State intervention in the European electricity market

On 5 November, the European Commission published a communication, ‘Delivering the internal electricity market and making the most of public intervention’. Public, or state, intervention can be at regional, national or local level and can take different forms, such as state aid to certain sectors or companies in the form of grants or exemptions from taxes and charges; imposing public service obligations; or regulation through general measures.

This communication is the latest in a line of documents emanating from Europe around energy. It has been issued now because the EU has set a deadline of 2014 for the completion of the internal EU energy market, where cross-border markets for gas and electricity must be up and running in all parts of the EU, but there is concern that this deadline will not be met.

It is specifically focused on the electricity market although the principles can be applied in other energy sectors such as gas and heating. The commission has focused on reviewing public intervention in the electricity market in particular because such intervention has a significant influence on the cost and prices of electricity. There is a need for public intervention to secure a level playing field, overcome market failures, foster technology and innovation and, more generally, support the market in delivering appropriate investment signals. If not done properly, public intervention risks being counterproductive and distorting the functioning of the internal market, leading to higher energy prices for both households and businesses…

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