Power to the European Market - Assignment Example

When people hear the term monopolies they associated the market structure with one company that has the power to abuse the industry. Cases such as the Microsoft’s monopoly accusation have created a negative stigma to what constitutes a monopoly. In a monopoly market structure there is only one company with the power and control over the industry. Traditionally the utilities industry has been categorized as a natural monopoly. Utilities create monopolies based on regional geographic considerations. In the European continent there are lots of efforts underway to create energy. Along the European shores there are ten countries that will sign a pact to start working on an underwater electrical grid to link up disparate projects (The Economist, 2010). Norway has hydroelectric stations that can serve as giant batteries that store energy. Spain can take advantage of solar and wind renewable energies, while the Sahara desert has the potential to be a productive region for the implementation of solar technology. Europe would benefit tremendously if the producers of energy could trade energy over the grid in a single market. The estimated made by European officials established that energy savings of between 20%-25% could be possible. In Europe energy is being generated through multiple technologies including wind, sun, gas, and nuclear power. The European commission established that the government has to invest nearly $1.4 trillion over the next decade in its energy infrastructure. The fact that utilities are a public monopoly enables this industry to receive governmental assistance. Creating a single energy market in Europe will be difficult due to the fact that electricity and gas networks are treated as natural monopolies. Currently the only countries that are sharing their energy resources are Spain and Portugal. The fragmentation for the gas industry is even worse than the one for electricity in Europe. New regulations such as EU’s 20/20/20 which seeks a 20% greenhouse gas, a 20% reduction in energy, and a 20% increase in renewable energy should help increase cooperation. Another change in the industry that will help form a single market is the fact that companies must now either sell their distribution networks or run them as a separate business. A single energy market in Europe would represent the biggest utility monopoly market in the world. Work Cited Page The Economist. 11 November 2010. “Power to the European Market.” 4 December 2010. The Economist. Appendix A: Copy of the article Charlemagne Power to the European market A single energy market would be good for consumers, the environment and security Nov 11th 2010 | from PRINT EDITION OIL and gas are being drained from under the North Sea. But its time as Europe’s energy reservoir is not over. Along its shores and on its waters, thousands of turbines are being built to harness the winds. Next month ministers from ten countries will sign a pact to start work on an underwater electrical grid to link up these disparate projects. When one place is becalmed, a gale may be howling in another; when the turbines are churning out surplus electricity, hydroelectric stations in Norway can switch into reverse to become giant batteries. This offshore grid is the germ of a big dream: a Europe-wide system of electricity highways. If it makes sense in the North Sea, it makes even more for wind and solar power from Spain and, one day, solar energy from the Sahara desert. And as well as Norwegian reservoirs, why not store power in existing Alpine valleys? This would reduce the need for more power stations to balance the spikes and troughs of renewables. Moreover if producers could trade energy over the grid in a single market, the benefits could be bigger still. European officials reckon energy savings of some 20-25% would be possible. Such ideas have nostalgic appeal because the European Union was born from a move to pool energy sources in 1951 in the European Coal and Steel Community. These days the EU can be the community of wind and sun, not to mention gas and nuclear power. The trouble is that such dreams are not cheap. The European Commission this week said that €1 trillion ($1.4 trillion) of investment would be needed in the next decade. Most should come from the industry, but a chunk must also come from already tight public budgets. Related topics Europe Russia European Union Creating a single market has long proved tricky, partly because electricity and gas networks have been treated as natural monopolies. Interconnections between electrical grids exist, and some trading already takes place between neighbours. But for the most part the EU consists of national energy bastions. Spain and Portugal have only flimsy links across the Pyrenees to France. Almost two decades after independence, the Baltic states are largely tied to the Russian grid. The fragmentation is worse for gas. A row between Russia and Ukraine over gas prices in January 2009 led to a two-week halt in gas deliveries to a swathe of countries across central and eastern Europe. Things are starting to change, thanks in part to liberalising measures by the EU, in part to technological change and in part to new political perceptions. These days the advocates of a single energy market are inspired not just by efficiency, but also by the need to reduce Europe’s vulnerability to another cut-off and a desire for greener energy. Take the EU’s “20/20/20” climate-change target (by 2020 it seeks a 20% cut in greenhouse gases, 20% cut in energy use and 20% of energy needs from renewable resources). This will involve big changes to the grids. More electricity will be required to power electric vehicles, and more must be renewable. Power will come from sources, such as wind turbines at sea, that are more distant, spread out and variable. Bigger and smarter grids will manage not just supply more efficiently, but also demand by switching off equipment at peak times. None of this will remove the need for other forms of energy. Consumption of natural gas, in particular, will continue to rise, not least because it is an easy way to generate backup power. But ever since the 2009 gas crisis, the EU has worried about relying on Russia. It is promoting the Nabucco pipeline to bring gas from the Caucasus and the Middle East (and perhaps Central Asia), bypassing Russia. This rivals the Russian-backed project, South Stream. Russia is already building Nord Stream, a pipeline under the Baltic Sea to bring gas directly to Germany. The contests over pipelines should matter less as Europe starts to move gas more freely within its borders. The EU is putting money into interconnectors and reverse-flow pumping systems. It is also requiring countries to stockpile gas. And a succession of EU laws, not to mention investigations into anti-competitive practices, are bringing about a degree of “unbundling”. Energy companies must now either sell distribution networks (ie, grids and pipelines) or run them as wholly separate businesses. An important test case is the Yamal gas pipeline from Russia to Germany via Poland. Earlier this month the European Commission made Poland renegotiate the terms of the contract to ensure that the Polish section is run by an independent operator and can be used by third parties (assuming Polish regulators do their job). The case has given notice that Brussels is intent on breaking up other gas monopolies. But perhaps the biggest change is the technological breakthrough that now allows America to produce large quantities of shale gas. Natural gas shipped from the Middle East and elsewhere in liquefied form has been diverted to Europe. The glut has thus helped to create what Europe lacks: a spot market. Its prices are lower than Russia’s long-term deals. No longer the bear’s market Gazprom, Russia’s gas giant, dislikes all this liberalisation, arguing that losing control of pipelines will deter investment. Trying to rely on the spot market, it says, will rebound against Europe. Low prices could prompt Russia to hoard gas or sell it elsewhere; in any case the glut will not last forever. Europeans should disregard such talk. Russia depends heavily on Europe to buy its gas. Russia provides about only one-quarter of the EU’s gas needs, but closed and fragmented markets leave European countries more vulnerable than they need to be. This does not mean that Russia should be excluded. It should sell its gas freely, just as Europeans should sell gas among themselves. Europe says it wants to speak to Russia “with a single voice”. To do so, it must first have a single energy market. Read More