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The strategy of the European Union for the development of interconnectors: assessing the role of merchant transmission investment

December 2013

Market Building Through Antitrust: Long-Term Contract Regulation in EU Electricity Markets

The regulation of merchant transmission investment (MTI) has become an important issue in the EU electricity sector, subsequent to the granting of authorizations by European authorities to five merchant projects: BritNed, Estlink, the East West Cables, NorGer and recently a merchant line to connect Italy and Austria. The creation of a new Agency for the Cooperation of Energy Regulators (ACER) at the EU level, which has decision-making powers on MTI, therefore presents a unique opportunity to question and re-design the current European policy.

This chapter shows that the recent decisions concerning MTI may suffer a strong bias against dominant electricity generators while incumbent Transmission System Operators (TSOs) or new entrant TSOs are generally favored by national regulators and the EC. This strategy is misguided as it fails to recognize both the new incentives of generators to develop MTI and the conflict of interest between the regulated and non-regulated activities of incumbent TSOs. Letting dominant generators undertake MTI is indeed generally beneficial as long as potential abuses of dominance are mitigated. To deter possible anti-competitive effects, we propose a new and feasible allocation of regulatory powers based on a clear demarcation between the market monitoring powers of ACER and the antitrust powers of the EC.

Published in a book edited by Adrien de Hautecloque, Market Building Through Antitrust: Long-Term Contract Regulation in EU Electricity Markets, Edward Elgar

 

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