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- Herausgeber: GRIN Verlag
- Kategorie: Geisteswissenschaft
- Sprache: Englisch
- Veröffentlichungsjahr: 2004
Bachelor Thesis from the year 2004 in the subject Economics - Case Scenarios, grade: 1 (A), Vienna University of Economics and Business (New Media Lab), course: Baccalaureut Work, language: English, abstract: The liberalization of the European electricity market is supposed to reduce electricity prices by opening up to competition and by promoting integration of the common European market. Deregulation allows energy consumers to choose their electric energy supplier and therefore dissolves electric utility monopolies. The resulting re-regulation and restructuring of the electricity industry has created oppor-tunities and challenges that need to be addressed to ensure long-term capacity sustainability. The promise and benefit expectations of electricity market liberalization may need to be tempered by the reality of the process. Market liberalization of the electricity supply sector depends on many different factors and boundary conditions in the EU. In order to analyze these issues, we will use Austria as an example showing the development in liberalization, deregulation, and even re-regulation processes and the impact on the industry structure and final consumer pricing. Given the industry structure, incentives to invest in the Austrian transmission and distribution networks remain to be established. We will show that high inflexible taxes and monopoly protected transmission costs, both together account for 80% of the price of electricity. Moreover, only 20% of the electricity market is liberalized and thus any price reductions due to the liberalization of the market will be minimal and therefore possibly "non existent" in Austria.
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Market liberalization: an analysis of the Austrian electricity market
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Abstract
The liberalization of the European electricity market is supposed to reduce electricity prices by opening up to competition and by promoting integration of the common European market. Deregulation allows energy consumers to choose their electric energy supplier and therefore dissolves electric utility monopolies. The resulting re-regulation and restructuring of the electricity industry has created opportunities and challenges that need to be addressed to ensure long-term capacity sustainability.
The promise and benefit expectations of electricity market liberalization may need to be tempered by the reality of the process. Market liberalization of the electricity supply sector depends on many different factors and boundary conditions in the EU. In order to analyze these issues, we will use Austria as an example showing the development in liberalization, deregulation, and even re-regulation processes and the impact on the industry structure and final consumer pricing. Given the industry structure, incentives to invest in the Austrian transmission and distribution networks remain to be established. We will show that high inflexible taxes and monopoly protected transmission costs, both together account for 80% of the price of electricity. Moreover, only 20% of the electricity market is liberalized and thus any price reductions due to the liberalization of the market will be minimal and therefore possibly "non existent" in Austria.
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Abbreviations
APD Austrian Power Grid BMWA Federal Ministry of Economic Affairs and Labor CO2 Carbon dioxide DSO Distribution System Operators EC European Community EnBW Energie Baden-Württemberg EEMDO European Energy Market Deregulation Observatory EU European Union ElWOG Electricity Industry and Organization Act EXA Energy Exchange Austrian NTPA Negotiated Third-Party Access OECD Organization for Economic Cooperation and Development RTPA Regulated Third-Party Access RWE RWE Power AG E-Control Austrian Electricity Regulator Authority TENS Trans European Networks TSO Transmission System Operator UK United Kingdom USA United States of America
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-V- Table of Figures Figure 1: Market components in the electricity market [GAO04]..............................3 Figure 2: Structural relationships [Mell01]................................................................5 Figure 3: Electricity balancing [EC04]. .....................................................................7 Figure 4: Overview of the electricity market in general ..........................................10 Figure 5: Implementation of the EU Directive [EC04].............................................18 Figure 6: EU energy price levels in July 2003 [Capg03]. .......................................20 Figure 7: Electricity prices in January 2003 [Capg03]. ...........................................21 Figure 8: Residential electricity prices in January 2003 [Capg03]..........................22 Figure 9: Peak load, installed & remaining capacity in 2002 [Capg03]. .................25 Figure 10: Minimum remaining capacity versus capacity margin [CaGe02]...........26 Figure 11: OECD electricity production by fuel [IEA04]..........................................30 Figure 12: Status of Europe electricity liberalization [FINE03]. ..............................31 Figure 13: Electricity sales of market leaders in Europe [Cern02]. ........................34 Figure 14: Power deals 2002 [Pric04]. ...................................................................36 Figure 15: Austrian electricity market structure [HaHu02]......................................39 Figure 16: Electricity lines and generation plants [Haid04]. ...................................40 Figure 17: One day of electricity demand in Austria [Econ04]. ..............................43 Figure 18: Structure of domestic electricity prices [HaHu02]. ................................44 Figure 19: Domestic energy prices of network areas in Austria 2003 [Econ04]. ....45 Figure 20: Electricity wholesale market partners [Verb04]. ....................................46Page 7
1 Introduction
In 1990, the UK Government privatized the UK Electricity Supply Industry in England and Wales. Since then, the European Union is in the process of creating the largest competitive electricity market in the world. This integration of energy markets is supposed to lead to a greater efficiency and it will contribute to the security of the supply. Moreover, the liberalization of the electricity sector induces substantial structural changes and consequences for the European countries, which are difficult to predict. In 1996, as stipulated in the European Community (EU) Directive 96/92/EC, the European countries officially decided to develop a single market for electricity [Ceer04].
