The Internal Electricity Market - Integrating a network industry

Abstract: The EC Internal Market is aiming at integrating all markets, securing competition and allowing for free movements of goods, services, persons and capital. Measures have been taken to also include the so-called network industries in the internal market, but because of their special features this is not as straight forward as with regular goods. The electricity sector is one of these network industries characterised by vertical integration, network infrastructure, natural monopoly and obligations to provide a public utility. These industries, including the electricity sector, have traditionally been subject to public intervention which is contradictory to the goal of the Internal Market of liberalised markets and competition. The purpose of this paper is to investigate the Internal Market for electricity and what the effects of the integration and liberalisation of the network industry have been and it attempts to give a general picture of the internal electricity market and the industry itself as well as surveying the current situation and the impacts of the integration. The theoretical framework used is that of economic integration and therefore the focus is largely on competition. The electricity industry is investigated by looking at different factors such as degree of market opening, cross-border trade, market structure and prices in order to see if there is any correlation between these and liberalisation and integration. Conclusions to be drawn are that although the electricity markets have been formally integrated, they are not fully integrated and liberalised in practice. The results are fairly ambiguous and this could be because integration of the electricity markets is still a recent occurrence.