Liberalizing the Eu Energy Market

Topics: European Union, Energy economics, Energy development Pages: 6 (1704 words) Published: April 4, 2011
Q.1 What do you think are the economic benefit of liberalizing the EU energy market? Who stands to gain the most from liberalization?

The economic benefits of liberalizing the EU energy are followings.

First, greater efficiency leads to lower costs and prices, which is improving competitiveness. It is also crucial for companies that are competing in a more global market. As liberalization and the introduction of competition becomes more widespread across Europe this should lead to further efficiency gains, costs reductions and the potential for lower prices. A completely open European market will allow all consumers to benefit from the cheapest available sources of energy and will drive companies’ costs down based on economic scales.

Second, it ensures a secure and stable energy supply in Europe. It can stimulate the competition between the energy companies and attracts more investments on the European internal energy network. For instance, when Russia and Ukraine “show off” their gas line’s time once more, the EU energy market is helpful in reducing Eastern European country energy supply risk such as Bulgarian and Hungary’s shortage of energy. Moreover, it increases the ability to fight with the Russian energy monopoly among their energy companies.

In conclusion, competition ensures competitive prices. It is able to balance the issues of competition, energy security and environment protection in the EU energy market. For most industries, energy is essential to the cost base and competitiveness. The European industries compete internationally. Increase in energy costs cannot be transferred to customers without risking reduction in market share. Once EU’s energy market can be established, energy’s cost and the price will be dropped largely. The energy exporting country and the country of consumption will obtain the high income.

Q.2 what are the implications of liberalization for energy producers in the EU? How will the environment they face change after liberalization? What actions will they have to take?

Liberalization of energy in the EU Liberalization implicates that there is a new page for energy producers in the EU. The market has been changed. Energy producers’ concern is whether they can survive in the new environment. Industries and private households are in theory able to freely choose their energy supplier, which implicates the competition within energy has been increased. The old market structure, characterized by national or regional monopolies, which control electricity price in the wholesale market and control imports and/or domestic production in the gas sector does not exist anymore. Liberalization increases the efficiency of the energy sector and the competitiveness of the European economy as a whole. Liberalization of energy market gives the suppliers greater freedom in the extraction, processing, generation, transportation, and distribution of supply of energy products.

After liberalization, the utilities need to be split into generation, transmission, and marketing companies so that business of selling energy can be separated from the business of producing it and transmitting it. For example, energy transmission networks have to be run independently from the production and supply side. 1. Ownership unbundling: Under the Commission’s preferred option, companies that control both energy generation and transmission would be obliged to see part of their assets. 2. Independent System Operator: The ISO option was a commission compromise proposal whereby companies involved in energy production and supply would be allowed to retain their network assets, but would lose control over how they are managed. Crucially, commercial and investment decisions would be left to an independent company, to be designated by national government with the Commission’s prior approval, to ensure a level of independence. 3. Independent Transmission Operator: EU ministers introduced the so-called ‘third way’ in...
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