Communication from the Commission to the Council and the European Parliament - Report on progress in creating the internal gas and electricity market {SEC(2009) 287}
Date: 2009-03-11
Institutions: European Commission
Subjects: competition law, electrical energy, gas, liberalisation of the market, report, single market

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 11.3.2009 
COM(2009) 115 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Report on progress in creating the internal gas and electricity market 

{SEC(2009) 287} 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Report on progress in creating the internal gas and electricity market 

A. CONTEXT  

The liberalisation of the EU's electricity and gas markets, which began several years ago, has 
contributed to the rejuvenation of the energy sector. It has helped to develop entrepreneurial 
potential in this sector, with beneficial effects on a variety of energy-related activities ranging 
from the production of diverse forms of renewable energy to the creation of financial markets 
for  energy  derivatives.  Market  participants  are  now  better  prepared  to  adapt  to  the  rapid 
economic  and  environmental  changes  –  particularly  in  dealing  with  the  specific  challenges 
that climate change poses to the energy sector. The present reports bears witness to the fact 
that, over the past five years, significant improvements have taken place in the EU electricity 
and gas market.  

While  these  developments  are  encouraging  and  underline  the  benefits  of  the  liberalisation 
process, the full potential of liberalisation has not yet been realised. There are still a number 
of areas and Member States where the existing legislation (second internal market package) 
has  not  yet  been  properly  implemented  or  where  the  need  for  new  legislation  has  become 
apparent.  The  Commission  is  taking  action  to  ensure  the  correct  implementation  of  EU 
legislation  at  national  level  through  the  application  of  infringement  procedures  and 
complementing the internal market legislation with the third internal energy market package1. 
In  June  and  July  2008,  the  package  passed  its  first  reading  in  the  European  Parliament;  in 
October 2008, a political agreement was reached in the Council. The second reading started in 
January  2009,  and  is  on  course  to  be  adopted  by  mid-2009.  Thereafter,  the  third  internal 
market package will need to be implemented in national law.  

One  of  the  purposes  of  the  present  report,  therefore,  is  to  identify  the  shortcomings  of  the 
current  situation  and  to  indicate  the  areas  in  which  further  action  is  needed.  Basically,  the 
input for this report comes in two forms: national reports submitted by national regulators and 
Eurostat  data  on  end  prices.  The  national  reports  were  submitted  to  the  Commission  in  the 
second half of 2008 and they mainly cover 2007; Eurostat data were available for the first half 
of 2008.  

B. DEVELOPMENTS IN KEY AREAS, DEFICIENCIES STILL TO BE ADDRESSED 

1. Implementation of legislation 

More  than  four  years  after  the  deadline  (1  July  2004),  implementation  of  the  second 
Electricity and Gas Directives2 is still not entirely complete.  

Several  Member  States,  including  DK,  LU  and  NL,  have  now  correctly  implemented  both 
Directives  through  appropriate  national  legislation.  There  has  also  been  progress  in  other 

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2 

See the website of the European Commission at www.ec.europa.eu/energy. 
Directive 2003/54 and Directive 2003/55. 

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Member  States:  CZ,  FI,  DE,  GR,  LV,  LT,  SI  and  UK  brought  their  national  laws  into  line 
with EU legislation after a reasoned opinion was issued by the European Commission. In the 
case of some other Member States, the Commission has had to take legal steps to ensure the 
full  and  correct 
implementation  of  certain  provisions.  The  European  Commission 
continuously  scrutinises  national  laws.  Monitoring  of  compliance  with  the  Electricity3  and 
Gas  Regulation4  by  the  European  Regulators'  Group  for  Electricity  and  Gas  (ERGEG) 
indicates that full compliance has not yet been achieved, in particular concerning the powers 
of  National  Regulatory  Authorities  (NRAs)  to  impose  penalties  and  on  transparency  and 
related issues.  

For gas, publication of the relevant entry and exit points, contracted and available capacities, 
and  historical  flows  was  found  to  be  unsatisfactory  in  a  number  of  Member  States.  The 
Commission  will  follow  up  the  correct  implementation  of  these  existing  requirements  and, 
moreover,  considers  that  current  requirements  need  to  be  further  strengthened  in  order  to 
provide  market  players  with  sufficient  information.  Another  area  in  which  further  action  is 
needed is balancing rules which still vary widely within the EU5.  

