European Electricity Industry Research Articles

Switching Behavior in the Polish Energy Market—The Importance of Resistance to Change

(1) Background: Consumer switching behavior was one of the expected outcomes of the ongoing competitive reform in the European electricity industry. The aim of this study is to analyze the factors that affect the intention of consumers to switch from their incumbent supplier, who has a strong market position. This article follows the trend of describing and analyzing the situation of incumbent energy suppliers after energy market liberalization. (2) Methods: The research goal was to verify seven research hypotheses regarding switching intentions on the Polish energy market. For this purpose, structural equation modeling analysis using AMOS 29 was conducted. The survey was carried out in 2020, before the SARS-CoV-2 pandemic in Poland, and the research sample consisted of 1216 adults (clients of the incumbent supplier). (3) Results: Special attention was given to customers’ resistance to change, as it was found to be a factor that can impact customers’ decisions to switch, both directly and indirectly. Resistance to change can affect the trust that customers have in their current supplier’s brand, their perception of the costs involved in switching, and their intention to switch. The research also highlighted the importance of brand trust and perceived ease of change in the customers’ decision-making process. (4) Conclusions: An important factor that reduces switching behavior is the customer’s resistance to change; brand trust is a valuable asset that also reduces switching intention.

Electrification: a central piece on the climate agenda

The transition to a net-zero emissions economy is gaining pace in the EU. The ‘Fit for 55’ package, which seeks to establish a clear and steep decarbonization trajectory, marks a significant progress in aligning the long-term net-zero ambitions and committing all economic sectors to contribute. The European electricity industry is leading the charge and offering the most cost-effective solution to decarbonize energy intensive sectors like transport, heating and cooling and industrial applications. As electricity becomes the cleanest energy vector, the ‘Fit for 55’ package introduces electrification as a core avenue for decarbonization. Going forward, the electrification of end-uses coupled with the deployment of clean generation capacities and the modernisation of electricity grids, will be essential for achieving the long-term climate objective.

Why electricity market models yield different results: Carbon pricing in a model-comparison experiment

The European electricity industry, the dominant sector of the world's largest cap-and-trade scheme, is one of the most-studied examples of carbon pricing. In particular, numerical models are often used to study the uncertain future development of carbon prices and emissions. While parameter uncertainty is often addressed through sensitivity analyses, the potential uncertainty of the models themselves remains unclear from existing single-model studies. This study investigates such model-related uncertainty by running a structured model comparison experiment, which exposes five numerical power sector models to aligned input parameters—finding stark model differences. At a carbon price of 27 EUR/t in 2030, the models estimate that European power sector emissions will decrease by 36–57% when compared to 2016. Most of this variation can be explained by the extent to which models consider the market-driven decommissioning of coal- and lignite-fired power plants. Higher carbon prices of 57 and 87 EUR/t yield a stronger decrease in carbon emissions, by 45–75% and 52–80%, respectively. The lower end of these ranges can be attributed to the short-term fuel switch captured by dispatch-only models. The higher reductions correspond to models that additionally consider market-based investment in renewables. By further studying cross-model variation in the remaining emissions at high carbon prices, the representation of combined heat and power is identified as another crucial driver of differences across model results.

Structural reforms and productivity in the electricity generation sector

ABSTRACT The European electricity industry has witnessed substantial restructuring over the last decades, aiming to introduce competitive and efficient electricity markets. This study sheds light on the effects of vertical disintegration and privatization on the productivity of European electricity generators. Using a data set of firms, incorporated in 17 European countries, from 2006 to 2013, I estimate the effect of structural reforms, considering their endogeneity, on technical efficiency derived from production instead of cost functions. This study, therefore, fills the academic void of the effects of structural reforms on productivity. Furthermore, I control for weather conditions, being a novelty with respect to the previous literature. The overall results show that vertical separation significantly decreases productivity of electricity generators by 8–14%, depending on the production function chosen. Besides, privatization results in efficiency gains, thereby providing policy lessons on the implementation of structural reforms.

