Regional electricity markets in Europe: Focus on the Energy Community

Regional electricity markets (REM) are a natural step towards the creation of a single European electricity market. There are seven Electricity Regional Initiatives (ERI) launched by European Regulators Group for Electricity and Gas (ERGEG). This paper brings the focus to the eight REM covering the South East European (SEE) countries initiated by the European Commission. The congestion management and capacity allocation are used as an example to show that the SEE REM deals with the same priority issues as the other REMs do, and that the progress of this eight REM is great despite the short time of its existence. Given the EU membership perspective of the SEE countries and the expectation that the SEE REM shall become part of the internal electricity market, as well as the overlap between some members of the SEE REM and the other ERGEG ERI, the work of both initiatives shall be organized in a manner that uses the best practices and experience gained in each of them.     

South East Europe's electricity sector: Attractions,obstacles and challenges of Europeanisation

The Energy Community is a bold experiment in integration, creating a regional energy market between the European Union and nine South East European partners – Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Montenegro, the Former Yugoslav Republic of Macedonia, Romania, Serbia and the United Nations Mission on behalf of Kosovo. This paper examines the challenges posed by the application of the EU model of energy regulation and the acquis communautaire, and the ability of States to meet those challenges.An investigation of governance in the countries of South East Europe (SEE), including analysis based on the World Bank's Worldwide Governance Indicators, suggests a lower overall performance of governing institutions in SEE, compared with countries of the EU 25. The paper, therefore, considers whether the EU energy model is appropriate in South East Europe at this stage. The EU model confers certain institutional resources, but at the same time imposes significant costs of compliance with the energy chapter of the acquis. It remains to be seen which of these two opposing factors will dominate, but the analysis suggests that for some countries in the region, regulatory reform alone may not be sufficient.     

Part Hare, Part Tortoise – Explaining patterns in Norwegian public utilities reforms 1990–2010

In this article we compare four Norwegian public utilities sectors: the electricity industry, the e-com industry, the railway and the postal service. All sectors have been subject to public policy reforms since the 1980s, though reform content and degree varies. In the electricity industry Norway is a liberalization forerunner - a virtual reform “hare”, to borrow from Olsen’s (1996) Aesop’s fable metaphor. In other network industries such as the railway Norway is a reform “tortoise”. We seek to answer the question: How and why has governance of the four industries been reformed? We explore four possible explanations for similarities and differences across sectors: technological change, market conditions, agency and European Union (EU) regulation. We cannot identify a national model for reforms across these sectors. We find single factors standing out in the explanation of the reforms in the various sectors. The puzzle is that it is different factors in different sectors.     

Revisiting electricity reform: The case for a sustainable development approach

Debates over reform and restructuring of the electricity sector worldwide are typically focused on technical and economic concerns. This paper argues for a wider perspective on electricity reforms, one that explicitly examines social and environmental outcomes. The paper shows how electricity reform in the developing world has been driven primarily by financial concerns. It then examines changes in the electricity sector in the context of larger globalization debates. This framing of the issue sets the stage for a discussion of the social and environmental considerations in electricity reform.     

Electricity sector reform in Greece

This paper provides an outlook of the electricity market reform in Greece which started in 2001 and is still developing slowly. This is related to the persisting dominance of the incumbent company and the specificities of the electricity sector of Greece which is heavily dependent on indigenous lignite firing generation, while being located in the periphery of the EU internal electricity and gas markets. Competition through enhancing electricity trade in the region is limited to date, as the establishment of an internal market in South East Europe also progresses slowly. Development of competition through gas-firing generation by new entrants has been the priority adopted by State and Regulator's policies. However, the gas supply market in Greece and in the region still lags behind.     

