Reforms in the French power system: from weak contestability to effective competition?

Abstract

One way to introduce competition in the power industries is to preserve the integration of the incumbent companies and to organise the access of potential competitors to the network on a fair basis. But the combination of hierarchy and bilateral contracts between entrants (IPP candidates, foreign producers, intermediaries), suppliers and consumers appears to be unstable because of permanent tensions between the incumbent's dominant position and fair competition. Moreover, in an institutional environment enlarged by the supranational powers of the European Union, heterogeneity of rules and structures between quasi-integrated power industries and decentralised competitive ones are sources of permanent questioning. The paper analyses the stability of the recent reform of the French power industry, the extreme integration of which being deeply rooted in the French institutional peculiarities, has been weakly affected by the Directive 96/92 transcription. Two institutional scenarios are defined, which give a different weight to two competition paradigms in conflicts: one pertains to the industrial policy (which inclines to preserve hierarchy in the national area to gain national champion's competitive advantages in the European as in the global field), and the other to the neo-classical paradigm of effective competition. In the first scenario, the integration of the industrial organisation is preserved but with transparent grid access rules supposed to create an actual market contestability, and the playing field is the continental Europe on which national champions compete. In the second one, the French industrial organisation has to conform to the competitive model, with vertical and horizontal disintegration and creation of a power exchange market for promoting competition. But this scenario is heavily strained by the institutional determinism of the nuclear legacy. The future reality should be set between these two scenarios.