The Dutch Energy Markets in 2009: Target Scenario – Obstacles – Measures

Competition on the wholesale gas market is still in its early stages. Measures have already been put in place to eliminate some shortcomings, these are the new market model and the market-based balancing system. Both of these are the result of the Gas Letter from the Minister and the underlying TTF advice from the NMa. These measures facilitate a development towards more competition. But for a better functioning market the commitment of all market participants is required. Gasterra, the exclusive marketer of Groningen gas, has a key responsibility here. Energy suppliers should be able to obtain gas on the TTF in the required periods and quantities. Otherwise the development of the wholesale gas market will just be stalled further.Monitoring, electricity, gas, competition, infrastructure

Implications of liberalisation for methods of setting retail gas prices in Belgium

The liberalisation of the gas and electricity markets entailed the establishment of new pricing mechanisms, including those concerning consumers in the residential sector. The purpose of the article is to analyse how Belgian gas suppliers have adopted those mechanisms. After a brief description of the wholesale and retail gas markets in Belgium, the second section focuses on examining retail prices for residential consumers. The analysis is based on the tariff data of the five main suppliers active in that segment. It shows that the method of setting the retail gas prices used in variable price contracts is based on very similar principles, using specific indexation formulas freely determined by each operator. The formulas generate selling price indexation based on parameters which pass on changes in purchase costs to the final consumer according to a price risk transfer principle. That indexation is convenient for all operators and does not entail any additional consumer information costs. The disclosure of the automatic indexation mechanisms has the advantage of being relatively simple and transparent in regard to fundamental movements in parameters and their influence on prices. However, for the average consumer, the calculation of indexed prices appears complex and the information supplied seems incomplete. Discretionary adjustments to the said indexations are not very clear even though they are reflected in an increase in the portion of the price which is not linked to changes in the energy parameters. The situation of gas suppliers active on the retail market in Belgium is then assessed in comparison with that in neighbouring European countries, which apply officially regulated prices, price approval procedures, price caps and prices free of any regulation. However, those prices are still at least subject to “close” supervision owing to the authorities’ concern that the retail prices charged should reflect the true cost of a product which is subject to a public service obligation, which is an item of essential household expenditure, and for which the price must be determined by the market. Since consumer prices of gas are more volatile in Belgium than in other countries, with the ensuing second-round effects on inflation, measures capable of reducing that volatility could be attractive. However, the effects of any such measures require careful appraisal. Two measures might be envisaged, in line with developments seen in other countries : the introduction of “supervised” freedom to set tariffs, with effective checks on the justification for tariff adjustments, and information on tariff formulas which is easier for consumers to understand.consumer price index, Belgium, gas price, retail gas market

The Future of Nuclear Power in A Restructured Electricity Market

Restructuring is causing fundamental changes in the market for electricity across North America including changes in the framework for decisions about investment in generation capacity. In a restructured market the generator is no longer guaranteed a reasonable rate of return on assets; instead new investments will earn whatever the spot market or contract market will pay. The market price will be determined by the marginal cost of existing price setting units, the market structure, demand, and the cost of new capacity. Environmental regulations may have a significant impact on that price. This paper summarizes the principal features of restructured electricity markets and their implications for the future price of electricity and for the future of nuclear power, using the emerging rules for the Ontario electricity market as an example.electric utilities, electricity restructuring, nuclear power, nuclear generation, air pollution, emission trading, Ontario, spot market

Electricity Restructuring and Regulation in the Provinces: Ontario and Beyond

Competitive electricity markets are artificial markets with extensive rules for all participants arising from the complex interconnections of the electricity network. Governments or regulatory agencies oversee the market design process and the operation and maintenance of the market, so market design is necessarily a political process. The conceptual design of the market must recognise the political forces that will operate on the market design process so that the political process will not thwart the intended outcome of the market as it has in some jurisdictions including Ontario. The limited ability of consumers to understand changes in the electricity sector in the short run poses a real constraint on what can be achieved politically. Letting the market set the price means that governments cannot ensure any particular future price level and both theory and experience tell us that prices may increase after restructuring (California, Ontario, Alberta). This makes it difficult to sell restructuring to consumers who will be interested in the price they pay and not much interested in abstractions like efficiency. Another challenge for electricity restructuring is that the starting points differ from one jurisdiction to another and the starting points matter. The problems are different if you begin with a crown monopoly than if you have investor-owned utilities; if expected prices are higher than recent prices rather than lower; if governments have been deeply involved in the electricity sector rather than distant from it; if the public has experience with stable electricity prices rather than fluctuating prices. Finally, the situation in neighbouring jurisdictions matters as well. Restructuring in a low-price jurisdiction surrounded by high prices will increase the prospect of price increases at home, while a high-price island is more likely to see its prices decline. If workable competition will be difficult to achieve at home, strong interties to neighbouring jurisdictions can improve competitive performance if the market is appropriately designed. Air pollution, like electricity, moves across borders, so one must assess and evaluate the pollution implications of competition and make any appropriate adjustments to the market design.electricity restructuring, electric utilities, market design, electricity price, electricity market, spot price, retail competition

