The European Union Gas and Electricity Directives

The European Union Gas and Electricity Directives

by Steve Thomas, Public Services International Research Institute, University of Greenwich, September 2005

Preface

The European Commission is regularly evaluating the internal market for electricity and gas. It will present a Progress Report to the European Parliament early in 2006. The Directorates of Energy and of Competition have launched a sectoral inquiry in response to claims that the market is not functioning, possibly due to market dominance and market abuse. The Commission has approached several stakeholders to present their views and to make proposals on how to go further with the internal market. To contribute to these discussions EPSU commissioned a report from Public Services International Research Unit of the University of Greenwich, Europe's leading academic institution on the evaluation of the performance of public services, or services of general (economic) interest.

It is clear to all observers that the internal market for electricity and gas, contrary to claims made for it, is neither providing the benefits to Europe's large industrial users, nor to domestic households. It runs into major problems. The security of supply directive was a quick fix in response to European and North-American black-outs. It recognised that the market will not provide amongst others for investment in peak capacity and grids. The PSIRU report describes the problematic nature of different wholesale markets, increased concentration and low levels of switching of domestic users. Steve Thomas, the author of the report also notes that in markets that are claimed to be working, such as the Nordic and UK ones, major snags are evident. The report details the lack of investment in networks and generation capacity, the lack of investment in training, research and development and qualified staff. These factors, alone, or in combination with each other, bring risks to a reliable, safe and affordable public service. UCTE, the organisation responsible for cooperation between system operators, argues that Europe urgently needs a long-term perspective and reliability philosophy, something that is apparently missing. The report raises the fundamental question of whether competition can work in particular in electricity, given the economic, physical and social constraints. The answer is a resounding NO, and many of the problems are inherent to competition in this industry. Other quick fixes will not help.

EPSU supports the findings of this report. While it appears natural to many readers that Europe's energy unions are concerned about the loss of jobs (more then 300.000 over 10 years), increased outsourcing, pressure on pay and conditions and lack of investment in training, our concerns are more profound. The internal market for electricity and gas does not benefit domestic users. Price and switching are not the only criteria to judge. The current situation brings risks to Europe's economic stability and growth, and endangers Europe's competitive position.

EPSU is concerned that the European Commission is aiming to export its model to other countries. Examples are the South East European Energy Community, which includes the countries in the Balkans and Turkey. Internal market rules are also the topic of discussion between the EU and Ukraine, Moldova and Russia. We hope that the report contributes to a critical analysis of these developments. Is the internal market the most appropriate model?

Some of the findings such as the emerging skills gap and lack of investment in training are not just concerns of EPSU. They are shared by employers. The trade unions have discussed these issues with Eurelectric. They are also not unique to the European countries. The problem of attracting skilled staff is also an issue in other markets such as in the US and Australia. Immediate and urgent measures are needed to improve the situation. The Commission recognise that electricity and gas sectors need sufficient and qualified staff, and this should be part of the Directives. The problem of the impact of the internal market on the position of women in the sector is seldom referred to. This impact can be judged as negative. The internal market has done little to improve the situation for women.

It is easy to fall into the trap of arguing that the market does not work. It actually does work. Most problems were entirely predictable, and were predicted by EPSU in its 1999 report. But the market produces results that are sub-optimal from a macro-economic perspective and even negative considering it does not contribute to more social equity and a redistribution of wealth that benefits low income households. We can muddle through, or we can discuss if there are other ways to achieving safe, reliable and affordable energy services delivered under democratic control. We believe this discussion should be carried out on the basis of empirical analysis rather then ideological rhetoric. The rigorous reasoning of this study will contribute to this debate.

Jan Willem Goudriaan

EPSU Deputy General Secretary

- Full report (English, French, Czech, Croatian, Romanian and Russian)