2007/706/EC: Commission Decision of 29 October 2007 exempting the production and sale of electricity in Sweden from the application of Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (notified under document number C(2007) 5197) (Text with EEA relevance)
Date: 2007-10-29
Institutions: European Commission
Subjects: application of EU law, award of contract, competition, distributive trades, energy production, market access

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 29 October 2007

exempting the production and sale of electricity in Sweden from the application of Directive
2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the
procurement procedures of entities operating in the water, energy, transport and postal services
sectors

(notified under document number C(2007) 5197)

(Only the Swedish text is authentic)

(Text with EEA relevance)

(2007/706/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,

establishing the European

Having regard to Directive 2004/17/EC of
the European
Parliament and of the Council of 31 March 2004 coordinating
the procurement procedures of entities operating in the water,
energy, transport and postal services sectors (1), and in particular
Article 30(4) and (6) thereof,

Having regard to the request submitted by the Kingdom of
Sweden by e-mail of 29 June 2007,

After consulting the Advisory Committee for Public Contracts,

Whereas:

I. Facts

(1)

On 29 June 2007, Sweden transmitted a request
pursuant to Article 30(4) of Directive 2004/17/EC to
the Commission by e-mail. The Commission requested

(1) OJ L 134, 30.4.2004, p. 1. Directive as last amended by Directive

2006/97/EC of the Council (OJ L 363, 20.12.2006, p. 107).

(2)

(3)

(4)

additional information by e-mail of 20 July 2007, which,
following a prolongation of
the initial deadline, was
transmitted by the Swedish authorities by e-mail of 17
August 2007.

The request
submitted by the Kingdom of Sweden
concerns production and sale (wholesale and retail) of
electricity.

The request is accompanied by the conclusions of the
(the
independent national authority, Konkurrensverket
Swedish Competition Authority), that the conditions for
the applicability of Article 30(1) of Directive 2004/17/EC
would be met.

II. Legal framework

Article 30 of Directive 2004/17/EC provides
that
contracts intended to enable the performance of one of
the activities to which the Directive applies shall not be
subject to the Directive if, in the Member State in which
it is carried out, the activity is directly exposed to compe-
tition on markets to which access is not restricted. Direct
exposure to competition is assessed on the basis of
objective criteria, taking account of the specific charac-
teristics of the sector concerned. Access is deemed to be
unrestricted if the Member State has implemented and
applied the relevant Community legislation opening a

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to Directive 96/92/EC of
and of

given sector or a part of it. This legislation is listed in
Annex XI of Directive 2004/17/EC, which, for the elec-
tricity sector,
the
refers
the Council of 19
European Parliament
the
December 1996 concerning common rules
internal market in electricity (1). Directive 96/92/EC has
been superseded by Directive 2003/54/EC of
the
European Parliament and of
the Council of 26 June
2003 concerning common rules for the internal market
in electricity and repealing Directive 96/92/EC (2), which
requires an even higher degree of market opening.

for

and

functional

Sweden has implemented and applied not only Directive
96/92/EC but also Directive 2003/54/EC, opting for full
ownership unbundling for transmission networks and
distribution
legal
networks except for the smallest companies, which are
exempted
functional
unbundling. Consequently, and in accordance with the
to the
access
subparagraph of Article 30(3),
first
market should be deemed not to be restricted.

requirements

unbundling

from the

for

of

Direct exposure to competition should be evaluated on
the basis of various indicators, none of which are, per se,
In respect of the markets concerned by this
decisive.
the market share of the main players on a
decision,
given market constitutes one criterion which should be
taken into account. Another criterion is the degree of
concentration on those markets. Given the characteristics
of the markets concerned, further criteria should also be
taken into account such as the degree of liquidity, the
functioning of the balancing market, price competition
and the degree of customer switching.

(5)

(6)

(7)

This Decision is without prejudice to the application of
the rules on competition.

III. Assessment

(8)

The request submitted by Sweden concerns production as
well as the sale (wholesale and retail) of electricity.