Compliance  with  the  Electricity  Regulation  and  the  congestion  management  guidelines  is 
improving.  Intraday  allocation  mechanisms  have  been  put  in  place  in  about  half  of  the 
interconnections; the others need to quickly follow suit. Improvements are necessary in order 
to  ensure  the  full  implementation  of  all  transparency  requirements  and  a  common  co-
ordinated capacity allocation mechanism6. 

The  European  Commission  will  consider  initiating  infringement  proceedings  in  areas  where 
there is failure to comply with the electricity and gas Directives and Regulations. 

2. Market integration  

A key prerequisite for an integrated European electricity and gas market is that those markets 
should  be  adequately  connected,  and  that  those  interconnections  are  efficiently  used.  The 
resulting  increase  in  cross-border  trade  will  help  moderate  market  power  and,  as  markets 
become more competitive, consumers will benefit from competitive prices and services. 

The  magnitude  of  congestion  rents7  on  the  electricity  markets  suggests  that  investment  in 
cross-border capacity needs to be increased in order to achieve full market integration. It is an 
encouraging  sign  that  there  is  a  clear  trend  towards  increased  volumes  being  traded  on  the 
power exchange spot market8, even if traded volumes still account for only a modest share of 

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Compliance with Electricity Regulation 1228/2003 – An ERGEG Monitoring Report, ref. E07-EFG-23-
06, 18 July 2007; Regulation 1228/2003 Compliance Monitoring. Second Report, ref. E08-ENM-03-05, 
4 September 2008, see www.energy-regulators.eu. 
Compliance  with  transparency  requirement  of  Gas  Regulation  1775/2005  –  An  ERGEG  Monitoring 
Report,  Ref.  E07-TRA-02-03,  18  July  2007;  Additional  Transparency  Requirements.  An  ERGEG 
Monitoring Report, ref. E07-TRA-02-03b, 9 October 2007. 
Implementation of Guidelines of Good Practice for Gas Balancing – 2008 ERGEG Monitoring Report, 
December 2008. 
Resp. chapter 5 and chapter 3 of the congestion management guidelines 
ETSO-members  reported  that  congestion  rents  totalled  some  €1.7  bn  in  2007  in  comparison  with 
regulated network revenues of €10-11bn for EU/EEA countries. 
It is difficult to make an assessment of the development of the volume traded on the OTC-market, since 
data are not easily available and verifiable. 

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total electricity consumption9. Another pattern that is becoming visible is the growing activity 
of traders on power exchanges.  

Table 1: Volumes traded at spot market power exchanges 

Greece 
Denmark 
Sweden 
Spain 
Italy 
Finland 
Portugal 
Lithuania 
Germany 
The Netherlands 
Romania 
France 
Belgium 
UK 
Austria 
Poland 
Slovenia 

Volume % of consumption 

2006 
2007 
102,75  105,70 
99,16 
96,09 
85,32 
70,22 
80,06 
51,90 
65,11 
58,22 
45,85 
42,00 
43,63 
0,00 
21,98 
18,88 
21,48 
15,60 
18,48 
17,14 
9,32 
7,74 
9,20 
6,19 
8,43 
0,59 
4,71 
4,33 
3,73 
2,70 
1,60 
1,11 
0,01 
0,01 

∆ 
2,88 
3,20 
21,52 
54,25 
11,83 
9,16 
NAP 
16,43 
37,68 
7,81 
20,31 
48,73 
1325,26 
8,97 
38,19 
43,10 
97,45 

Source: Regulators' data 

Number of traders active 
at PX 
2007 
27 
9 
150 
25 
89 
NAP 
2 
5 
192 
NA  
99 
68 
24 
60 
40 
NA 
15 

2006 
24 
NA 
NA 
22 
80 
NAP 
NA 
5 
161 
NA 
NA 
74 
NA 
51 
37 
NA 
14 

∆ 
3 
NAP 
NAP 
3 
9 
NAP 
NAP 
0 
31 
NAP 
NAP 
-6 
NAP 
9 
3 
NAP 
1 

The volumes traded at the gas hubs rose by 33% in 2007. This is another important increase 
after the 44% increase in 2006. For the time being, the physical volumes delivered at most of 
the hubs are still relatively low compared to the total consumption in their markets. 

