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Market integration is increasing, says RWE study

Written by: Sian Crampsie | 15 January 2010

Electricity markets in Europe are at an advanced degree of integration thanks to the efforts made by power exchanges, energy companies and governments over the last few years, argues consulting firm ESMT Competition Analysis in a new report.

The company has examined the development of Europe's wholesale electricity markets in a study commissioned by German utility RWE, and says that market integration is continuing to grow. Its report focuses on the wholesale electricity market in Germany, where, it says, prices are not inflated.

In 2007 the European Commission was highly critical of competition levels in some European electricity markets and the lack of integration, the market power of national players and the low level of investment in new generation capacity. ESMT says that European electricity exchanges now collaborate more closely and Germany's electricity market is competitively linked to the Netherlands, France and Austria.

In 2010, the German spot exchange market will be coupled with those in France, Belgium, Luxemburg and the Netherlands. As transmission system operators and exchanges work together, an interconnected market will emerge with an optimised use of cross-border capacities and identical exchange prices.

ESMT's analysis indicates that if Germany's energy suppliers had increased their prices by five per cent, they would have been undercut by foreign suppliers in half of all trade hours. It also shows that increased exchange capacities with neighbouring countries to the west and south of Germany could result in increased prices in Germany.

Increased exchange capacities with countries to the east and northeast of Germany could help to lower wholesale prices.

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