The EU's energy commissioner, Andris Piebalgs, has hailed the creation of a five-country electricity coupling as a positive step towards a single European energy market.
The new deal will set the sparks flying
According to the agreement signed in Luxembourg on Wednesday, French, German, Belgian, Dutch and Luxembourg electricity markets are to be integrated into a single regional area by Jan. 1, 2009.
Governments, regulators, power exchanges, transmission-system operators and the electricity associations of the participating countries approved a "memorandum of understanding" agreeing on the implementation of a coupled market on Wednesday.
"This is a positive step towards a single European energy market," said Energy Commissioner Piebalgs. He also suggested it would bring lower prices for consumers, increase security of supply and attract investment in new-generation capacity and transmission infrastructure.
A "tri-market coupling" between Belgium, France and Netherlands was already established back in November 2006. Luxembourg and Germany decided to join the initiative later.
"This should serve as a role model for the entire European community," said German Economic Minister Michael Glos.
Efficient and competitive
Unbundling is controversial in Germany
A single integrated electricity market would make it easier to trade electricity across borders. For now, not much electricity is sold across the EU -- not least because buying electricity from another country is a time consuming operation. The nation in question first has to buy the electricity, and then it has to buy the capacity, or space on the grid, to transport it.
That process is now set to get a lot easier. "Market coupling of short-term electricity markets leads to a more efficient use of interconnection capacities, providing more opportunities for energy suppliers to buy and sell power and to optimize their portfolios," said one electricity association.
Associations also expect greater market integration to lead to enhanced competition, thereby benefiting consumers.
Eurelectric, the European electricity industry association, said in a statement that it welcomed the initiative as "an important step towards establishing an integrated electricity market in this region and a major step on the way to a competitive internal European electricity market."
"It also demonstrates that moves towards market integration can be effectively achieved when the political will is there," it added.
Break-up plan now less likely
Damage caused by storms
German companies also hope the new agreement will help prevent the European Commission's planned "ownership unbundling," which would force them to separate production and distribution wings.
Many operators, including German giants RWE and E.ON, fear such a move would leave them at risk of falling under the control of non-European firms.
The supply of electricity in Europe hit the headlines last November when a massive power cut in Germany temporarily halted supplies across the continent.