Exclusive report on SEE regional power market liberalization: How were the electricity markets being opened in the region?

, SEE Energy News

Consumers find it hard to accept that it is about the “commodity”   that has a price and a market value of its production, transportation and delivery.

– There are no two states with the same market model and the same level of the market’s development.

The market opening experience of countries in the region differs greatly, but the initial problems were and are the same everywhere. Those problems are related to the application of certain market mechanisms, such as the issues of balancing, and/or actual spending discrepancies from the agreed exchange programs, balancing costs, as well as the need of consumers, particularly large industrial consumers, to plan spending better.

Electricity trade in the region indicate that additional problems existed in the states, such as Serbia, where the price of electricity is more social than a market category, because at start, consumers find it hard to accept the fact that this is a “commodity” whose production, transport and shipping has a price and a market value.

Market development and openness of the countries in the region, as stated, are very different, and there are no two identical states in terms of model of market and the market development degree.

Lazy buyers

To the question what is the experience of Croatia in the market opening, Mr. Željko Bukša, a spokesperson of Croatian energy regulatory agency says that the experience is very satisfactory:

– Currently nine suppliers are active, with no operator of distribution system, supplying only the households which as tariff customers use public service system.

“Croatian Electric Power Industry” (HEP)  is still the dominant supplier in the market, but some customers have opted for the new companies. There are 15 retail suppliers actively working as well. A new Law on the electricity market, in line with the third package of Energy legislation of the European Union, which should be adopted by the end of this month, will be an additional incentive for the development of the market.

When it comes to issues in the market opening, the Croats say that in their country, as elsewhere in the region, just one State Electric Power Industry has operated – “Croatian Electric Power Industry” (HEP), which performs all of the activities in the electricity sector (generation, transmission, distribution, supply). During the opening of the market it was necessary to separate these activities, after which they were organized into separate legal entities, but remaining within HEP group.

– There were minor problems with the introduction of some new items which the open market brought along, such as the charging for the balance energy and the introduction of joint cross-border capacity auctions – he adds.

When asked about the experience of market opening, the Public Agency of the Republic of Slovenia for Energy immediately mentioned prices. Thus, the total cost of electricity for the average household between the 2003 and the end of 2008 gradually increased on average 3,1 % annually. In this period, the transfer rate was relatively stable, but the energy got more expensive. As of July 1st,  2007, by which time, the price was determined by the government and when the market was open 100%, electricity price got up by 6% on average each year. On the other hand, in 2008 the price has increase 19% compared to 2007.

– Before the opening of the market, the price for households was lower than that paid by energy suppliers when purchasing it on the market. The difference was covered by industrial customers – this regulatory institution argues.

– The main problem from the perspective of customers, as stated in Slovenia, is the failure to recognize the possibility of changing the supplier. Also, many of them kept their supplier, because they did not want to deal with the procedure of changing, but the fact is that at the beginning, the benefits of the change were minor. According to their words, they had several other problems due to inefficient market model, national legislation, exchange data procedures,  non-standardized data, the public insufficiently present on the marke.

The Agency has, they pointed out, played a key role in addressing these problems through close co-operation with other relevant institutions. The harmonization of market rules on the regional and the EU level also helped a lot, as well as the cooperation between the agencies.

– It is worth mentioning that we had the same problems as the other members of the EU, at the same level of market openness and we have managed to avoid some of them – the Slovenian agency states.

“Complete” and completely open

Željko Bukša, a spokesman for the Croatian Energy Regulatory Agency, said that the Croatian market is formally and/or legally, fully open. All customers, including households, are entitled to free choice of the supplier and/or they have a privileged buyer status. However, the households do not have to use this right, they can use the public services supplying system provided by the distribution system operator, as tariff customers.

The Slovenes have progressed most among all former Yugoslavian countries, because the market is fully opened there. In mid-July 2001, gradual liberalization commenced. Initially, only customers who were using electricity of the voltage greater than 41 kW had the right to choose their suppliers. Then, in July 2004, in accordance with the obligations under the Energy Act, the other customers, except for households, were given the right to choose their supplier. From July 1st, 2007, the households, which are the most numerous, were entitled to this right as well, which meant that the market was 100 % open.

In Croatia, the market model primarily based on bilateral agreements is implemented. A producer may sell electricity to the trader and supplier. The supplier can purchase the electricity from the producer, trader or supplier, and may sell it to preferential customers or tariff customers, and to the trader or supplier. A trader can buy the electricity from the producer, supplier or trader, and may sell it to the supplier or trader.

The Slovenians have a model with the customer in the center who initiates the change of the supplier, and the whole process is monitored by the distribution system operator (DSO).

“Black holes”

The markets are operating in Hungary, Romania and Bulgaria, and the “black holes” in the region, which until recently counted Serbia, are Bosnia and Herzegovina and Montenegro.

The situation in these two countries, as pointed out by traders, was similar to the one in Serbia prior to the adoption of the new Energy Law of 2011. These markets are virtually open, and all consumers except for households, can choose their suppliers.

– However, the consumers are not obliged to buy the electricity on the market, and they have the opportunity to choose whether they want to be tariff or qualified customers. This, coupled with the fact that the price for tariff customers is regulated and well below the market level, caused the absence of qualified customers in these two countries. In addition, there is a lack of specific by-laws and regulations. Montenegro has made some steps, so the opening of the market is expected here in a practical sense soon – say the traders.

It should be noted, that the opening of market in any country is both the question of political will and the willingness of the competent state authorities to liberalize the market.

Listen to yourselves and the experts

When asked to give advice to the Serbian competent institutions, Mr. Bukša said that every country has its own peculiarities.

– It is desirable to create solutions that suit your specific circumstances, which you know best, naturally taking the European Energy Directives into account. Special attention should be paid to the necessary separation of regulated and market activities – advises Mr. Bukša.

The Slovenians believe that the professional institutions should define the model and introduce the efficient (electronic) exchange of information for the main business in the market, such as the exchange of measurement data, the supplier change procedure for customers, or balancing in order to ensure smooth running thereof.

– Professional Institutions must also control the suppliers to prevent abuses (for example, long period for customers’ changing the supplier). It is very important to make an effort in having the customers well-informed, in order to take advantage of the full possibility of market opening. The effective market control still has to be performed by an independent institution, and in Slovenia it is our Agency. Provision and dissemination of information in a transparent and non-discriminatory manner is the essence of creating an efficient and competitive market – the agency added.

EPS with a competition

To the remark that it appears EPS has no competition, since so far only EPS has signed contracts with customers, the traders say that in Serbia there are more than 20 qualified customers/buyers, and EPS, according to official statements, so far signed contracts with a couple of them.

– The contracts for the supply are still being negotiated and it is possible that, in the very near future, there appear consumers who would have another supplier, other than EPS. What has really slowed down the opening of the market and what made the competitive bids submission harder to the other potential suppliers, is the fact that the customers/buyers requested submission of bids with “full supply”, and the fact that this happened in November and early December 2012, and the balancing rules and the balance costs determination method have been adopted in late December. Other suppliers were not able to take the risk of supply in a situation where they did not know one of the most important parameters that determine the price: the balancing costs and balancing energy price – said the traders.

Source Serbia Energy Magazine