The Genesis of EU Electricity Market Opening: Liberalization Effects and Obstacles

Abstract

The paper focuses on the process of liberalization of the electricity market and its functioning in the EU. The European electricity market is in the middle of its transformation from a monopolistic state-owned production and distribution to privatized markets with various competing firms. The basic objective of liberalization of the electricity market has been the optimization of economic performance and the increase in the efficiency of the electricity sector, with the primary purpose of enhancing the competitiveness of EU economy. The speed of liberalization differs widely across European countries and provides dissimilar results in each country separately. These results are seen in the diversity of electricity price and production efficiency, which covers for the lack of competitiveness. This research is based on the thesis that the liberalization of the EU electricity market will succeed in achieving some of the basic goals defined by EU Electricity Directives. Positive shifts have been achieved in raising the level of service quality, increased efficiency of the sector, reduction of the need for construction and maintenance of reserve capacities, and formal market opening. On the other hand, the realization of particular reform objectives did not result in success. Uniform market prices have not been achieved since there are still large variations in the electricity prices among EU countries, especially between old and new EU members. It seems that the EU internal electricity market is neither unified nor uniform, and there is no real convergence towards a single model. This article provides the research of the extent to which these liberalization goals have been achieved and/or are achievable and the degree of success of the shift from a monopolistic structure to a competitive market structure.