March 28, 2008
Stock markets not managers or trade unions are the most efficient to arbitrate low risk regulated activities such as transmission networks and high risk activities such as competitive power generation. Ownership unbundling will allow this financial choice.
Looking at the economic pluses, they are twofold. Ownership unbundling eliminates a potential danger: the remaining incentives for incumbents to use the access to the transmission grid to limit competition from rivals. Undoubtedly, other forms of unbundling are also effective in coping with such anticompetitive behaviour. It is true, for instance, that the access to the grid in France is actually fair and non-discriminatory even though RTE is owned by EdF. A spin-off will not improve competition on the French wholesale electricity market. However, what is true today may not be tomorrow. One cannot exclude in the future a less effective French regulator, a less independent CEO of RTE, or a more intrusive chairman of EdF. Ownership unbundling nips the temptation of foreclosure in the bud and thus reduces the regulatory costs to ensure that network access levels the playing field.
Moreover, ownership unbundling would facilitate consolidation and Europeanization of transmission networks. Today, the boundaries of Transmission System Operators (hereafter, TSOs) companies are limited to national borders. In some member states like Germany, there are even regional network companies. By contrast, the grid is largely interconnected and electrons ignore borders. The optimal industry structure for electricity transmission in Europe does not correspond to 33 transmission grid companies. Cross-border alliances, mergers and acquisitions would improve the management system operating. This is especially true for interconnections for they will be managed by a single operator, not by two different parties at each end of the cross-border high voltage line (the November 2006 German black-out is a good illustration of networks pancaking drawbacks).
While ownership unbundling is a sound policy measure, it is not a panacea. It is not a magic stick that will transform the existing national championship of pumpkins into a shining procompetitive EU princess. It cannot do that because we still desperately need more effective integration of national markets, stronger cooperation among TSOs, and more European oriented mind from National Regulatory Agencies.
From Energy Policy BlogAuthor : EMI