EU Agrees to Open its Utility Markets

On Monday, European Union energy ministers reached a landmark deal to open up the European utility market and allow businesses and private consumers to buy their gas and electricity from providers in other EU countries. Under the agreement, firms will be able to shop around for their energy needs as of 2004; household consumers will be able to do the same in 2007.

“This is a revolution which will have a very important impact for the competitiveness of Europe,” Gilles Gantelet, a spokesman for the European Commission told reporters. According to him, consumers will have full freedom of choice to choose their energy provider and in theory, consumers could shop around for the best energy deals, much as they can in many countries for the best long-distance telephone rates.

The European Commission had originally set a date of 2005 for full market liberalization, but that was pushed back two years in a compromise with France, which wants to protect the state-owned giant Eléctricité de France. The French have been long resistant to opening markets and until last month, it looked as if they would seek to block any agreement. But since a new right-of-center government took power in June, Paris has been more willing to move forward with liberalization.

Germany’s Small Providers Worried

The German market has already largely been liberalized, and many large and smaller providers compete on the national market.

“This decision doesn’t essentially effect Germany, rather those countries that have done little to liberalize their markets,” said Dieter Schmitt, a professor at the University of Essen who follows the energy industry.

Still, the EU decision does affect Germany’s interests and German representatives in Brussels defeated a proposal that would have forced utilities to split generation and sales from transmission system operations. They argued that would force providers to establish independent subsidiaries for power plants, supply networks and sales and distribution and put many of Germany’s smaller providers and municipal utility companies at a disadvantage.

In a compromise, the EU decided to put off the requirement to separate sales from transmission until 2006, and agreed to only enforce the unbundling if it is determined to be necessary for the market to work properly and if no good alternatives have been found.

“This compromise gives us perhaps a chance to keep that portion of our business the way it is,” said Wolfgang Prangenberg, press spokesman of the Association of Municipal Businesses.

Increasing Competitiveness

The European Union has set a goal of becoming the world’s most competitive economy by 2010. Officials in Brussels said this move was one of key aspects to meeting that target.

Proponents of the plan say it will translate into lower gas and electricity prices for consumers. Sceptics fear that it could mean poorer service, an uncontrollable rush towards privatization, and possible breaches in the security of energy supplies.

Others say the success of market liberalization will depend largely on users, who often are not motivated enough to shop around for a new power suppliers and may simply prefer to stay with what they already know.

“These kinds of barriers can mean that in the end liberalization could have a smaller effect than expected,” said Schmitt.