Third Energy Package

The European Union's Third Energy Package is a legislative package for an internal gas and electricity market in the European Union. Its purpose is to to further open up the gas and electricity markets in the European Union. The package was proposed by the European Commission in September 2007, and adopted by the European Parliament and the European Council in July 2009. It entered into force on 3 September 2009.

One of the core elements of the third package is ownership unbundling which stipulates the separation of companies' generation and sale operations from their transmission networks.^[1]

The EU energy market

The European Commission and the Parliament wants to reach the goals of “Europe 2020 Strategy” through a secure, competitive and sustainable supply of energy to the economy and the society.^[2] The correct transposition of the European electricity and gas legislation in all Member States is still not complete. Because of this, the Third Internal Energy Market Package was adopted in 2009 to accelerate investments in energy infrastructure to enhance cross border trade and access to diversified sources of energy.^[3] There is still a market concentration on the energy market in the EU. Together, the three biggest generators of each country hold more than 2/3 of the total capacity of 840.000 MW.^[4] The EU advises three options to deconcentrate the market power of the biggest electricity firms. The first option is ownership unbundling. The second and third options are independent system operator (ISO) and independent transmission operator (ITO).

Ownership unbundling

Ownership unbundling is proposed by the European Commission and the European Parliament. This option means to split the generation (production of electricity) from the transmission system (transmission electricity from electrical generating station via a system to a distribution system operator or to the consumer).^[5] It is the hardest form to regulate the energy market in the EU, but it is legitimate by EU-law. The criticism by that system is, who can buy the transmission networks, will it really regulate the market-place and who will pay possible compensations to the energy firms.^[6] Moreover, some economists also stress that the benefits will not pay off the costs.^[7] In 2011 none of the EU members favoured this option. Just UK implemented it before the Third Internal Energy Market Package.

Independent system operator (ISO)

The Art. 13 – 16 of directive 2003/54/EC give the member states also the opportunity to let the transmission networks remain under the ownership of energy groups, but transferring operation and control of their day-to-day business to an independent system operator (ISO). It is also a form of ownership unbundling, but with a trustee.^[8]

Independent transmission operator (ITO)

Austria, Bulgaria, France, Germany, Greece, Luxembourg, Latvia and the Slovak Republic presented at the end of January 2008 a proposal for a third option. This model, the independent transmission operator (ITO), envisages energy companies retaining ownership of their transmission networks, but the transmission subsidiaries would be legally independent joint stock companies operating under their own brand name, under a strictly autonomous management and under stringent regulatory control. However, investment decisions would be made jointly by the parent company and the regulatory authority. It is also named a legal unbundling.^[9]

Significance

The directive 2003/54/EC gives the member states three options of unbundling. One of them has to be transposed into national law. In 2011 the ownership unbundling is implemented just in United Kingdom. The next years will show, if the European Commission and the European Parliament force on achieve the ownership unbundling model or if the other models reach the goals of a secure, competitive and sustainable supply of energy to the economy and society.

References

1. ^ Art. 1 of directive 2003/54/EC
2. ^ European Commissioner Günther Oettinger: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/264&format=HTML&aged=1&language=EN&guiLanguage=en
3. ^ The correct transposition of the European electricity and gas legislation in all Member States is still not complete. Because of this, the Third Internal Energy Market Package was adopted in 2009 to accelerate investments in energy infrastructure to enhance cross border trade and access to diversified sources of energy
4. ^ http://ec.europa.eu/energy/gas_electricity/legislation/doc/20100609_internal_market_report_2009_2010.pdf under 2.3
5. ^ Art. 9-12 of directive 2003/54/EC
6. ^ Michael Politt (The arguments for and against ownership unbundling of energy transmission networks) in Energy Policy) (Volume 36, Issue 2, February 2008, Pages 704 - 713
7. ^ Johann-Christian Pielow (Legal and economic aspects of ownership unbundling in the EU) in Journal of World Energy Law § Business (Volume 2, Issue 2, February 2008, Pages 96 - 116
8. ^ Art. 9-12 of directive 2003/54/EC
9. ^ Art. 13-17 of directive 2003/54/EC