DEREGULATING ELECTRICITY MARKETS:

THE FRENCH CASE

Presented By:Ahmad FahmyHuiping LiSofia Ait BellahSwati Singh

Generation (30% cost)● Production of energy● Cost and flexibility

Transmission (40% cost)● Transportation of electricity● Capital intensive● Continuous maintenance● Regulation of access fees

Distribution: (30% of cost)● Connection of high voltage

grid to the final consumer

Sales and services:

● Price and quality

Suitable for competition

Suitable for competition

Natural monopolies

Electricity Supply Chain

1989

History of Liberalization

1980

1990

2000

2010

Call for market liberalization

Deregulation for consumer for > 20 GWh

80% of the market deregulation+

Full Liberalization of the UK

UK vertical unbundling

Deregulation for consumer >40 GWh

EU directive announcement for a full liberalization

by 2005

Full liberalization of the European

market in energy

1980

19891999 2001

2000 2002

2007

Fully liberalized

Bound to full liberalization

FRANCE

Liberalization Map (2002)

Causes of Liberalization• European Union

integration • Solidarity between

the EU members

Political

• Avoid market power

• Lower prices

Economical

• Avoid cross- subsidization

• Equal choices of suppliers

Social

• Fully computerized systems

• Unbundling

Technological

• Higher resources with multiple interconnections

Security

• Reduction of the capacity

• Entrance of efficient companies

Efficiency

The French Case:EDF

Energy independence (world exporter and nuclear program)

Over capacity

Low electricity costs Market monopoly

France: Anti-liberalization• The Govenment and

EDF relationship• Ambition of globally

expand• Labor unions

Political

• Overcapacity • High market share• Profitable sector

( among lowest prices)

Economical

• Strong committment to serve customers: cross subsidization

• Job protection: public opinion

Social

57 nuclear reactors generating 75% of power for the country

Technological

• Public interest rather than market dominance (price volatility)

• Guarantee electricity supply to customers

Security

Low costs due to overcapacity and economies of scale

Efficiency

• Minimum requirements of liberalization

• Only 30% market open• Postponed the adoption

• Fully liberalized• Unbundled vertically• Generation -two companies.• Transmission -regulated

private monopoly. • Distribution -12 companies

• Fully liberalized• Negotiated third party

access

• Liberalized in phases• Nordic electricity pool

Measure and Policy

Alternatives

Negotiated TPA

Regulated TPA

Single Buyer Model

• Direct supply to consumers • Deal with transport tariffs and conditions• Subject to a dispute settlement mechanism.  • Ensure respect of system security.

• Fixed tariffs by the relevant authorities• The tariffs are applied to all users of the network.

• A single entity will buy and sell electricity. • Ensure respect of services of general economic

 interest. • Direct  contract negotiations  are  only foreseen

Transmission and distribution:

How was the EU market liberalized

Between the European Commission & France

Time

M&A

• France government: Prolonged resistance• European Commission: Lacked the legislative

power

• EDF’s strategy: Mergers and Acquisition • European Commission: Approval of EDF’s international acquisitions→ EDF’s concessions in its domestic market

Effects on EU electricity prices

Effects on EU electricity prices

Effects on EU

Effects on EU

Pros of liberalization

New Pricing Model• Competition(low prices + no market monopoly )

• Competitive retail markets may provide new business opportunities

Economic Benefits

• Competitive energy industry• Attract new investors

Economies of Scale• Optimal to produce electricity for higher demand

Technological• Opportunity to decentralize power production with new gas turbines

• Changes in energy mix

Environmental Benefits• Decreasing use of coal/nuclear plants

• Increased utilization of gas stations

Diversification• Higher possibilities for commercial innovation

• Wide, equal customer choice

Utilities Trend

 

# offers (#

suppliers)

Fixed offers

Spot based offers

Dual fuel

offersGreen offers

Free products

or services

UK 59(22) 32 0 39 8 15

Spain 32(19) 2 0 0 15 0

France 29(11) 10 0 7 10 1

Finland 204(43) 110 16 0 63 5

Denmark124(23) 61 6 0 34 25

Diversification Switching Ratio

Energy Trends

Is there a dark side?

Economic Contradictions

High cost of setup

Very volatile prices

Natural market power of supplier

Complex Formulation

Centralized governance, independent system operators

Consumers are excluded

Slow economic growth

Low internal competitive market caused by problems of:• access to the network, • taxification issues • unequal degrees of market opening between members

Pricing discrimination

High prices for low income customers and rural clients

Industrial prices are less than household electricity prices

Lower opportunities for long term projects with low cost of capital

Stakeholders- Liberalized Electricity Market

Power Generation Companies

Power Transmission Companies

Power DistributionCompanies

Sales and Service

Customers

Effects on Stakeholders

Power Generation Companies

Power Transmission/ DistributionCompanies / Retail

• Natural market power• Essential role in policy deregulation• Increased energy mix• Economies of scale

• Competitive market• Diversification of

services• Higher efficiency• New entrants

• Lowered prices• Future prosumers• Free choice

Consumers

Regulatory Bodies

• Complicated policy formulation

• Complaints redressal forum

Final Thoughts

Need to take into consideration both the

benefits of the customers and the suppliers

Relation between price change and

liberalization cannot be substantiated

Highly fluctuating

demand

Low power of EU over countries

Need to take into consideration each country’s specification

Tempered strength of

regulation bodies

Vulnerable exercise of

market power by generators