by Jerome a Paris
Thu Sep 20th, 2007 at 03:36:39 AM EST
The new EU package on energy market liberalisation has come out and is repeating the mantra of liberalisation and competition. There's tons of things in there, but I'd like to comment on a few items in their pre-directed "Q&A" document. Most of all, I'd like to start with the biggest whopper of all:
The benefits from earlier legislation will not materialize if these new measures are not taken.
In effect: liberalisation does NOT work so let's liberalise more in the hope that it will.
I cannot find a simpler description of the ideological, non-reality-based nature of the liberalisation drive.
A competitive market with correct price signals will increase investments in new infrastructures. This will improve security of supply and reduce risks of blackouts or gas supply interruptions. And last but not least, a competitive market will help to fight climate change. Energy efficiency will improve in all parts of the supply - consumption chain. Finally, the Emissions Trading Scheme, an important measure for cutting emissions, will only function in a competitive market environment.
All unsubstantiated assertions.
- In particular, markets with long lead times for insvestments are known for their boom-and-bust cycles as investors do react to price signals but their decisions take years to feed into the supply.
- Also, markets provide weak incentives to provide for spare capacity - the one thing that can prevent blackouts.
- Finally, as I have said many times, competitive markets favor investments in gas-fired plants, which are easier to finance, and thus go agaisnt both security of supply and the fight against climate change.
The Commission cannot guarantee that energy prices will go down. However, studies indicate that in liberalised energy markets the difference between production- and end-consumer prices is smaller than in non-liberalised markets. This demonstrates that consumers pay less for energy in liberalised markets than what they would pay in markets where there is no competition.
The last sentence is, quite simply, a lie, and it certainly does not follow for the one before it. It is quite correct that competitive markets reduce the difference between production and end user prices. But that margin is not the only component of the price.
In fact, competition ensures that prices are set at the marginal cost of production (i.e. the most expensive producer necessary to fulfill a given level of demand). Competition also ensures that that marginal price is going to be set by gas-fired plants, and thus will tend to follow, in Europe, oil prices (on which most gas supply contract prices are indexed).
Conversely, a monopoly producer can sell power at average prices, and take advantage of the fact that baseload capacity like nuclear is a lot cheaper if financed by the State than if financed by the private sector, as imposed by liberalisation.
I would note that the  note provided by the Commission states this: "CapGemini Study ordered by the Netherlands. Reference can be provided if needed. See also Impact Assessment quotes of studies." They are going out of their way to make that information available, aren't they? What is it hiding? I'll try to find out.
Governments have the right, even the obligation, to ensure that all citizens have access to affordable energy. The current legislation provides the possibility to impose energy prices to protect vulnerable customers or to ensure public service obligations, provided they respect certain conditions, to ensure that they are clearly defined, transparent, non discriminatory, etc. However, such regulated prices should be the exception and not the rule in a competitive environment. Regulated tariff prices for all customers would prevent the benefits of competition from being reaped.
Where's the freedom of choice? Why can't consumers have the freedom of choosing regulated prices, if that's their choice? Aren't they responsible enough to make that decision? If such prices are higher, the decision should be easy, right? Or is it that the decision is all too easy to make and would not be favorable to the energy traders and banks whos interests seem to be the only one the Commission has in mind?
What will happen to a "vulnerable" consumer (an unemployed, handicapped or retired person) who does not have enough income to pay market prices?
Vulnerable customers already have a high degree of protection in the current legislation to ensure that they have access to the energy they need to lead a decent life. This is for example guaranteed through the possibility of governments to have a supplier of last resort, or measures to avoid disconnection. To clarify the framework, the Commission proposes to define binding guidelines to be attached to the current law.
How is the Commission going to make sure that citizens who live in areas that are not interesting to the market also enjoy their right to energy at affordable prices?
The rules in the current Directive that apply to consumers with lower incomes or other difficulties, also apply to customers in remote areas. In addition to this, if countries want to build infrastructure to serve isolated areas, the possibility to be temporarily exempted from many of the requirements of liberalisation already exists.
Hmmm... so where exactly is the line between the acknowledged market failures (that require government intervention) and the other market failures?
The EU's use of renewable energy should be 20% of its energy mix by 2020. This target cannot be met without a properly functioning energy market.
Grrrr... What a fucking STUPID thing to say.
How hard is it to vote a law that says "all electricity-generating companies must produce 20% of their electricity from renewable sources by 2020 or face fines of [_] for non-compliance" ???
the proposals give access to smaller companies - for instance those that invest in renewable energy - to the networks and thus to the energy market.
Sigh... giving access to the network for renewable energy creates a distorsion in the markets by giving them special rights. That's needed precisely because market mechanisms don't work so well for intermittent power sources like wind. So it's not liberalisation that works there, it's exceptions to liberalisation...
There's more, but I'll stop here.