Separate Development: Energy Policy for European Networks

Fundamental restructuring of the power and gas industries continues to appear as a central element in the European Commission's policies for building a single European market. In this context, European Commissioner for Competition Policy Neelie Kroes recently restated her personal view that ownership unbundling of network businesses is a key part of the opening up of energy markets.

The key questions remaining are whether Commissioner Kroes has the backing inside and outside of the Commission for this important step and whether it will appear in the package of measures to be unveiled by the Commission in January 2007. In considering the issue of full ownership unbundling, CERA believes the following (yet unanswered) questions will have huge implications for the European energy industry:

* Is ownership unbundling necessary for competitive markets to thrive? Examples exist around the world of competitive markets with integrated network businesses where alternative structural models coupled with good regulation are sufficient.
* To what level does ownership unbundling extend? This question is most applicable to electricity markets, where ownership unbundling, if extended below the current Directive limit of 100,000 customers, could precipitate the long-anticipated consolidation of the retail part of the European market.
* Is ownership unbundling of gas infrastructure the key focus? The concentration of producers outside the European Union is arguably more of a hindrance to competition than access to networks within the Union-and the separate development of physical infrastructure from contractual supply within the Union could enhance producers' market power.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.