(9)

The wholesale electricity market in Sweden is to a large
degree integrated into the Nordic power market, which
consists of Denmark, Norway, Sweden and Finland. It

(1) OJ L 27, 30.1.1997, p. 20.
(2) OJ L 176, 15.7.2003, p. 37.

the

European Economic Area

consists of a bilateral trading market between generators
on one hand and suppliers and industrial companies on
the other hand, and a voluntary Nordic power exchange
‘Nord Pool’ which has a spot market and a forward
market. This and the integrated market design of ‘Nord
Pool’ (3) shows that there is a clear development towards
a Nordic regional wholesale market. However,
trans-
mission bottlenecks (congestion) part of the time divide
the Nordic area up into six geographically distinct price
areas, of which Sweden is one. Sweden has five main
connections between its networks and those of other
parts of
(Western
Denmark — Sweden, Eastern Denmark — Sweden,
Sweden — Southern Norway, Sweden — Northern
Norway and Sweden — Finland).
In 2005, the most
congested of these five connections was congested for
52 % of the time and the least congested for 8 % of
the time (4). However,
this seldom occurred simulta-
neously on all five connections. Thus, according to the
Swedish authorities, Sweden was a fully separate price
it had no connections with any other
that
area,
the
price
in 2005.
area, during 0,5 % of
Furthermore, an overview of
the number of areas
connected with Sweden since 2001 shows that Sweden
was connected to at least 4 of the then 6 other price
areas — Norway was then divided into three areas as
opposed to the current
the
time (5). Consequently,
and in line with previous
Commission practice (6),
the
issue of whether
the
market is national or regional will be left open as the
result of the analysis remains the same whether it is
based on a narrow or a broader definition.

two — in 82,4 % of

time

is,

(10)

For essentially the same reasons, there is also a clear
development towards a Nordic regional market in the
case of electricity production, although transmission
bottlenecks and the limits to capacity — of the order
of 24 % of the installed generation capacity in Sweden
— of the connections between the Swedish networks and
those of other areas of the European Economic Area can
have the effect of temporarily limiting the market to the
territory of Sweden. Here as well the issue of whether the
market is national or regional will be left open as the
result of the analysis remains the same whether it is
based on a narrow or a broader definition.

(3) Cf. p. 334, paragraph A.2 5) of COM(2006) 851 final of 10.1.2007:
Commission Communication:
to Article 17 of
Regulation (EC) No 1/2003 into the European gas and electricity
sectors, hereinafter referred to as ‘Final Report’.

Inquiry pursuant

(4) Cf. p. 333, paragraph A.1, table c, of the Final Report.
(5) Point 28 of Case COMP/M.3867 Vattenfall/Elsam and E2 Assets of

22.12.2005.

(6) Cf.

the just mentioned Case COMP/M.3867, points 22-33, and
Commission Decision 2006/422/EC of 19 June 2006 establishing
the European
that Article 30(1) of Directive 2004/17/EC of
the Council coordinating the procurement
Parliament and of
procedures of entities operating in the water, energy,
transport
and postal services sectors applies to the production and sale of
electricity in Finland, excluding the Åland Islands, OJ L 168 of
21.6.2006, p. 33. See also in that sense the Final Report, p. 334,
paragraph A.2.5.

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(11) As confirmed by the Swedish authorities,

the retail
market area corresponds to the territory of Sweden,
due to, among others, differences in taxation and the
between Nordic
rules
for
explicitly
countries.
‘is national, primarily
states
and regulatory obstacles
several
because
prevent
from buying electricity from
the end user
energy brokers in other countries.’

balance
Furthermore,
the retail market
technical

Konkurrensverket

responsibility

that

(12)

that

the degree of
the total market

The Communication from the Commission to the
and the European Parliament: Report on
Council
in creating the internal gas and electricity
progress
market (1), hereafter referred to as the ‘2005 Report’
‘many national markets display a high
states
degree of concentration of the industry,
impeding the
development of effective competition’ (2). Consequently,
in respect of electricity generation,
it considered that,
‘one
competition on
for
indicator
national markets
the
share of
is
biggest three producers’ (3). According to the ‘Technical
Annex’ (4), the aggregate market share of the three largest
generators of the total production in the Nordic area is
40 % (5), which is a satisfactorily low level. When referred
to the Swedish territory, the aggregate market shares of
the three largest generators are, of course, higher at
86,7 % (6) in 2004. However, the periods in which the
Swedish market is isolated were limited to 0,5 % of the
time in 2005 (7). There is therefore during significant
parts of the year a competitive pressure on the Swedish
market deriving from the potential to import electricity
from outside the Swedish territory, the more so as no
transmission fee is charged between the Nordic countries.
The frequently uncongested links between Sweden and
other price areas ensure that investment in the electricity
sector
inside the Swedish territory cannot be made
taking into account other producers in the
without
Nordic market. These factors should therefore be taken
as an indication of direct exposure to competition for the
production market whether
the national
Swedish market or the emerging regional one.