Organisation and reforms of the electricity sector in Slovenia

As a new member state of the EU, Slovenia has been required to adopt EU legislation in full. The Slovenian electricity market has been partially opened since 2001. From 1 July 2007, when households became eligible customers, the electricity market opened fully. The electricity reforms carried out so far comprise of market liberalization, unbundling of activities, allowing regulated TPA, formation of an organized power market, adoption of incentive-based price cap regulation and the establishment of an independent regulatory body. The challenge that remains to be addressed is how to enhance competition in an electricity market that has a net importer position with limited cross-border capacity. Envisaged investments in generating and cross-border capacities will partially close the gap between domestic generation and consumption. Furthermore, since Slovenia has one of the largest levels of state ownership in the electricity sector among EU member states, privatization of electricity companies is envisaged in the near future.     

Evolution of the EU legal framework for promoting RES-E: A market compatible paradigm shift?

EU energy law has long been challenged to reconcile respective instruments for decarbonisation and liberalisation. This trade-off appears particularly pronounced in promoting renewable energy-sourced electricity (RES-E), given that promotional mechanisms may contradict EU law on the internal electricity market. Alongside support schemes by Member States, EU law also puts in place promotion measures to remove economic and non-economic barriers to deploying RES-E. The debate on EU top-down steering to align national support schemes for renewable electricity with the internal electricity market has been intense. However, the role of Union-level promotional mechanisms in prompting a regime shift towards market compatibility has not received the attention it deserves. Focusing the analytical lens on the evolution of the supranational legal framework for promoting RES-E, this article examines how it keeps evolving to add coherence to EU energy law. Our findings demonstrate that its different evolutionary stages vary in the degree of reconciling with electricity market legislation and the legal approaches to pursuing such consistency. The analysis further sheds light on the general trends in the evolution of EU law on promoting RES-E, the lessons learned and the remaining challenges.     

Why has the Nordic electricity market worked so well?

The purpose of this paper is to explore why the Nordic electricity market has worked quite well and to consider to what extent the Nordic experiences are relevant for other countries. In particular, we investigate causes as to why the Nordic market managed to withstand the supply shock in 2002–2003. A comparison is made with the California case, and the potential problem of market power abuse is investigated in particular. The relatively successful electricity market reform in the Nordic countries seems to be attributable to the followings: a simple but sound market design, a successful dilution of market power, a strong political support for deregulation and voluntary, informal commitment to public service by the power industry.     

Effect of regulation on power-plant operation and investment in the South East Europe Market: An analysis of two cases

This paper analyses the differences between investment decisions for coal-fired power plants in Croatia and in Bosnia and Herzegovina (BiH). The long-run marginal cost (LRMC) of each plant is calculated based on a technical analysis that accounts for the important influences on overall project costs by combining a mathematical model and a simulation model. The former was used to calculate annual costs and the latter to predict power plant performance on the electricity market. This research offers insights about potential risks associated with power-plant investment with a particular focus on the regulatory framework and the relevance of participation in the European Union Emissions Trading Scheme (EU ETS) for costs, prices, and environmental impacts.     

The underlying factors in the uptake of electricity demand response: The case of Poland

Demand response (DR) is considered crucial for a more reliable, sustainable, and efficient electricity system. Nevertheless, DR's potential still remains largely untapped in Europe. This study sheds light on the roots of this problem in the context of Poland. It suggests that unfavorable regulation is symptomatic of the real, underlying barriers. In Poland, these barriers are coal dependence and political influence on energy enterprises. As main drivers, supply security concerns, EU regulatory pressure, and a positive cost-benefit profile of DR in comparison to alternatives, are revealed. A conceptual model of DR uptake in electricity systems is proposed.     

Malaysia’s electricity market structure in transition

The Malaysian electricity industry evolved from a vertically integrated utility into a single-buyer model, which considered a precursor to deregulation and a competitive market. This study considers electricity sector reform in Malaysia and proposes a market structure for the industry. We focus on the single-buyer model and the pool model for the analysis with the recommendation on reform stages required to ensure a smooth and successful market transition. A smooth transition from regulated market into deregulated market will ensure market stability and sustainability of the energy market. It will also provide enough time for the market participants to adapt and transit from regulated to deregulated energy market.     