Price and Environment in Electricity Restructuring

One purpose of electricity restructuring is to create a market in which prices reflect costs to which both generators and consumers may respond efficiently. Yet in many jurisdictions, spot prices may be quite volatile, and both consumers and generators of electricity have made it clear that they do not prices that are highly volatile. This paper examines price plans that have been and might be used in restructured electricity markets assessing their ability to face consumers with efficient prices at the margin but to minimize their exposure to volatility, considering the welfare losses that may be associated with them. It notes that electricity markets are necessarily artificial and that few have managed to create price plans that seem to improve on the efficiency of pre-restructuring prices. Moreover in the California market, the operation of a separate market for air pollution emissions gave rise to emission prices far above reasonable estimates of environmental harm, further exacerbating wholesale price fluctuations in 2000. Solutions to these problems are explored.electric utilities, electricity restructuring, air pollution, spot market, price volatility, price structure, Ontario

Should we reconsider competition in residential electricity supply? Survey results in North Carolina

Retail competition has been introduced in many states as part of electricity industry deregulation. Following problems in the electricity market in California in 2000/01 many states, including NC, put deregulation plans on hold. Where retail competition is allowed consumers can choose their electricity supplier, and companies can compete for customers on the basis of rates and/or other options such as green energy choices. The welfare benefits of retail competition depend on consumers’ willingness to switch suppliers, and in many cases people choose to stay with their current supplier even though rivals offer savings. In that sense consumers are ‘sticky’ in the same way they are with other services such as banking and credit. The question then becomes: should states reconsider retail competition or stay with the status quo? To help answer this question we survey residents in two North Carolina counties. Our survey focuses on: (i) households’ knowledge of and interest in retail competition (ii) factors that would encourage them to switch suppliers, with an emphasis on smart meters and (iii) how large the potential savings would have to be to encourage switching. Key Words: electricity supply, retail competition, switching

AGRICULTURE AND FIVE YEARS OF PERESTROIKA

International Development,

Network Utilities in the U.S. - Sector Reforms without Privatization

U.S. network industry reforms led other countries in the past, but have recently run into difficulties in specific areas. In particular, the U.S. telecommunications sector was hit by a deep crisis and electricity reforms suffered under the California disaster. Part of the explanation for these difficulties stems from past successful liberalization and deregulation experiences in other areas suggesting that competition could provide large benefits to hitherto regulated utilities in local telephony and the electricity sector. Part of the explanation lies in an underestimate of the coordination problems, resulting in bad institutional design, and in the difficulty to deal with vested consumer interests.network industries, regulation, competition, telecoms, electricity

Competition on European energy markets: between policy ambitions and practical restrictions

This Document describes the background and the rationale of the European Union for pursuing liberalised energy markets, explains why this policy goal is not achieved yet, and discusses recent developments and some of the future challenges faced by political decision makers. Read also the accompanying press release .Five years after launching the process of electricity liberalisation, dominance of large utilities, lack of international transmission capacity, and national energy policies hinder the creation of competitive energy markets in Europe. Consequently, the expected downward convergence of electricity prices for EU business and EU consumers has only partly been realised. Established utility companies still have a strong position on some national electricity markets. By means of (inter)national mergers, they increase their market shares at the European level. As a consequence, the price of electricity remains at a higher level than the costs of generating the electricity. In addition, producers lack strong incentives to decrease costs and to develop new techniques of generation owing to missing fierce competitive market forces. The document shows that liberalising electricity markets increases competition provided that adequate institutional arrangements have been made. This requires, in general terms, combating dominant positions of producers by splitting up large established utility companies and implementing adequate surveillance on mergers, increasing capacities of interconnectors among the several member states, establishing spot markets at an international level, and encouraging encouraging transparency of national policies regarding production, transmission and trade.