taken as

through Nord Pool Spot AS — the voluntary Nordic
power exchange described in recital 9 — in 2004-
2005 (8). According to the Final Report, on that type
of power exchange ‘the concentration in generation
finds […] direct expression in a rather stable equivalent (9)
concentration in the power exchanges’ (10). For the three
largest generators in the Nordic area, this amounts to
40 % (11), which, referred to a regional market,
is at a
satisfactory level. When referred to the sole Swedish
market, the aggregate market shares of the three largest
actors on the wholesale market are, of course, higher at
86 % (12) in 2006. It should, however, be stressed that
there is competition between the three large and several
smaller wholesale
actors on the Swedish market.
Furthermore, as regards the connection to the Nordic
area, it should be noted again that the aforementioned
bottleneck problems (congestion) are not constant, only
temporary. There is therefore,
in addition to domestic
competition, a frequent external competitive pressure
on the Swedish market deriving from the potential to
obtain electricity from outside the Swedish territory.
This is the more so as Sweden is the third biggest net
importer of electricity in the EU in terms of percentage
of its domestic consumption (13) and no transmission fee
is charged between the Nordic countries.
should
further be noted that the conditions of competition in
wholesale trade in electricity are also greatly influenced
by financial
trade in electricity in the market area
in terms of volume via Nord Pool,
concerned, which,
represented almost twice the amount consumed in the
Nordic countries in 2005 (14)
if other identified
transactions such as OTC — Over The Counter or
direct sale — are included, more than five times the
amount in 2005 (15)). In the Technical Annex (16), this
degree of liquidity was considered as being satisfactory,
i. e.
it is such as to constitute an indicator of a well-
functioning and competitive market. Given the strong
link between the Swedish wholesale market and the
Nordic market, this degree of liquidity should also be
considered as providing a competitive pressure on the
Swedish market. The Final Report also ranges Nord
Pool among the ‘most liquid and efficient wholesale elec-
tricity markets’ (17). These factors should therefore be
taken as an indication of direct exposure to competition
for the wholesale market whether taken as the national
Swedish market or the emerging regional one.

(and,

It

(13)

The degree of concentration is also a good indicator of
competition on the wholesale market for electricity as is
the degree of liquidity. At the regional level, 42,82 % of
electricity consumption in the Nordic countries was sold

(1) COM(2005) 568 final of 15.11.2005.
(2) The 2005 Report, p. 2.
(3) Cf. the 2005 Report, p. 7.
(4) Commission Staff Working Document, Technical Annex to the

2005 Report, SEC(2005) 1448.

(5) P. 44, table 4,1, of the Technical Annex.
(6) According to the Final Report, Annex C, p. 338.
(7) Cf. recital 9.

(14)

Taking the size of the country into account, the number
is fairly
of economic operators on the retail market

(8) Final Report, p. 126, paragraph 380, table 16.
(9) Emphasis added for ease of reading.
(10) P. 141, paragraph 424.
(11) P. 44, table 4,1, of the Technical Annex.
(12) According to the information supplied by the Swedish authorities.
(13) Final Report, p. 112, paragraph 319.
(14) Final Report, p. 127, paragraph 383, table 17.
(15) See the Final Report, p. 127, paragraph 383, table 17.
(16) P. 44-45.
(17) P. 193, paragraph 581.

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a

large (1) (approximately 130, according to the Swedish
authorities,
considerable number of which are
offering their services on a nationwide basis) as is the
number of companies with a market share above 5 %. At
the end of 2004, the aggregate market share of the three
largest companies in terms of supply to all categories of
users (large industrial users, small and medium sized
businesses and very small commercial customers and
is at a satisfactorily low level at 50 % (2).
households)
According to the information supplied by the Swedish
authorities,
the three biggest
companies on the Swedish retail market amounted to
43 % in terms of number of customers in 2006. These
factors should therefore be taken as an indication of
direct exposure to competition.

the aggregate shares of

(15)

In fact,

Furthermore, the functioning of the balancing markets
should also be considered as an indicator, not only in
respect of production but also for the wholesale and
‘any market participant who
retail markets.
cannot easily match its generation portfolio to the cha-
racteristics of its customers may find itself exposed to the
difference between the price at which the transmission
system operator [hereinafter TSO] will sell
imbalance
energy, and the price at which it will buy back excess
production. These prices may either be directly imposed
by the regulator on the TSO; or alternatively a market
based mechanism will be used in which the price is
determined by bids from other producers to regulate
their production upwards or downwards […]. A key
difficulty for
small market participants arises where
there is the risk of a large spread between the buying
price from the TSO and the selling price. This occurs in a
number of Member States and is likely to be detrimental
to the development of competition. A high spread may
be indicative of an insufficient level of competition in the
balancing market which may be dominated by only one
or two main generators. Such difficulties are made worse
where network users are unable to adjust their positions
close to real time’ (3). There is an almost fully integrated
supplying
balancing market
balancing energy and its main characteristics — market
based pricing, hourly gate closures, that is the possibility