Figure 2: Volumes traded at European gas hubs (in billion m³) 

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130

120

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90

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30

20

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x%  Yearly growthrates 

+33%

+44%

+26%

+20% 

EGT (’05) 

CEGH (’05) 

BEB (’04) 

PEG’s (’04) 

PSV (’03) 

TTF (’03)

Zeebrugge (’00) 

2003 

2004 

2005 

2006 

2007 

Source: AT Kearney 

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The differences in the spot trade volumes as percentage of national electricity consumption do not as 
such  give  an  indication  of  liquidity  of  the  wholesale  markets  concerned;  however,  the  pattern  of 
increased volumes is clear. See Sector Inquiry, p. 128-129. 

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Several projects are seeking to boost market integration by providing new infrastructure. One 
such  example  was  the  agreement  reached  to  build  a  new  interconnection  on  the  French-
Spanish  border.  Some  major  new  infrastructure  projects  have  received  exemptions  from 
regulated  third  party  access  under  Article  22  of  the  Gas  Directive10  or  Article  7  of  the 
Electricity Regulation11. 

Regional initiatives 

Regional  initiatives  in  the  electricity  sector  have  resulted  in  some  concrete  progress:  joint 
capacity allocation on the Italian-Slovenian and Italian-Swiss border; the intraday continuous 
trading  platform  on  the  Germany  –  Denmark-West  interconnector;  a  cross-border  balancing 
system  on  the  French-English  interconnector;  the  implementation  of  day-ahead  market 
coupling  on  the  German-Danish  interconnections;  and  the  publication  of  more  detailed 
information on load, transmission and balancing (in the Northern region and the Central and 
Eastern  Europe  region).  Each  of  these  developments  is  a  step  forward.  In  order  to  continue 
improving (regional) market integration, the creation of a single auction platform and market 
coupling12 should be envisaged. The progress made on a common auction office in the Central 
and Eastern Europe region and a capacity allocation office (CASC) in the Central West region 
should serve as an example to be followed by other regions. 

In  the  gas  regional  initiatives  progress  was  made  on  the  following  issues:  a  day-ahead  gas 
price index was established for the Central European Gas Hub (CEGH); concrete plans were 
developed to increase interconnection at the French and Spanish border; the work in the North 
West  region  focused  on  balancing,  gas  quality,  hubs  and  transparency.  Further  market 
integration  would  require  more  focus  on  capacity  allocation,  the  offering  of  services  that 
facilitate efficient gas trade and guaranteeing that network tariffs (cost-plus or market based) 
provide  incentives  for  cross-border  investments,  in  particular.  Equally  important  is  the 
implementation of non-discriminatory and transparent balancing rules that are aligned across 
the national borders. 

3. Concentration and consolidation  

On the electricity wholesale market, the three biggest generators still control more than 70% 
of generation capacity in 15 Member States. The high level of concentration on the electricity 
wholesale market is confirmed by the fact that there was a moderately concentrated market in 
only eight Member States.  

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12 

2  projects  for  LNG-terminals:  GATE  and  Liongas  in  the  Netherlands  and  the  extension  of  the  Grain 
LNG  terminal  in  the  UK;  2  projects  for  gas  pipeline  projects:  IGI  Poseidon  pipeline  between  Greece 
and Italy and the Austrian section of the Nabucco pipeline. 
The BritNed interconnector between the Netherlands and GB; Estlink between Finland and Estonia and 
the East-West interconnector between Ireland and Britain. 
Market  coupling  is  a  way  to  allocate  cross  border  capacity  through  implicit  auctions,  using  bids  in 
neighbouring power exchanges. 

