1. Impact of Liberalization of the Electricity Market on Energy Efficiency, Quality of Supply and Environmental Performance Eric BONNEVILLE ECI Webconference - 20 oct. 05

2. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 2/21  Overview of the European Electricity Industry before liberalization  Definitions, historical steps, objectives / general energy policy  Focus on international experience  Costs, benefits and impacts of liberalization Electricity prices, market opening costs, energy efficiency investments, employment, cross-border transmission and quality of supply Outline

3. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 3/21 European Electricity Industry Generation and consumption in EU15

4. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 4/21 European Electricity Industry Electricity generation - UK

5. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 5/21 European Electricity Industry Electricity generation - Germany

6. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 6/21 European Electricity Industry Electricity generation - France

7. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 7/21 The EU Directive of opening the market Definitions GenerationTransmissionDistributionSupply national / regional monopolies Electricity Supply Industry “unbundled” = vertical disintegrated

8. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 8/21  1990 - Transparency of electricity prices Directive  1990 - Grid Network Directive  1996 - Guides for the Liberalization of the Electricity sector  2003 - New electricity Directive  Implementation steps 1999 - 26% 2000 - 28% 2003 - 33% 2007 - 100% The EU Directive of opening the market Historical steps of national electricity consumption liberalized

9. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 9/21  Three main objectives of the EU energy policy: security of supply economical efficiency protection of the environment  Objectives of the liberalization: improve efficiency + productivity positive results on end-users + environment prices decrease security of supply The EU Directive of opening the market Objectives

10. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 10/21  European pioneer (1983 - 1989)  NETA (New Electricity Trading Agreement) goal of 50% price reduction bilateral agreements  Concentration => vertically integrated companies  110 000 jobs lost between 1990 and 1995  Benefits breakdown (billions of pounds) Government +1.2 to 0.4 Shareholders +9.7 to 8.1 Consumers -1.3 to 4.4 Focus on international experiences UK

11. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 11/21  1998 - fully opened market  no deep structural reform  price decrease 20% for industry 5% for residential  Employment decline 18 000 jobs 1993-1997 64 000 jobs 1997-2000  reduction of the market actors  only 0.1 to 0.5% of foreign producers Focus on international experiences Germany

12. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 12/21  1992 - Federal Power Act => FERC authority to deregulate  1994 - liberalization process launched by the PUC  1996 - Californian Power Exchange  2000 - Electricity crisis with rolling blackouts  2001 - 10 billion USD needed to cover the fixed tariffs contracts  small generation margin  degradation of the reliability  decrease of energy efficiency investments (1993-2000)  Regulatory agency created + price caps re-introduction Focus on international experiences California

13. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 13/21 Costs, benefits and impacts Electricity prices - Industry

14. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 14/21 Costs, benefits and impacts Electricity prices - Residential

15. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 15/21 Costs, benefits and impacts Market opening costs meter costs IT systems other network business costs Queensland 184 million $ over 5 years UK 121 million £/yr over 7 years

16. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 16/21 Costs, benefits and impacts Energy Efficiency Investments more competitive market short-term price reduction € Energy Efficiency investments “the market itself won’t deliver Energy Efficiency” mandatory mechanisms

17. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 17/21 Costs, benefits and impacts Employment

18. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 18/21 Costs, benefits and impacts Cross-border transmission capacities  fully opened market  high capital intensity and long horizon  need for energy demand forecasts and planning  markets dominated by strong national players  in 2004, only 10.7% of the electricity consumption was exchanged between the 22 countries  energy efficiency needed, education programmes  “the European market will not exist” J.Syrota 2003

19. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 19/21 Costs, benefits and impacts Quality of supply  Council of European Energy Regulators (CEER): continuity of supply voltage quality commercial quality  Liberalization / environmental improvements: conflicting targets  Increased competition and risk => lower costs  security of supply: long term investments  production planning

20. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 20/21 Conclusion  Growing electricity - worrying issue  Mismatched liberalization targets: price decrease did not occur lack of long term investments in energy efficiency lack of new generation plants / transmission lines no physical European market  Strong political strategy of reducing the energy consumption Networks regulators independent body agencies

21. AERE - Impacts of liberalization on Energy Efficiency - ECI Webconference 20 Oct. 05 21/21 Thank you for your attention e.bonneville@aere.fr www.aere.fr