EU energy market must 'enhance competitiveness'

The EU must ensure that the upcoming retail energy market initiative brings ´real benefits' to final consumers, says Frauke Thies.

By Frauke Thies

29 Mar 2014

In the coming months, the European commission is expected to put forward new proposals to enhance the functioning of European retail energy markets.

Almost 20 years after the first directive on the internal electricity market, the direct benefits of the liberalisation process to consumers and businesses are still blurry at best.

The commission should now seize the opportunity of the upcoming 'retail market initiative' to bring real benefits to energy consumers. This is the target year for the completion of the internal energy market.

Throughout the liberalisation process of the electricity sector, progress has been achieved at different levels, including an increased competition between generators and facilitated transmission of electricity.

The uptake of renewable energies in recent years has contributed to the increase in market liquidity and, as the commission highlighted in its recent report on energy prices and costs, thanks to very low or zero fuel costs, solar, wind and water energy have driven wholesale prices down. This price decrease is already benefiting large consumers, such as energy intensive companies, who buy their electricity directly from the market.

"Almost 20 years after the first directive on the internal electricity market, the direct benefits of the liberalisation process to consumers and businesses are still blurry at best"

Contrary to that, the decrease in prices has not been passed on to household consumers, however, and the energy component of households' electricity bills in Europe has even increased slightly over the last years. To enable final consumers to benefit from such price decreases, competitiveness in retail electricity markets must be enhanced. Tapping into demand response and micro-generation of electricity is a key aspect of that.

In the past, competition in the retail market was based on two dimensions only: the price of the kilowatt-hour of electricity, and possibly the green (renewable) or grey (fossil or nuclear) character of the electricity. A modern, clean and more efficient energy system can bring in new aspects of interaction and competition.

The new retail market initiative should foster these aspects and empower consumers to become active parts of the power system by producing sustainable electricity for their own needs - for instance, with their own solar energy system on their rooftop or through community projects.

Photovoltaic system owners can even sell additional services that photovoltaic energy inverters can provide to stabilise the power grid. In addition, if all photovoltaic system owners were enabled to consume part of the electricity they produce, the strain on the power system would decrease, especially during the typical midday peak in electricity demand.

Self-consumption of electricity thus enables 'prosumers' to reduce their own energy costs, while positively contributing to the integration of micro-generation technologies into the electricity grid. It is thus crucial that the new retail market initiative lifts existing barriers and drives the development of favourable regulatory frameworks for self-consumption of electricity.

Furthermore, improved energy services and access to intermediaries should enable consumers to engage in the stabilisation of the power system and the reduction of costs through improved energy services and active demand management. Citizens and businesses can provide flexibility to the energy system without any additional effort and while profiting from a stable service quality level, provided they can rely on adequate service providers or aggregators.

These intermediaries can explain possible benefits of automatic or active demand response and power generation to consumers and prosumers, they can trade their services and electricity, and they can interact with other market and regulated parties on their behalf.

Finally, the development of cooperatives as well as consumer-driven initiatives such as collective switching also provides a chance for a more competitive retail market. Renewable energy cooperatives enable involved consumers to produce and supply energy, as well as to consume the energy they produce themselves. This way, they can gain more control over their energy supply and reduce their energy costs.

Various options to increase the rights and benefits of final energy consumers are directly available and their implementation is feasible. It is high time that the commission removes existing barriers and promotes favourable political and regulatory frameworks to take these opportunities on board while preparing the new retail market initiative.

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