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Competition Monitoring in the EU Johannes Mayer 5 March 2014, Jerusalem

3 Agenda Ingredients of Working Competition Setting the Scene: The European “Story” Lessons learned Monitoring Developments Challenges

Three Ingredients of Working Competition – A Green Field View Market Structure –At least five to ten “equal“ competitors in terms of size and financial basis –But different cost structures Market Entry –Enable potential competition by low barriers to entry Low risks (market intervention, major changes of market fundamentals) Low level of red tape (licences,…) Low initial cost (financial guarantees, investments,…) 4

Three Ingredients of Working Competition – A Green Field View Level Playing Field –Competitors should not have save harbors where to relocate margins to: Retail markets Network tariffs Other markets with low or non-existant level of competition But in reality liberalisation is a “brown field“ project: where do we start from? 5

The European “Story“ Part 1: Most EU Member States started with:  National champions  Public ownership  Legal monopoly rights for supply areas  Public service obligations  Political interference into business decisions  Low level of interconnection to foreign markets  National monopolies! Initial ambition (1998): Liberalisation of wholesale markets and retail markets for big industry 6

The European “Story“ Part 2: Tasks of Member States:  Improve market structure  VPPs (power release by incumbents)  Divestiture  IPPs (market entry)  Enforce equal treatment by integrated companies (unbundling)  Almost complete failure!  However: wholesale prices and retail prices for big industry decreased (oversupply in power was reduced, older stations were written off and closed)  Smaller customers wanted to benefit  Unequal consequences for utilities Second package (2003): Full liberalisation until 2007, more detailed European provisions 7

The European “Story“ Part 3:  Even at the end of the transition period to full liberalisation, structural problems persisted as before  Member States did not implement liberalisation seriously Third package (2009):  More physical interconnection  A European market model with harmonised market rules  European law requires independent regulators (from industry and government) with harmonised competences  European agency to organise cooperation between regulators  Credible unbundling at TSO level  Independent TSOs develop market rules 8

Lessons Learned Partial liberalisation may lead to distortion in competition (Hungarian case with PPAs, no retail liberalisation,…) Full liberalisation involves strict unbundling at all stages of the value chain Member States still support national champions as far as possible Importance of independent „technocratic“ regulator 9

Monitoring Developments Monitoring market integration as structural improvements are mostly unlikely Monitoring efficient investment as investments are sometimes based on national considerations Monitoring effects on final customers (Monitoring compliance with European rules) 10

Development of market integration 11

Indication of efficient investment 12

Development of Dynamics in Retail Markets 13 Most countries show increasing number of market participants Despite regulated prices

Two Challenges to Competition Market intervention via RES-support, managed prices, lower share of variable cost in generation,etc. may lead to new intervention (capacity payments, mandatory pools,…) Difficult systems (know-how, hardware, software) favour big suppliers and reduce market entry 14

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