Eco-efficiency outcomes of mergers and acquisitions in the European electricity industry

The European electricity industry was recently liberalized. In response, there was a surge of mergers and acquisitions (M&As). This study addresses the effects of M&As on the eco-efficiency of European electricity producers in 2005–2013. The environmental production technology comprises CO2 emissions as an undesirable output. I compute eco-efficiency using data envelopment analysis (DEA) and the Malmquist-Luenberger productivity index, which are both based on radial directional distance function. I observe a decreasing trend in average eco-efficiency, which contradicts the previously documented moderate efficiency gains of liberalization. The effects of M&As are isolated using second-step fractional regression. The domestic horizontal M&As, which are systematically regulated by the European Commission, have no impact. Although one cross-border horizontal deal has a same-year effect of roughly −3%, this effect becomes approximately +1.5% over a two-year timespan. Vertical domestic M&As have a short-run negative impact of 3.6% that does not persist over time. Vertical international M&As reduce the eco-efficiency by 2.1% two years after their completion. Limited evidence suggests that the conglomerate deals are at least not harmful. The policy implication is that the merger regulation should be based on DEA eco-efficiency measures. Regulators should devote more attention to cross-border M&As and particularly to vertical deals.

Ownership and environmental regulation: Evidence from the European electricity industry

The paper investigates how ownership affects the environmental performance in developed countries where environmental regulation is introduced in the form of market-based instrument. By looking at a cross-country panel dataset of 29 power markets around Europe over the period 1990–2012, we find empirical evidence that an increase of public ownership, as measured by the OECD ETCR index, is associated with a reduction of both greenhouse gas emissions and carbon intensity. We also find that the implementation of the European Emissions Trading Scheme (ETS) had a limited impact on emissions' reduction due to lax allocation of allowances. The positive effect of public ownership on environmental performance has been significant even after the introduction of the ETS, giving additional incentives to mitigate emissions when the ETS cap was not stringent enough. This evidence suggests that government control over power companies in Europe can has created idiosyncratic incentives to improve environmental quality, complementing environmental regulation in the achievement of environmental goals when the latter was absent or sub-optimal.

Innovation and market regulation: evidence from the European electricity industry

This paper studies the effects of changes in the level of product market regulation on the industry-level innovation intensity in the EU electricity sector during years 1990–2009. In order to test the impact of deregulatory policies on the propensity to innovate in energy technologies, we match data on R&D budgets and European Patent Office patent applications from International Energy Agency and Eurostat Databases with the Organisation for Economic Co-operation and Development indexes of product market regulation. The analysis addresses innovations in the traditional electricity-related technologies, but keeping aside renewable energy technologies. Findings show an increase in patenting activities following market deregulation, measured along three factors: entry barriers, public ownership and vertical integration. In particular, econometric results suggest that policies aimed at reducing vertical integration – i.e. to unbundle networks from energy generation and supply – have a positive impact on innovation activity. Results are robust to the introduction of controls for country-level public R&D expenditures in the electricity field.

Cross-Border M&As and Eco-Environmental Performance of European Energy Utilities

European electricity industry has recently come through liberalization. Surge of intakes with high share of cross-border deals was market players’ response. Measuring of post-merger performance alterations is a central question of M&A literature. EU energy sector is responsible for significant part of global greenhouse gas emissions. Its efficiency should be regarded with respect to ecological dimension. This study addresses combined economic and environmental performance of 15 biggest European energy producers in 2005-2013. I exploit Data envelopment analysis (DEA) with CO2 as an undesirable output. Panel fractional regression model with financial controls is used to isolate effects of completed mergers. Results suggest that in short term firms profit from selling their subsidiaries to foreign counter-parties. This effect doesn’t sustain over time. Same-type domestic deals are detrimental in short run, but performance-enhancing in long term. Domestic and cross-border acquisitions immediately damage performance. Later ones stimulate efficiency in the long run.

Cross-Border M&As and Eco-Environmental Performance of European Energy Utilities

European electricity industry has recently come through liberalization. Surge of intakes with high share of cross-border deals was market players’ response. Measuring of post-merger performance alterations is a central question of M&A literature. EU energy sector is responsible for significant part of global greenhouse gas emissions. Its efficiency should be regarded with respect to ecological dimension. This study addresses combined economic and environmental performance of 15 biggest European energy producers in 2005-2013. I exploit Data envelopment analysis (DEA) with CO2 as an undesirable output. Panel fractional regression model with financial controls is used to isolate effects of completed mergers. Results suggest that in short term firms profit from selling their subsidiaries to foreign counter-parties. This effect doesn’t sustain over time. Same-type domestic deals are detrimental in short run, but performance-enhancing in long term. Domestic and cross-border acquisitions immediately damage performance. Later ones stimulate efficiency in the long run.

