Europe’s retail energy markets – barriers and best practices

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Barriers remain to the liberalisation of European energy markets, many country specific but many also pan-European, a major new study finds.

The study, more than a year in the making, was focused on retail including demand aggregation services in electricity and in most cases also the gas markets in 30 European countries, i.e. the EU27 states plus Great Britain, Norway and Switzerland.

Participants included regulators, suppliers and other stakeholders, with input by way of interviews, questionnaires, webinars, workshops and the published literature.

The study report notes that European retail energy market liberalisation is now well into its third decade in the most mature markets. The aim was to investigate the extent of any barriers still faced by energy suppliers in these markets.

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The study identified no less than 45 barriers spread across individual and multiple markets. Of these, the top five were the competitive advantage of vertically integrated market players, low customer awareness or interest, uncertainty around current and future regulatory environments and the strategic behaviour of incumbent or other market players.

Other top barriers were the lack of data for product development, wide-reaching price regulation, insufficient price signals for end users and the low margin of the regulated offer.

Delving down into the individual countries, the project developed a ‘Barriers Index’ quantifying the burdens each face. Based on this ranking the Norwegian electricity market faces the fewest barriers and the electricity markets of Slovenia, Sweden, Netherlands and Finland are also outstandingly entrant friendly.

The common feature of these countries is that they do not regulate the end-user prices, and except in the Netherlands, there is no licencing obligation for new suppliers.

At the other end of the scale, Cyprus tops the barriers index, while Bulgaria, Poland, Lithuania and Romania are also amongst the high barrier countries. In general, countries with extensive price regulation are at the top of the list.

Amongst gas markets, the Netherlands is in first place, while the Belgian, British, Austrian and German markets are also open for new entrants.

Poland, Romania and Bulgaria are mainly closed and suppliers face significant barriers in the gas markets of Croatia, Latvia, Greece, Hungary and Slovakia as well.

Policy suggestions

Based on the findings the study offers various policy suggestions at a pan-European level.

On market inequality full unbundling of the vertically integrated market players and restrictions on incumbent suppliers’ abilities to keep and win back customers are suggested.

Authorities should do more to educate and encourage customers to overcome the customer inertia.

There needs to be regulatory clarity and predictability particularly for the small innovative startups with limited investment support, as well as access to data for operations and services.

There is also a need, in many markets to improve the attractiveness of the business case associated with entering and competing in the market. One option is to create more harmonisation between neighbouring markets, enabling suppliers to gain scale by entering multiple markets.

The study was undertaken for the European Commission by the VaasaETT energy think, the Regional Centre for Energy Policy Research (REKK) in Hungary and the energy consultancy MRC Consultants and Advisory House.

The findings are presented in a final report along with 28 individual country handbooks and further documents.