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Figure 3: Market concentration of electricity wholesale market (by HHI) 

very highly concentrated 
– HHI above 5000 
highly concentrated –  
HHI 1800-5000 

moderately concentrated 
– HHI 750-1800 

Source: Regulator's data 

In the gas wholesale market, the concentration is even greater. The three largest wholesalers 
have a market share of 90% or more in 12 Member States.  

Further improvements are needed too, in order to have a properly functioning retail market. 
As  far  as  the  electricity  retail  market  is  concerned,  the  market  share  of  the  three  largest 
companies in the whole retail market was over 80% in 14 Member States. The HHI shown in 
the  figure  below  indicates  the  level  of  concentration  on  the  gas  retail  market.  In  only  one 
Member State, the market is moderately concentrated. 

Figure 4: Concentration on gas retail market 

Source: Capgemini 

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4. Price trends  
Electricity  and  gas  prices  have  been  strongly  influenced  by  rising  oil  prices  on  the 
international market. In the first half of 2008, the Brent average monthly price increased by 36 
%13. Between July and December 2008, the Brent average monthly price decreased by 64 %, 
given the worldwide economic crisis and declining oil demand. 

Figure 5: Brent spot: average monthly price (in €) 

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Movements of the oil price on the international market influence gas and electricity prices due 
to  the  oil  price  acting  as  a  reference  price  in  long-term  gas  supply  agreements.  This  link  is 
likely to become weaker with a better functioning gas market, a more diversified gas supply 
portfolio  and  more  favourable  import  conditions.  Price  review  clauses  calculate  price 
differences  after  a  given  period  (typically  3  to  6  months);  the  decreasing  trend  of  oil  prices 
should lead in turn to lower gas and electricity prices in 2009.  

Electricity  prices  for  household  consumers  in  the  first  half  of  2008  differed  quite 
considerably,  which  is  a  sign  of  insufficient  market  integration.  Various  factors  explain  the 
differences in electricity prices between Member States. First, there are the differing costs of 
generating  electricity  (in  particular  the  fuel  mix).  The  second  element  is  the  availability  of 
sufficient  generation  capacity.  Thirdly,  there  is  the  important  role  played  by  the  level  of 
competition  on  the  wholesale  and  retail  market.  Finally,  regulated  prices  also  lead  to  price 
differences between Member States.  

In  the  reporting  period,  the  increase  in  electricity  prices  varied  widely  amongst  Member 
States.  On  average,  household  electricity  prices  rose  by  almost  2%14.  Household  electricity 
prices in particular rose in HU, CZ, DK, BE, LV and CY, i.e. an increase of more than 13% in 
that  period.  There  is  not  necessarily  a  link  between  the  big  increases  and  the  highest 
electricity prices in absolute terms, except for CY and BE. IE has the highest electricity prices 
in absolute terms (without tax), despite the fact that prices fell by almost 8%. Figure 6 shows 

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Monthly average Brent in €; comparison January-July 2008. 
Analysis based on Eurostat figures in Euro, without taxes. DC and DD consumption – see table 5.7 in 
the Technical Annex. Comparison of the second semester 2007 versus the first semester 2008. 

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that  the  five  Member  States  with  the  lowest  household  electricity  prices  all  have  regulated 
prices.  15  Therefore,  it  seems  as  if  the  differing  levels  of  increase  may  be  due  in  part  to 
specific policy measures (such as regulated prices); it also seems that those Member States in 
which the supply-demand balance deteriorated experienced larger increases.  

Figure 6: electricity prices household consumers (without taxes) 16 

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Source: Eurostat 

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When purchasing power parities (PPP)17 are taken into account, electricity prices are high for 
households in HU, SK, DE, CY, DK and PL (all taxes included). All of these Member States, 
except for DE, happen to have regulated prices. Electricity prices are lower for households in 
FI, FR, NO, EE, EL and LV. 

Gas prices for households rose by more than electricity prices (without taxes): around 5% to 
7% in the first half of 2008. Here, too, the picture is influenced by regulated prices. In RO, IE 
and to a lesser extent in PT, household gas consumers benefited from a fall in (regulated) gas 
prices. Similarly, the seven lowest gas prices are all regulated (RO, EE, LT, BG, LV, HU and 
PL).  