Market Monitoring and Analysis: Electricity Sector

EU electricity liberalisation remains an essential energy reform programme, in scale in any other major region of the world. While other regions of the world have seen major pauses to their energy market reforms (most notably in the United States), the EU in the form of the European Commission, continues to press ahead. Electricity market power in Albania is in a difficult situation as a consequence of the lack of the adequate home-brew electricity resources and the great dependency from the hydro resources, inadequacy of the interconnections capacity with the neighbouring networks of electricity power, the considerable technical and economic barriers, and the difficult financials. In countries where no “official” power pool has been set up, different kinds of privates’ entities, e.g. generators, distributors, traders, large consumers, stock exchanges, system operator etc. or a combination of them, have promoted the creation of PX-s. The idea is that because electricity is a homogeneous product, standardized contracts can be traded on organized marketplaces. Since such an initiative was not forbidden by any law or by the European Directives many project have emerged in response to different motivations. This process in Europe, known as the liberalization process, has had a wide impact on the European electricity industry. Electricity market liberalisation is the opening of the market to competition; the extension of vertical unbundling of transmission and distribution from the generation and retailing; and the introduction of an independent regulator. The focus of this project is an analysis of the role of electricity PX-s in the recently liberalized electricity markets of Europe. In the context of creating “a” competitive electricity market at a European level, the key questions considered are the functioning of these PX-s with respect to electricity characteristics, market design and regulatory framework. Keywords: Energy,‘Placing on the market”, ‘Eco design’,” Power exchange (PX)”

Small-scale, Big Impact – Utilities’ New Business Models for “Energiewende”

The European electricity industry looks back on two decades of major change: Liberalization has just been mastered, but the rising diffusion of renewable energy generation, particularly small-scale distributed renewable energy generation (DREG), poses new challenges. Electricity from renewables has priority in the grid and is supported by feed-in-tariffs in many countries. Hence, big power plants must operate under partial load for long periods and therefore do not reach their full efficiency. Consequently, the classic utility business model (UBM) summarized as “invest in a plant, earn a return, and turn the meters” is seriously challenged and additional business models (BM) for DREG seem vital. This paper addresses the major challenges for utilities concerning “Energiewende” and presents five new utility BMs for small-scale DREG focusing on optimized energy solutions for the customers and suitability regarding market potential and utilities’ capabilities.

What’s Happening to the European Electricity Market?

