End Game: Europe's Energy Markets After the Third Package

At the end of April 2009, the European Parliament will hold its plenary session, in which it will approve the so-called ""Third Energy Package"". The details pertaining to the liberalization of the EU's gas and power markets have now been agreed and are of critical importance to anyone involved in European energy.

Report Highlights
After 18 months of negotiations, the EU has reached an agreement on the liberalization of gas and power markets. The final agreement on the Third Package contains a series of half measures which, in practice will allow utilities to maintain a firm grip on transmission networks.

In relying on national regulators to ensure utilities are managed separately from transmission operators, the new legislation effectively allows politicians to dictate the independence of ITOs. Datamonitor's MCI Index reveals many regulators to be effectively an extension of central government and thus prone to political interference.

MEPs in favour of unbundling are taking a calculated risk in relying on the Competition Commission to enforce liberalisation. Assuming the Competition Commission retains its liberal outlook, the EU may yet break the current oligopoly in energy markets through Anti-Trust action
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Compulsory unbundling will not feature in the EU's Third Energy Package 2
After 18 months of negotiations, the final shape of Europe's Third Energy Package has been confirmed 2
Anticipating resistance to full unbundling, the commission sought to mollify the council through a diluted alternative, but to no avail 2
Despite some support for compulsory unbundling in the council, the ""Third Option"" essentially stripped out the crucial liberalizing elements 3
Parliament was willing to accept the council's proposals in gas, but remained adamant that electricity markets should be fully unbundled 4
The final agreement contains a series of half measures which, in practice, will allow utilities to maintain a firm grip on transmission networks 4
Datamonitor's Market Competitive Index reveals significant variation in national regulators' independence across the EU27 5
The creation of ENTSOE will encourage cross-border energy trade but cannot compensate for a lack of mandatory unbundling requirements 6
MEPs in favor of unbundling are taking a calculated risk in relying on the Competition Commission to enforce liberalization 6
Assuming the Competition Commission retains its liberal outlook, the EU may yet break the current oligopoly in energy markets 7
APPENDIX 8
Definitions 8
Further reading 9
Ask the analyst 9
Datamonitor consulting 9
Disclaimer 9
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Figure 1: Three degrees of unbundling 3
Figure 2: The Third Energy Package relies on the effectiveness of regulators, which varies across the EU 5
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