to you or even seems to be incorrect, please let me know. Is enybody interested in these issues? What could he suggest? (long post - click on "read more")
Introduction
The dependence of the Member States in total on the imported primary sources of energy (50% now and estimated 70% in the next 20-30 years), carries high risks for the security of energy supply. The security of supply as a term does not reflect the less possible proportion of imported primary energy sources in the overall consumption, but the creation of a highly diversified portfolio of these resources in favour of the ‘clean’ ones and the ‘demand policy’, addressed to the energy efficiency and load management. Further technological progress and financial measures will help to the promotion of these clean resources.
Liberalisation of electricity sector
The traditional structure of the electricity sectoris gradually changing in the electricity markets of Member States in different extent. Under the directions of the EU through the Directive 2003/54/EC (Article 10, ‘Unbundling of Transmission System Operators’) the Transmission System Operator has to be legally and organizationally independent from the other functions of the electricity firm, not related to the transmission. This doesn’t have any implication on the ownership of the transmission company.
Liberalisation of electricity sector
The traditional structure of the electricity sectoris gradually changing in the electricity markets of Member States in different extent. Under the directions of the EU through the Directive 2003/54/EC (Article 10, ‘Unbundling of Transmission System Operators’) the Transmission System Operator has to be legally and organizationally independent from the other functions of the electricity firm, not related to the transmission. This doesn’t have any implication on the ownership of the transmission company.
Bearing in mind that this regulation is a driving force of reforming, four main shapes of electricity structure reforming are very briefly presented in the following sections, which are the Commercialization, Privatisation, Unbundling and Competition (Vine et al, 2003).
Commercialization exposes a former public electricity firm to the taxes, regulations and rules of the market, valid for every private company.
In commersialisation of the electricity market, energy efficiency plans are mostly addressed to the upstream level, and not to the end-users side, because ‘a kWh saved is viewed as lost revenue’ (Vine et al, 2003). This level of energy efficiency implementation is most possible to happen in vertically integrated utilities, where the profit from energy efficiency efforts and investments are going to return to the same utility. However the end-users themselves will move towards energy efficiency measures and this move is possible to create free space in the market for specialized companies dealing with energy saving services.
Privatisation is the transfer of shares or functions of the public owned utilities to the private sector. Therefore, production, transmission, distribution and retail can pass to the exploitation of private companies. Regulations to retain the public service obligations by the new utilities need to be put on by the Member States according to the Directive 2003/54/EC.
The profit of a privatized company is its ultimate goal. Every measure driven from the company and increases its revenues is pretty much possible to increase the bills of its customers who will then try to use electricity efficiently. New companies will emerge for facilitating the customers to save electricity, but as the end-user electricity consumption is crucial for the utility, regulators and governments should establish programs for efficiency and load management (Vine et al., 2003).
Unbundling refers to the separation of the vertical structure of a traditional utility into distinct entities owned or run by different firms. Unbundling can be seen in the frames either of commercialization or privatization of a utility.
At the unbundled status of an ex-vertical utility, the distinct entities may be different firms with their own management or may be firms under the central management of the same business. There are no incentives for energy efficiency measures from companies when these measures are going to make profit not to them, but to other firms.
The proportion of the price of the bill that reflects the tariff is very important for the future of the of energy efficiency plans. If the tariff is the vast majority of the final price the power of efficiency measures seem feeble and so does the potential of emergence for companies dealing with energy efficiency.
Competition which can be divided in wholesale and retail can be applied in every sector of the utility and it is not necessary that the utility is reformed in any way for being in the market competition. Though, regulation from State authorities is more needed in conditions of open markets than before.
In wholesale competition the electricity firms avoid to pass the whole cost of electricity production to the final prices. In this way, the end-users find no strong incentives for moving towards energy efficiency.
In retail competition things do not seem to be different as due to intensive competition the retailers would intend to increase the KWh sales and therefore would decrease the prices. The end-users with such low prices will find no reason to use electricity efficiently.
Commercialization exposes a former public electricity firm to the taxes, regulations and rules of the market, valid for every private company.
In commersialisation of the electricity market, energy efficiency plans are mostly addressed to the upstream level, and not to the end-users side, because ‘a kWh saved is viewed as lost revenue’ (Vine et al, 2003). This level of energy efficiency implementation is most possible to happen in vertically integrated utilities, where the profit from energy efficiency efforts and investments are going to return to the same utility. However the end-users themselves will move towards energy efficiency measures and this move is possible to create free space in the market for specialized companies dealing with energy saving services.
Privatisation is the transfer of shares or functions of the public owned utilities to the private sector. Therefore, production, transmission, distribution and retail can pass to the exploitation of private companies. Regulations to retain the public service obligations by the new utilities need to be put on by the Member States according to the Directive 2003/54/EC.
The profit of a privatized company is its ultimate goal. Every measure driven from the company and increases its revenues is pretty much possible to increase the bills of its customers who will then try to use electricity efficiently. New companies will emerge for facilitating the customers to save electricity, but as the end-user electricity consumption is crucial for the utility, regulators and governments should establish programs for efficiency and load management (Vine et al., 2003).
Unbundling refers to the separation of the vertical structure of a traditional utility into distinct entities owned or run by different firms. Unbundling can be seen in the frames either of commercialization or privatization of a utility.
At the unbundled status of an ex-vertical utility, the distinct entities may be different firms with their own management or may be firms under the central management of the same business. There are no incentives for energy efficiency measures from companies when these measures are going to make profit not to them, but to other firms.
The proportion of the price of the bill that reflects the tariff is very important for the future of the of energy efficiency plans. If the tariff is the vast majority of the final price the power of efficiency measures seem feeble and so does the potential of emergence for companies dealing with energy efficiency.
Competition which can be divided in wholesale and retail can be applied in every sector of the utility and it is not necessary that the utility is reformed in any way for being in the market competition. Though, regulation from State authorities is more needed in conditions of open markets than before.
In wholesale competition the electricity firms avoid to pass the whole cost of electricity production to the final prices. In this way, the end-users find no strong incentives for moving towards energy efficiency.
In retail competition things do not seem to be different as due to intensive competition the retailers would intend to increase the KWh sales and therefore would decrease the prices. The end-users with such low prices will find no reason to use electricity efficiently.