1. Introduction Since the first Electricity Liberalisation Directive (96/92/EC) a complex process towards the restructuring and deregulation of the electricity market was accomplished. Actually, market opening is slightly over 90%. EC Directives represented a successful, centralized approach to market liberalisation. Notwithstanding, switching levels being still low in households and heavy losses suffered by new entrants--then leaving the market--seem to point to a situation of legal opening rather than a real opening. Except for UK and North Pool countries, this may apply to a significant share of the European electricity (and natural gas) market(s) (EC, 2011). Serious deficiencies in the competitive structure of current market can be easily identified. They are related to: insufficient unbundling, highly concentrated market structures, insufficient network connections and significant differences between network costs and wholesale prices. Natural gas market distortions remain crucial, as gas is a major fuel for electricity generation. Its non-competitive market structure and still poor regulation of transmission and storage affect both markets. The problem of concentration seems chronic. Furthermore, both the European Commission and national regulators are facing increasing difficulties to control mergers on each market and between companies with activities in both markets, which is particularly problematic for a fair competition. The state direct or indirect aid to National Champions is still another problem as it can help concentration. The electricity sector is moving into a period of major investments, thus state resources can have important foreclosure effects on competition (Lowe, 2006). Furthermore, under a serious economic and budget crisis, some national governments as utilities shareholders, can have a strong influence on future market structure through the sale criteria (and final decision) of their corporate shares. Like other network industries (telecom, railways, aviation, postal services) electricity (and gas) have unique characteristics: significant economies of scale or scope (extending to natural monopolies); far-reaching externalities in production or consumption; and large vertical and horizontal integration. These features explain why the introduction of competitive mechanisms and the creation of open markets had equal impacts on both innovations and disruptions (Joskow and Schmalensee, 1983; Baumol and Sidak, 1994). Furthermore, beyond being capital intensive, the European electricity industry presents two other characteristics: price elasticity of demand below 1 and severe storage constraints. In what concerns the game and the strategic variables the electricity generation market is very much like a Cournot market with capacity constraints (Kreps and Scheinkman, 1983) where the quantities correspond to the decision variable. Even when the price is assumed as a strategic variable, the results of the strategies are similar to the Cournot game due to capacity constraint. Due to the nature of the electricity generation, the exercise of market power occurs almost naturally. In this paper we present a regulatory game played among the key group of electricity companies, the customers and the regulatory authority, discussing the strategic features under the process of taking liberalization measures to lower electricity prices or tariffs to end-users. The development of the game allows us to state for a clear commitment to entry freedom reducing the informational strategic advantage of incumbents. As the assumption of such a commitment involves another game, we develop it and we find that the sector opening to potential competitors and the liberalisation of entry are also a key factor for credibility and effectiveness of flexible regulation and tariffs reduction as well. The rest of the paper is organized as follows. …

The greening of European electricity industry: A battle of modernities

Europe has played the role of a green hegemon on the global arena for several decades. By exploring its green transition in the electricity industry, the article discusses whether Europe is on track with regard to delivering sustainable development in a core sector at home.The article finds that the greening of European electricity industry has been highly dynamic and can best be represented in terms of competing modernities; where carbon, nuclear, renewables and demand side management challenge each other in the race for sustainable energy solutions.The article describes Greening European electricity industry as a complex institutional game which resembles a relay race where various factors have driven innovation at different stages. Change may be initially have been politically driven, while the baton is later taken by markets, technology or civic mobilization. The article shows how strong greening policies may lead to blockage, whereas softer and less confrontational policies with triggering effects may have a better chance of success.The article also argues that a central factor in the apparent European success in greening electricity has been an advantageous blend of technology push and market pull approaches, which has merged out of national rivalry rather than coordinated planning.

Mergers, Acquisitions and the Determinants of National Competitiveness in the European Electricity Industry: An Empirical Test

Mergers and acquisitions (M&A) are critical operations by which companies implement their growth strategies. Over the last 15 years various phenomena have dramatically increased the number of national and cross-border M&A in many industries. Scholars have extensively studied the European electricity industry. The evidence commonly presented in recent scholarship is that, after the continental industry deregulation started in 1996, electric companies from the more competitive European countries tended to perform more M&A. However, to date scholars have not analysed whether the different types of context (i.e. national) conditions of one home-base impact homogeneously or heterogeneously on the M&A activity of its own national companies. This article presents the findings of a statistical analysis aimed at measuring the relationships between each determinant of the competitiveness of 26 European countries and the set of M&A (at both domestic and cross-border levels) of European electricity companies over the period 2008–09).

Corporate regulatory strategies in context

PurposeThe wave of regulatory reforms in European telecoms and electricity industries has had an important impact on the structure of the state as well as of corporations. The purpose of this paper is to explore the establishment of these regulatory organizations at the state and corporate levels within a unified theoretical framework, that is grounded in the politics of regulation.Design/methodology/approachThe case selection includes governance structures at the state and corporate levels in 16 European countries in both telecoms and electricity.FindingsThe data reveal that regulatory agencies exist in both telecoms and electricity sectors in all 16 countries under study, with the notable exception of Switzerland's electricity sector. At the same time, business corporate reforms were also evident, mainly via the creation of corporate regulatory offices at the headquarters of the firms. These departments, which redefine the patterns of responsibility within the corporation and have played the leading role in the negotiations with the external regulatory environment.Originality/valueThis paper strives to overcome the tendency in the scholarly literature to look only at one or the other aspect of the growth of regulatory development and therefore also to offer a narrow understanding of the growth of regulation. It asserts that the commonalities in the expansion of autonomous regulatory agencies and corporate regulatory departments suggest that the growth in the regulatory professionalization of the state and of business corporations reflects the changing nature of capitalist economy and society and the rise of a new global order of “regulatory capitalism”.