in the Nordic area for

and of

(1) In comparison, there are six main suppliers active in the household
market with additional companies active in the large user sector in
the U. K., cf. Commission Decision 2007/141/EC of 26 February
2007 establishing that Article 30(1) of Directive 2004/17/EC of the
European Parliament
the
procurement procedures of entities operating in the water, energy,
transport and postal services sectors applies to the supply of elec-
tricity and gas in England, Scotland and Wales, OJ L 62 of 1.3.2007,
p. 23, whereas the number of economic operators on the retail
market
the above-mentioned
Decision 2006/422/EC.
(2) Technical Annex, p. 45.
(3) Technical Annex, p. 67-68.

in Finland is more than 60, cf.

the Council

coordinating

for network users to adjust their position each hour, and
a low spread between the buying price from the TSO and
the selling price — are such that it should be taken as an
indicator of direct exposure to competition.

the

the

state of

competitive

‘a natural
If

(16) Given the characteristics of the product concerned (elec-
tricity) and the scarcity or unavailability of suitable
substitutable products or
services, price competition
and price formation assume greater importance when
electricity
assessing
markets. The number of customers switching supplier
is an indicator of genuine price competition and, thus,
the effectiveness of
indirectly,
indicator of
competition.
there is
the
likely to be a problem with the functioning of
market, even if the benefits from the possibility of rene-
gotiating with the historical supplier should not be
ignored’ (4). Furthermore,
regulated
clearly
end-user prices
key determinant of
is
[…]. Although the retaining of
customer behaviour
controls may be justified in a period of
transition,
these will increasingly cause distortions as the need for
investment approaches’ (5).

few customers are switching,

‘the existence of

a

(17) A recent Commission Staff Document (6) states that
‘Customer switching is very common in the Swedish
retail electricity market. In total 54 per cent of electricity
customers have either renegotiated their contracts or
switched supplier since the market reform in 1996.
Generally speaking competition on final customers is
considered to work’ (7). Furthermore, there is no end-
user price control (8) in Sweden, that is, prices are set
by the economic operators themselves and do not have
to be approved by any authority prior to their appli-
cation. The situation in Sweden is therefore satisfactory
as
switching and end-user price control are
concerned and should be taken as an indicator of
direct exposure to competition.

far as

(4) 2005 Report, p. 9.
(5) Technical Annex, p. 17.
(6) SEC(2006) 1709 of 10.1.2007 ‘Accompanying document to the
Communication from the Commission to the Council and the
European Parliament: prospects for the internal gas and electricity
market — implementation report, COM(2006) 841 final’. Here-
inafter, these documents will be referred to, respectively, as 2007
Staff Document and 2007 Communication.

(7) 2007 Staff Document, p. 158.
(8) Technical Annex p. 124.

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IV. Conclusions

(18)

In view of the factors examined in recitals (8) to (17), the
condition of direct exposure to competition laid down in
Article 30(1) of Directive 2004/17/EC should be
considered to be met in respect of production and sale
(wholesale and retail) of electricity in Sweden.

(19)

apply when contracting entities

Furthermore, since the condition of unrestricted access to
the market is deemed to be met, Directive 2004/17/EC
should not
award
contracts intended to enable electricity generation or
the sale (wholesale and retail) of electricity to be
carried out in Sweden nor when they organise design
contests for the pursuit of such an activity in Sweden.

changes in the legal or factual situation mean that the
conditions
the applicability of Article 30(1) of
Directive 2004/17/EC are no longer met,

for

HAS ADOPTED THIS DECISION:

Article 1

Directive 2004/17/EC shall not apply to contracts awarded by
contracting entities and intended to enable them to carry out
electricity generation or the sale of electricity in Sweden.

Article 2

This Decision is addressed to the Kingdom of Sweden.

(20)

This Decision is based on the legal and factual situation
as of June to August 2007 as it appears from the infor-
mation submitted by the Kingdom of Sweden, the 2005
Report and the Technical Annex thereto,
the 2007
Communication and the 2007 Staff Document as well
as the Final Report. It may be revised, should significant

Done at Brussels, 29 October 2007.

For the Commission

Charlie McCREEVY
Member of the Commission