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Empowering Europe’s Electricity Market

Unlike humans some jellyfish are self-sufficient electricity providers. Courtesy of x3nomik/flickr

Europe is talking energy and there is no easy way out of existing dilemmas: While nuclear and fossil-fueled power plants entail considerable risks, most sources of alternative energy are not yet considered mature enough to fuel Europe’s economies on their own. Like elsewhere across the globe, Europeans are facing tough challenges in their attempt to secure a clean, reliable and affordable power supply.

As in every crisis, the risk looms that countries just look after their own narrowly-defined national interests and either ignore or forget the advantages of a regionally coordinated approach. In their struggle for secure energy, European nations should not lose sight of the potential of the common electricity market. In the long run, it could play a crucial role in enabling a more efficient energy future both from an economic and an ecological point of view. Yet, many obstacles still need to be overcome at the moment.

In an integrated market, electricity could be exchanged efficiently across the continent, connecting demand to the most inexpensive supply no matter where in Europe. Consumers could benefit from choosing from a wide range of suppliers, which in turn would boost competition and innovation. Currently, however, the European electricity markets remain regionally fragmented. Countries and companies are not investing enough in transmission capacities across national borders because they struggle to agree on the financial burden-sharing of these expensive projects. As long as national grids are not fully interconnected, trade cannot evolve.

Furthermore, competition can only flourish if all market participants have equal access to the grid. For this to happen, electricity networks must be managed by independent regulatory bodies, and can no longer remain in the hands of vertically-integrated energy giants that control power production, transmission and delivery. Consequently, existing national energy monopolies need to be broken-up, which would again boost competition at national levels.

While the Netherlands and Britain have largely liberalized their utilities, other countries like France, Germany and Italy have refrained from putting too much pressure on their energy providers for fear of losing control of the strategically important energy industry. As a result, powerful French, German and Italian utilities have been slowly turning the European market into an oligopoly by buying out their counterparts in other countries. However, as of March 2012, tighter EU rules for unbundling, i.e. breaking-up, utilities will come into force. Now, it is up to the member states to effectively implement the new rules.

A completely functioning market for electricity could also be the backbone of a renewable energy future. A Europe wide grid of electricity highways will be needed to connect consumption centers with wind parks in the North Sea and solar power stations in the South. Furthermore, excess electricity could be be sent to pumped storage hydroelectric power stations in the Alps – currently the only way to effectively store electricity. Comparative advantages in the production of renewable power can only be exploited in a common market.

Europe has been struggling to establish an internal energy market for more than 20 years. With a look at the long-term advantages, it is obvious that European nations should not prioritize national interests, despite the challenges of a common market. It is time for a truly European energy solution that is actively put into reality by all member states.

For more information, please see our extensive resources on Electricity and Energy in Europe.