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Broader issues facing electricity infrastructure in Europe

Paun, Mihai


This paper focuses on the situation and conditions for investments when all European Union countries have fully liberalised their electricity markets, which will take place no later than 2007. However, before the stabilised situation and possible incentives for stimulating investments in a fully liberalised market are studied and analysed, it might be useful to briefly study the current situation in all the participating countries. So the intention of this paper is to provide an overview of how far the liberalisation process has developed at EU-level as well as in individual countries. Further, the investment climate and existing incentives for investments in the power sector in some countries are concisely described. 
During the next three decades, Europe will require new investments in electricity generating capacity comparable to the total existing generating fleet. Similarly, transmission and particularly distribution
systems need continuous reinforcement and development. These investments will have to take place in a completely changed economic environment - i.e. within the frame of a single liberalised electricity market.
EURELECTRIC experts have thoroughly examined the constraints that investors would meet when trying to build power plants or set up transmission and distribution networks in today’s regulatory and financial framework, and have assessed in the report the potential means and tools that authorities and/or regulators might apply to ensure adequate demand-supply balance without unnecessarily distorting the market.
EURELECTRIC’s main findings indicate that the best way to ensure the necessary investments in generation, distribution and transmission is to create an attractive business climate, keeping open all feasible technology options, and ensure a stable, consistent regulatory framework that will allow and encourage the liberalised market to develop and function properly, minimising distortions. 
To this end, market-based mechanisms should be used in pursuing political and environmental targets. Market players, including customers, should not be limited in their use of risk management instruments, but be allowed to take out contracts of varying length. EURELECTRIC argues that price caps, though viewed in some quarters as an effective political instrument, are in fact potentially destructive to the competitive market and a means of discouraging investments. 
The paper shows that a liberalised, competitive market will bring forth sufficient capacity if wholesale prices are not distorted. Liberalised markets can deliver economic savings, allow for a better allocation of resources and thus provide for sufficient investments. There is a need for 520 to 600 GW new generation  capacity within EU-15 until 2030 (life extension of existing plants could lower the figure somewhat).
The electricity price is the best signal for investments. Longer-term contracts should be allowed as they encourage investments. Security of supply and sufficient investments are attainable in a well-designed liberalised market with financially strong companies. The challenge of ensuring adequate and timely investment in transmission (T) and distribution (D) networks is different to that relating to power plants, but certainly as significant in terms of the scale of the requirements and the potential costs of failure. The financial rate of return to be expected on network investments, is either entirely or very largely determined by the regulator or the government department, to whom the regulator. The most important task of regulatory bodies regarding investments is ensuring an adequate long-term return. 

Fecha: 29/11/2006

Tamaño: 0,04 MB

Documento: PDF

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Lugar: Buenos Aires, Argentina

Fecha: 29/11/2006


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