March 27, 2008
Ownership unbundling is the most debated and conflicting issue of the third energy liberalisation package. This is unfortunate. Firstly, there is no fundamental reason for a controversy. Ownership unbundling has undoubtedly more advantages than drawbacks from a general economic perspective. Secondly, it is not the first priority to improve the internal electricity market. Ownership unbundling does not deserve the spotlight it has got.
CEOs and trade unions of energy companies, Member States ministers and MPs, European Commission officers and Commissioners, have engaged the mother of all battles for or against its introduction within the third energy liberalisation package. This is baffling from an economic standpoint because the matter is settled.
Generally speaking, vertical integration can be procompetitive. It often saves transaction costs and facilitates coordination. It can, however, also raise anticompetitive effects such as foreclosure. By denying access to an indispensable input, the vertically integrated company can eliminate or marginalise rivals from the market. When both effects occur the pluses and minuses have to be balanced on a case-by-case basis. As far as ownership unbundling between transmission systems and generation or supply activities is concerned, this balance has not to be assessed by comparing unbundling and its absence, but by comparing different forms of unbundling. In fact, EU energy law already mandates unbundling that separates accounts and management between the transmission grid and other electricity businesses. The issue is therefore whether the third package should require a more drastic type of unbundling than the one that exists today.
From Energy Policy BlogAuthor : EMI