Before liberalization, the structure of the electricity market had territorial monopolies, extensive public ownership, federalized organizational structures, and a lack of a market-pricing mechanism [HaAu01]. On the basis of the above mentioned Directive each EU Member State is obliged to gradually open its national electricity market with the objective of the full liberalization of the electricity market by the end of 2005 [Econ04], though each Member State is at its own pace of market opening, trying to harmonize existing rules with measures to accomplish the requirements of the Directive [MaJo01].
Electric power, or electricity for most consumers, is generated by utility companies usually using coal, oil, nuclear, or hydropower. It involves the production and delivery of electrical energy in sufficient quantities so business and households can operate according to their demands. Some of the generating capacity is presently based on renewable energy sources such as solar power and wind power. But their share as part of the total energy system has been rising since the mid seventies and amounted to 25% of total energy supply in 2003 [EVA04]. In this way, nowadays, a 24-hour on-demand, access to electrical power is taken for granted for residents of most developed countries but, in many countries, electric power companies own the whole infrastructure from generating stations to transmission and distribution infrastructure. The industry generally is heavily regulated, often with price controls, and is frequently government-owned. For this reason, electric power has been viewed as a natural monopoly [Haas03a].
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The latest Directive 2003/54/EC, repealing Directive 96/92/EC, concerns common rules for the internal market in electricity and, asks Member States to ensure that consumers are informed about the fuel mix of the electricity supply. Along with liberalizing electricity markets, environmental arguments are increasing. Therefore, it is becoming vital to agree on common principles on how to give the consumer information about the fuel mix and the environmental consequences of the electricity produced [Ceer04].
In this way, the last Directive, (adopted in June 2003 and due in summer 2004), introduces the concept of "electricity disclosure" where consumers are provided with information about the attributes of the electricity they are buying. Member States are required to ensure that the information about the used fuel mix to produce the electricity is provided. Environmental information must also be provided, in terms of at least CO2 emissions and radioactive waste, together with the billings and promotional materials [EC04].
The EU Directives set out the requirements under which competition can be developed in a fair and transparent way. Opening up electricity production to competition is an important tool to improve the efficiency of electricity production industry and therefore should benefit all electricity consumers. Competitive forces can drive producers to innovate and operate in more efficient and economic ways. Innovation can lead to lower prices and a better use of energy resources. Cost savings due to increased efficiency gains will lower prices for electricity users. This is the expectation that drives deregulation processes in the European countries but unknown side effects might prevent this outcome [EC04]. This paper is organized as follows: Firstly, we introduce basic concepts of electricity markets such as electricity market components and participants, balancing demand and supply, accessing the electricity network, unbundling, retail and wholesale markets, and pricing in the competitive market. Secondly, we discuss significant topics of liberalization-related issues, such as regulation, deregulation and the impact on the industry structure. Finally, an analysis of the processes and conditions in the Austrian electricity market will show the current state of development.