Interconnecting an isolated electricity system to the European market: The case of Malta

The long-term European Union (EU) energy policy increasingly requires member countries to reform existing power systems, including those of small island states. These are commonly isolated electricity systems that rely heavily on imported fossil fuels. Interconnections with mainland power systems are an alternative to offset the exposure to volatile fuel prices. This paper studies the 200-MW (MW) subsea transmission cable between the EU island member state of Malta and Sicily that was inaugurated on April 2015. Our main purpose is to examine whether and to what extent Malta's vulnerability to distinct oil price scenarios can be overcome with this new interconnector. We describe the process used to simulate the merit order for both Malta's isolated and interconnected electric generation setup. The algorithm used provides the average electricity spot price and economic scarcity rent of electricity imports and exports. The main finding is that the Malta-Sicily interconnector does not necessarily lower electricity prices for Malta's consumers. However, some scenarios, notably the incorporation of natural gas in Malta's future generation portfolio, achieve win–win situations for both consumer and supplier. The Malta case study shows that cable impacts depend on the installed generation capacity, oil price, and market design.     

Regulatory practice and politics: Lessons from independent regulation in Indian electricity

Although independent regulatory agencies are emerging worldwide, there remains little understanding about how they operate in practice, particularly in developing countries. This paper seeks to examine the practice of electricity regulation in India, using case studies of three state-level electricity regulators. Based on documentary analysis and interviews with regulators, government, utilities and stakeholders, the paper examines how regulation is shaped by institutional and political context, how regulators make decisions in practice, and how they engage with stakeholders and with what effects.Based on the Indian experience, we suggest that in a rapidly changing electricity sector, the separation between the political and economic content of regulatory decisions, as is often advocated, may not be feasible or indeed desirable. Instead, we suggest a more proactive regulatory approach where governments give regulators the latitude to proactively steer the sector. For this approach to be viable, regulators need to build adequate technical capacity, institutional legitimacy, and democratic legitimacy in their dealings with stakeholders. This approach entails a bolder, and more challenging vision of regulation, but one that promises greater transformational potential than does the model of technocratic and apolitical regulation.     

The competitive landscape of China’s telecommunications industry: Is there a need for further regulatory reform?

This paper evaluates the current regulatory status of China’s telecommunications industry in relation to China’s antimonopoly enforcement. It analyzes the difference of telecoms reform models in OECD countries and China, and highlights the important role of independent regulation, in particular given the concern about administrative monopolies in China’s telecoms industry. It questions the effectiveness of the new antimonopoly law alone in promoting telecoms competition by addressing three major issues in the sector: administrative monopoly, market competition and ownership. In conclusion, it suggests the need for further regulatory reform and calls for formal empirical research to provide more compelling evidence.     

The market (in-)stability reserve for EU carbon emission trading: Why it might fail and how to improve it

The EU parliament has accepted a proposal of the EU commission on the backloading of EU emission allowances (EUA), where the auctioning of EUAs is postponed to future time periods. The EU commission has also proposed a market stability reserve (MSR), which is a quantity-based stabilisation policy that is aimed at controlling the volume of EUAs in circulation.Using an agent-based electricity market simulation with endogenous investment and a CO₂ market (including banking), we analyse the backloading reform and the proposed MSR. We find backloading to only have a short-term impact of CO₂ prices; regardless, there is a significant risk of high CO₂ prices and volatility in the EU ETS.Our simulations indicate that the triggers of the proposed MSR appear to be set too low for the hedging need of power producers, effectively leading to a stricter cap in its initial 10–15 years of operation. While the current proposal may be improved by choosing different triggers, a reserve that is based on volume triggers is likely to increase price volatility, contrary to its purpose. Additional problems are the two-year delay in the response time and the abruptness of the response function, combined with the difficulty of estimating future hedging behaviour.     

