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The 3rd energy package and the liberalisation of the energy market

The 3rd energy package and the liberalisation of the energy market

The internal market in electricity is being progressively developed throughout the European Union since 1999 and aims to deliver real choice for consumers and increase cross-border trade in all Member States. With these improvements in the functioning of the market it is expected that a higher level of efficiency gains, more competitive prices, higher standards of service, increased security of supply and a greater sustainability will be achieved.

As Directive 2009/72/EC of the European Parliament and the Council, of 13 July 2009, emphasized: “The freedoms which the Treaty guarantees to the citizens of the Union – inter alia, the free movement of goods, the freedom of establishment and the freedom to provide services – are achievable only in a full open market, which enables all customers to freely choose their suppliers and all suppliers freely to deliver to their customers.”

The report of DG Competition of 2005 on the state of implementation of the 2nd energy package identified very clearly the main obstacles to the intended level of market integration and liberalization: market dominance of the incumbent utilities, vertical lock-up of the market through long term contracts, integration of competitive activities  (generation and supply), discriminatory behavior of some monopolistic networks in the access to infrastructure and the existence of generalized end-user regulated tariffs.

This report highlighted the shortcoming in the implementation of existing legislation and prepared the way to the launching of the 3rd energy package in 2007.

Since then, many utilities throughout the European Union have undergone a deep reshaping process, changing from the common integrated model dominant at the time, into unbundled undertakings, where the separation of networks from activities of generation and supply is effective and transparent.

Regulated tariffs have since long been deemed an anomaly of the energy market, that distorts competition and hinders liberalization. Hence, the efforts of the Commission to put an end to such practice.

Yet, in 2010 15 out of 27 Members States still had in place mechanisms of price control which resulted in the striking figure of 80% of final consumers buying energy at an artificially low regulated tariff.

The mistrust of Governments in the free functioning of the market is a direct consequence of energy being traditionally regarded as a matter of national interest and security, but the new paradigm persistently pursued by the European Commission leads to a new age where energy policy can no longer be seen strictly under a pure national perspective.

In a time when electricity was generally supplied by monopolistic utilities, regulated tariffs were the mechanism to control the occurrence of excessive prices. But with the arrival of new suppliers and with the significant increase of competition in the energy markets, as a result of both the EU and Member States policies, they impair the proper functioning of the market and shall no longer be maintained.

In April 2010, the Portuguese government in its National Energy Strategy (ENE 2020) http://www.renewable.pt/en/Portugal%20and%20Energy/Pages/PortugaleaEnergia.aspx approved a step by step phasing out of regulated end-user electricity tariffs, that started on 1st January 2011 for all clients not supplied in low tension (in principle those supplied with a tension between phases higher than 1kV and with a contracted power higher than 41,4kA).

In March 2012 the government set the final dates for the termination of the remaining cases of regulated tariffs, those concerning consumers, households and non-households, supplied in low tension: for clients with a contracted power of 10,35 kVA or higher regulated tariffs ended on 1st July 2012, for all the others the deadline is 1st January 2013.

All these consumers will have now to look for their own suppliers in the open market and be prepared to agree on prices and conditions offered by them. However, to avoid the consequences of a congestion resulting from a massive number (5,7 million) of clients switching contracts, it was allowed that they continue to be supplied by the former supplier during a transitional period of about three years, but at a transitional tariff which is charged with an aggravating factor, meant to act as an incentive to consumers to join the open market.

The process of the extinction of end-user regulated tariffs in the electricity sector has now been accomplished in Portugal and it represents a considerable policy change for all people affected.

Let us do hope that these changes will result ultimately on their benefit.

António Alfaia de Carvalho

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