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20 Years of Regulation in the European Energy Market – EXXETA Energy Blog

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20 Years of Regulation in the European Energy Market

20 years ago the EU decided to create a free energy market in order to make cross-border trading of electricity and gas easier, more transparent and more efficient. This was a mission that required common rules. Between 1996 and 2009 three legislative packages were adopted in an effort to harmonise and liberalise the internal European energy market. Let’s take a look at what’s happened since back then and where we stand on our way towards achieving a common internal European energy market.

Up until the 1990s the energy markets in the EU member states used to be dominated by vertically integrated energy monopolies. Varying national frameworks hindered competition in the national energy markets. The First Energy Package of 1996 paved the way for market opening. It provided rules for third-party access to decouple the trading of electricity and gas from their physical availability in a particular network and so marked the first time that competition became possible despite still existing network monopolies. Additional rules aimed at fully liberalising the energy sector were introduced by the Second Energy Package, which was adopted in 2003. It imposed an obligation on member states to implement unbundling provisions requiring energy companies to separate their network and sales businesses so as to remove further barriers to competition. The Energy Packages opened the gas and electricity markets in the EU member states to new entrants and enabled commercial and residential customers to freely choose their supplier.

Nevertheless, the reforms introduced by the first two directives did not lead to the intended cross-border integration and harmonisation of the rules applied in the individual EU member states. No common legal framework and rules existed for the energy markets. This situation was addressed through the corrective measures adopted as part of the Third Energy Package, which was passed in 2007. This time the EU chose regulations as its legal vehicle with a view to providing binding legal provisions that would leave no individual room for implementation. Among other acts, the Third EU Energy Package comprised regulations on conditions for access to the network for cross-border exchanges in electricity and on conditions for access to the natural gas transmission networks. So-called network codes were established to provide binding rules for tariffs, capacity allocation, congestion management, balancing and data transparency. To further and monitor the cross-border cooperation between the national regulatory authorities the pan-European regulatory authority ACER and ENTSO were established.

Today the internal European energy market remains incomplete. Both unclear descriptions of the relevant concepts at the time the European rules were introduced as well as unrealistic implementation deadlines imposed by the EU authorities have resulted in differing interim rules and mechanisms across the EU member states. Yet, all in all, some harmonisation of the applicable rules has clearly been achieved.

As a consulting and IT partner with many years of experience and comprehensive industry expertise we have supported energy market participants operating in the European energy market in implementing their regulatory requirements. If you are interested or have any questions, please feel free to contact us at energy@exxeta.com.

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