The electricity balancing market: Exploring the design challenge

In the unbundled national electricity markets in Europe, the balancing market is the institutional arrangement that deals with the balancing of electricity demand and supply. This paper presents a framework for policy makers that identifies the relevant design variables and performance criteria that play a role in the design and analysis of European balancing markets. We outline the full extent of the design challenge through a discussion of trade-offs among performance criteria, uncertain effects of design variables, and the many inter-linkages between the balancing market and the electricity market at large. Policy makers can address the balancing market design challenge by adopting a structured approach in which design variables, performance criteria, market conditions, system developments, and resultant market incentives are explicitly considered.     

Vertical relationships in China’s electricity industry: The quest for competition?

In this paper we revisit the debate on the role of vertical integration in the energy sectors: whether vertical integration between coal and electricity sectors is a path to create a competitive electricity market in China. We discuss coal-power conflict and potential anti-competitive concerns related to vertical integration, such as raise rival’s cost and collusion, and suggest that regulators and policy makers should pay more attention to the behavior of integrated companies. In particular, they should balance the tradeoff of vertical integration between coal and electricity companies and ensure that efficiency gains should offset anti-competitive effects.     

Electricity market reform: What has the experience taught us thus far?

Despite considerable progress in understanding electricity markets and how best to introduce market reform, many design and implementation issues remain. At a more fundamental level, there is no consensus on which model would work best in a given situation and what constitutes a “functional” market.     

Coordination between clean energy generation and thermal power generation under the policy of “direct power-purchase for large users” in China

The inefficient utilization of clean energy and distorted pricing mechanism are the most critical problems that have hampered the reform of China's electric power industry for many years. A large number of clean energy generators have recently been constructed, but water spillage at hydroelectric facilities and wind curtailment persist due to integration challenges. The adjustment of electricity price has relied on executive orders of the Chinese government and the National Development and Reform Commission (NDRC). Distorted prices that are not derived from a market economy have seriously hampered the development of China's electricity market. Therefore, in recent years, the Chinese government has issued a number of reform measures concerning “direct power-purchase for large users”. The main idea of this pricing mechanism is to form direct negotiations between large users and generators to determine the electricity price. To a certain extent, this pricing mechanism is conducive to the electricity market reform in China. However, the coordination between clean energy generation and thermal power generation under the policy of “direct power-purchase for large users” has become the key issue in China's electric power industry. This paper summarizes the policies of “direct power-purchase for large users” in different provinces in China. The electricity market in Yunnan, for which the contradiction between thermal power generation and hydropower generation is increasingly severe, is the focus of the research. At last, a feasible electricity market scheme has been derived to coordinate thermal power generation and hydropower generation. This scheme has considerable theoretical and practical significance to the future of China's electricity market reform.     

The political economy of margin squeeze liability in the Turkish telecommunications market: A comparative assessment

This paper studies the increasing importance of margin squeeze issue in the Turkish telecommunications market with a comparative assessment. Recent literature does not provide enough insight into the political economy of margin squeeze. The ideological background of the countries dominates their margin squeeze policies. The socialist experience and ordoliberal ideologies affect European Union (EU)’s margin squeeze policy. The EU policy leads to endorse margin squeeze as a standalone liability and it becomes relevant to the regulation and competition law. Turkey is one of the follower of the EU policy. However, the EU margin squeeze size does not fit to Turkey. The EU perspective is not an appropriate politically because it leads to the risk of conflict of authority. This risk has not existed yet in the EU because the EU has a supranational structure that allows the EU Commission to act as a central planner. However, the risk of conflict of authority is politically significant because Turkey is a nation state that does not allow the administrative authorities to act as a central planner. The EU margin squeeze policy is also not suitable for Turkey in terms of economics. Since, the EU approach leads to waste of resources. On the other hand, United States (US) courts endorse margin squeeze as a regulatory instrument and irrelevant to the imposition of antitrust law. The US practice seems to be more suitable for Turkey because it eliminates the risk of conflict of authority and waste of resources. The new Turkish regulatory framework on margin squeeze is more compatible with the US practices. Although the Turkish practice has formed under the influence of the Deutsche Telekom, Telefonica and Teliasonera cases, new margin squeeze regulation allows to follow the Linkline and Trinko decisions to ensure consumer welfare rather than competitors’ profitability.