Dr Frederik Dahlmann, University of Warwick
Johan Lindeque, Amsterdam Business School
Ans Kolk, Amsterdam Business School
Overview
The European electricity generation sector has been subject to several high-profile EU policy interventions over the last two decades, including policies related to market liberalization and integration (Directives 96/92/EC, 2003/54/EC and 2009/72/EC) and climate change through the promotion of (electricity generated from) renewable energy (Directives 2001/77/EC and 2009/28/EC). Although several separate evaluations of these EU climate change and energy policies exist (e.g., Battaglini, et al., 2012, Capros et al., 2011 – both in Energy Policy; Padgett, 1992; Torriti, 2010 – both in JCMS), in this paper we aim to address the lack of an integrated assessment of how the related EU internal electricity market and renewable energy policies have affected both member states’ fuel mixes and their generation capacity concentration rates.
Methodology
For our empirical research we draw on data from Platts ‘PowerVision’. PowerVision provides power plant specific data and information on installed and planned generation capacity in the European power sector. For our analyses we draw on all installed power generation capacities across 24 major European countries between 1996 and 2012. Specifically, we calculate generation capacity concentration rates both on the basis of the Top 50 and Top 10 main holding companies that own the plant operator firms by employing the Herfindahl-Hirschman Index (HHI). We then investigate and provide insights into the changing generation capacity concentration and fuel mix trends at European, regional, national and firm levels.
Results
Across our sample of European countries and regions, we witness the installation of increasing rates of renewable energies that are changing the fuel mixes of their respective geographies. Moreover, we observe that generator capacity ownership concentration rates are falling across all European regions and countries, the number of owner-operators in each market is increasing and thus asset ownership is dispersing. Additionally, the market shares of the ten biggest operators in all countries and regions are slowly declining over time, again an indication that increasing levels of competition at the generation level are gaining traction. Finally and significantly, we find that increasing rates of renewable energies are playing a major role in contributing to upstream market competition and decreasing asset ownership concentration rates.
Conclusions
Our findings suggest that two different sets of policies with aligned but not explicitly cross-referenced aims and objectives are clearly affecting each other in more or less unintended ways. In this paper, we provide empirical evidence that renewables have directly benefitted from the IEM directives, which enabled their growth and provided them with access to the market. Our results support the hypothesis that IEM directives have somewhat unwittingly, and climate change directives more or less directly, encouraged and enabled greater numbers of firms with renewable energies into the national and regional markets. As a result, increasing levels of renewable energies have grown their shares of the total installed capacity that is not owned by incumbents (e.g., major utilities) and which has led to broadly decreasing ownership concentration rates. The challenge now for business and policy makers is to translate and integrate this high-level of growth in decentralized, intermittent market entrants into a competitive internal electricity market which delivers power at economically and socially sustainable levels.
Keywords
EU policy, internal electricity market, renewables, competition
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