The document discusses the deregulation of electricity markets in France. It provides context on the electricity supply chain and the history of liberalization in Europe. France resisted liberalization due to EDF's monopoly and relationship with the government. However, the EU pushed for opening markets. France was eventually required to vertically unbundle utilities and open 30% of its market. The effects of liberalization in Europe included decreased electricity prices overall but also increased price volatility. Both benefits and challenges exist for generators, distributors, customers, and regulators in a liberalized electricity market.
2. Generation (30% cost)
● Production of energy
● Cost and flexibility
Transmission (40% cost)
● Transportation of electricity
● Capital intensive
● Continuous maintenance
● Regulation of access fees
Distribution: (30% of cost)
● Connection of high voltage
grid to the final consumer
Sales and services:
● Price and quality
Suitable for
competition
Suitable for
competition
Natural
monopolies
Electricity Supply Chain
3. 1989
History of Liberalization
1980
1990
2000
2010
Call for market
liberalization
Deregulation
for consumer
for > 20 GWh
80% of the market
deregulation+
Full Liberalization
of the UK
UK vertical
unbundling
Deregulation
for consumer
>40 GWh
EU directive
announcement for
a full liberalization
by 2005
Full
liberalization of
the European
market in energy
1980
1989
1999 2001
2000 2002
2007
5. Causes of Liberalization
• European Union
integration
• Solidarity between
the EU members
Political
• Avoid market
power
• Lower prices
Economical
• Avoid cross-
subsidization
• Equal choices of
suppliers
Social
• Fully computerized
systems
• Unbundling
Technological
• Higher resources
with multiple
interconnections
Security
• Reduction of the
capacity
• Entrance of
efficient
companies
Efficiency
6. The French Case:EDF
Energy independence (world exporter
and nuclear program)
Over capacity
Low electricity costs Market monopoly
7. France: Anti-liberalization
• The Govenment and
EDF relationship
• Ambition of globally
expand
• Labor unions
Political
• Overcapacity
• High market share
• Profitable sector (
among lowest
prices)
Economical
• Strong committment
to serve customers:
cross subsidization
• Job protection:
public opinion
Social
57 nuclear reactors
generating 75% of power
for the country
Technological
• Public interest rather
than market
dominance (price
volatility)
• Guarantee electricity
supply to customers
Security
Low costs due to
overcapacity and
economies of scale
Efficiency
8. • Minimum requirements of
liberalization
• Only 30% market open
• Postponed the adoption
• Fully liberalized
• Unbundled vertically
• Generation -two companies.
• Transmission -regulated
private monopoly.
• Distribution -12 companies
• Fully liberalized
• Negotiated third party
access
• Liberalized in phases
• Nordic electricity pool
Measure and Policy
9. Alternatives
Negotiated
TPA
Regulated
TPA
Single
Buyer
Model
• Direct supply to consumers
• Deal with transport tariffs and conditions
• Subject to a dispute settlement mechanism.
• Ensure respect of system security.
• Fixed tariffs by the relevant authorities
• The tariffs are applied to all users of the network.
• A single entity will buy and sell electricity.
• Ensure respect of services of general
economic interest.
• Direct contract negotiations are only foreseen
Transmission and distribution:
10. How was the EU market liberalized
Between the European Commission & France
Time
M&A
• France government: Prolonged resistance
• European Commission: Lacked the legislative
power
• EDF’s strategy: Mergers and Acquisition
• European Commission:
Approval of EDF’s international acquisitions
→ EDF’s concessions in its domestic market
15. Pros of liberalization
New Pricing Model
• Competition(low prices + no
market monopoly )
• Competitive retail markets may
provide new business
opportunities
Economic Benefits
• Competitive energy industry
• Attract new investors
Economies of Scale
• Optimal to produce electricity
for higher demand
Technological
• Opportunity to decentralize
power production with new gas
turbines
• Changes in energy mix
Environmental Benefits
• Decreasing use of coal/nuclear
plants
• Increased utilization of gas
stations
Diversification
• Higher possibilities for
commercial innovation
• Wide, equal customer choice
17. Is there a dark side?
Economic
Contradictions
High cost of setup
Very volatile prices
Natural market power of supplier
Complex
Formulation
Centralized governance, independent system operators
Consumers are excluded
Slow economic
growth
Low internal competitive market caused by problems of:
• access to the network,
• taxification issues
• unequal degrees of market opening between members
Pricing
discrimination
High prices for low income customers and rural clients
Industrial prices are less than household electricity prices
Lower opportunities for long term projects with low cost of capital
18. Stakeholders- Liberalized Electricity Market
Power Generation Companies
Power Transmission
Companies
Power Distribution
Companies
Sales and Service
Customers
19. Effects on Stakeholders
Power Generation
Companies
Power Transmission/ Distribution
Companies / Retail
• Natural market power
• Essential role in
policy
deregulation
• Increased energy mix
• Economies of scale
• Competitive market
• Diversification of
services
• Higher efficiency
• New entrants
• Lowered prices
• Future prosumers
• Free choice
Consumers
Regulatory
Bodies
• Complicated policy
formulation
• Complaints redressal
forum
20. Final Thoughts
Need to take into
consideration both the
benefits of the customers
and the suppliers
Relation between price
change and
liberalization cannot
be substantiated
Highly
fluctuating
demand
Low power of EU
over countries
Need to take into consideration
each country’s specification
Tempered
strength of
regulation bodies
Vulnerable
exercise of
market power
by generators
