emcc: The European Market

The European Market

The energy market is one of the last markets in the EU facing cross-border integration - most industries are already competing in the EU Single Market. The proposal of the European Commission to create a common European energy policy, launched in early 2007, is one important step towards harmonising national markets into working regional markets and finally a pan-European market.

A Common European Energy Policy

According to the Electricity Directive of 2003, the key European legislation on establishing an internal market for electricity, every consumer in Europe should be free to purchase electricity from the supplier of his choice. Suppliers, on the other hand, should have access to all European customers. However, many of the national markets are still highly concentrated, lacking cross-border integration and suffering from weak competition. There is also insufficient price transparency, which benefits neither customers nor energy companies.

Creating Regional Markets

In a strategy paper in 2005 the European Commission for the first time mentioned regional markets as a step towards a pan-European market. On 10 January 2007, the European Commission published a package aiming at a common European energy policy. In addition to an overall target on reduction of CO2 emissions, increased energy efficiency and increased use of renewable energy, the Commission stresses that further steps need to be taken towards a competitive and open European electricity market.

Since then, regional initiatives have been started by the European regulators in ERGEG (a European body of independent regulators acting as an advisory group to the Commission). With initiatives such as the EMCC-Project, which turned into an operational comany on 28 August 2008, the strategy is beginning to bear fruit.

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Benefits of Cross-Border Competition

Integration of markets, resulting in increasing cross-border competition, brings more actors into the market. Hence customers are given more choice and more variation between offers.

Fair and Competitive Prices

Unlike the regulated national markets that exist today in many parts of Europe, prices should be set where supply meets demand. The market function sends the right signals to both consumers and generators. Consumers are given accurate information on the cost of increased use of electricity, thus stimulating efficient use. Generators get indications on the maximum cost of establishing new generation, creating the prerequisites for fair and competitive prices.

Transparency Improves Market Functions

If the principle of market pricing is to be successful, there must be trust in the price formation mechanism. Consequently, access to the same transparent market information for all market participants is crucial.

Security of Europe's Energy Supply

Security of energy supply depends on the availability of energy sources, sufficient investments and reliable transmission and distribution systems. An integrated European energy market reduces dependence on a particular country, fuel or trade partner. Also, such a supply structure would facilitate crisis support between countries.

Support for International CO2 Reduction Targets

An integrated energy market will enable European countries to speak with one voice on international energy issues. This would facilitate the EU's ambition to get global action in curbing climate change.