Structural Versus Behavioral Remedies in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns

We try to better understand the comparative advantages of structural and behavioral remedies of deregulation in electricity markets, an eminent policy issue for which the experimental evidence is scant and problematic. Specifically, we investigate theoretically and experimentally the effects on competition of introducing a forward market — considered a behavioral remedy by the European Commission. We compare this scenario with the best alternative, the structural remedy of reducing concentration by adding one more competitor by divestiture. Our study contributes to the literature by introducing more realistic cost configurations, by teasing apart competition effect and asset effect, and by investigating competitor numbers that reflect the market concentration in the European electricity industries. Our experimental data suggest that introducing a forward market has a positive effect on the aggregate supply in markets with two or three major competitors, configurations typical for the newly accessed and the old European Union member states, respectively. Introducing a forward market also increases efficiency. In contrast to previous findings, our data furthermore suggest that the effect of introducing a forward market is stronger than adding one more competitor both in markets with two, and particularly three, producers. Our data thus provides evidence that behavioral remedies may be more effective than structural remedies. Our data suggest that competition authorities are well advised, in line with EU law (European Commission, 2006a, p.11), to focus on introducing, and facilitating the proper functioning of, forward markets rather than on lowering market concentration by divestiture.

The liberalisation and diversification of the European electricity industry

European Commission directives for the liberalisation and deregulation of the European electricity industry were adopted almost at the same time in several nations. But each country had specific market structures and internal conditions. The aim of this paper is to analyse descriptively if and how differences between the home countries of European electricity firms affected, quantitatively and/or qualitatively, their diversification strategies after liberalisation. Research consisted of collecting and analysing data on the strategic actions of the main European electricity firms. The analysis covers a period often years (1998–2007), i.e. the first ten years after the first European directive. This paper sheds light on the link between pre-liberalisation specificities and attributes of a national electricity market and the post-liberalisation diversification strategy of its national electricity companies.

Le strategie di crescita delle imprese elettriche europee dopo la liberalizzazione

- The paper stresses how the recent directives of European Commission (aimed at liberalising the European electricity industry) affected the growth strategies of the main European electricity companies during the last 10 years. The most used strategies were diversification in other utilities markets (e.g. gas and telecommunications) and internationalisation (mainly via acquisitions of foreign electricity companies). These strategies were crucial in order to allow the transition of these companies towards the "multi- utility" business model.Keywords: electricity industry, liberalisation, firm strategies, internationalisation, diversification, acquisitionsParole chiave: industria elettrica, liberalizzazione, strategie d'impresa, internazionalizzazione, diversificazione, acquisizioni

How 'Europeanized' are the European Electricity Industries? A Cross-Country Analysis of Markets and Policies

This paper will show whether and to what extent it is possible to identify an impact of the European Commission (EC) on the Members States (MS) electricity policies and markets, in terms of convergence and integration among them. Mainstream recognizes a quixotic situation, which leads not to a convergence, but a convergence towards clusters of MS. In order to identify these clusters, a cluster analysis has been applied to a dataset, including country-specific data on electricity as of 2005. The final stable clusters do confirm the existence of three main groups, recalling a frequent taxonomy in the literature (Borzel, 2005), plus a fourth group including only Cyprus and Malta, whose dimensions and geographical aspects determine their similar results. It could be concluded that the EC has not (yet) enough strength to influence MS: the process of integration among markets will probably follow easily an already integrated industry.

The internationalization of the European electricity industry: The case of Vattenfall

This article explains how the Swedish state-owned electricity company Vattenfall managed to become the most successful foreign player on the German electricity market. It does so by providing an in-depth historical analysis of Vattenfall's transformation from a national into an international actor, a process that proved long and difficult. The article starts out by identifying the transformation pressures that Vattenfall faced in the late 1980s. It then continues with a detailed analysis of Vattenfall's response to these pressures, culminating in a seemingly sudden wave of major acquisitions in Germany in the period 1999–2002.