The  UK  has  the  lowest  (non-regulated)  gas  price  for  household  consumers.  In  NL,  too,  gas 
prices are relatively low. Both of these Member States are major producers of indigenous gas.  

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The effects of regulated prices are assessed further below.  
Eurostat category DC: consumption between 2500 kWh and 5000 kWh. 
The  purchasing  power  parity  (PPP)  uses  the  long-term  equilibrium  exchange  rate  of  currencies  to 
equalize  their  purchasing  power.  This  allows  comparing  differences  in  living  standards  of  different 
member  states  because  PPP  takes  into  account  the  relative  cost  of  living  and  the  inflation  rates.  See 
table 5.2 in the Technical Annex. 

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Figure 7: Gas prices to household consumers (without taxes) 18 

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€/

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In terms of PPP, the highest prices to household gas consumers were in SE, BG, AT, PT and 
SI; gas prices were lowest in UK, HU, LV, IE, FR and EE.  

In  NL  and  SE,  where  prices  are  not  regulated,  price  increases  to  household  consumers  (gas 
and electricity, without taxes) were below the EU-average. The large percentage of customers 
switching suppliers in NL suggests that genuine competition in the retail market does help to 
prevent large price increases. The same holds true for household electricity prices in the UK; 
although  UK  gas  prices  for  household  consumers  have  been  increasing,  UK  household  gas 
prices are still the lowest in terms of PPP. An important fact is that indexation of long-term 
contracts for gas supply in the UK is influenced much more by changes in the gas hub price 
than is the case in continental Europe19. 

The  increase  (of  between  5%  and  13%)  in  industrial  gas  prices  in  the  first  half  of  2008 
(excluding taxes) compared to the second half of 2007 was generally greater than the increase 
in industrial electricity prices. The overall tendency is for the biggest industrial consumers to 
experience the most significant increases20. Gas industrial consumers were also confronted by 
large  increases  in  SE,  SK,  LU,  DE,  BE,  CZ,  HU,  LT  and  EE.  Here,  too,  the  differences 
between Member States point to insufficient competition on the (wholesale) market and lack 
of market integration. 

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Eurostat category D2: consumption between 20 GJ and 200 GJ. 
See Sector Inquiry, p. 105 ff. 
Cfr.  average EU  price  increases  experienced  for  gas,  in different  Eurostat  categories: I1:  +  7%; I2:  + 
9.74%; I3: + 11.79% and I4: + 15.38%. 

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As far as electricity prices for industrial consumers are concerned, the most notable increases 
were in AT, BE, CZ, HU, SK, LV and PT. However, these large increases are not necessarily 
linked  to  the  high  level  of  electricity  prices:  in  the  first  half  of  2008,  the  highest  electricity 
prices for industrial consumers were in CY, IE, MT and SK21. 

5. Independence of network operators 

During  the  reporting  period,  some  progress  was  made  on  the  unbundling  of  network 
operators. At the distribution level, functional unbundling became compulsory in all Member 
States as of 1 July 2007. In many cases, however, distribution system operators (DSOs) have 
so  far  been  slow  to  implement  functional  unbundling  effectively.  This  applies  to  both 
electricity  and  gas  DSOs.  Moreover,  Member  States  continue  to  make  extensive  use  of 
derogations from unbundling at distribution level: more than half of the Member States allow 
DSOs  with  fewer  than  100 000  customers  to  be  exempted  from  legal  unbundling 
requirements, both for electricity and for gas.  

At  transmission  level,  some  Member  States  have  gone  beyond  the  present  requirements  of 
legal  and  functional  unbundling.  Ownership  unbundling  is  implemented  in  15  electricity 
TSOs and 12 gas TSOs.  

6. Effective regulation by regulators 

In  the  reporting  period  the  work  of  the  Florence  regulatory  forum  (for  electricity)  and  the 
Madrid  regulatory  forum  (for  gas)  focused  on  progress  with  regional  initiatives  and 
compliance  with  the  Gas  and  Electricity  Regulation.  The  continuing  efforts  of  ERGEG  and 
the  involvement  of  a  range  of  stakeholders  in  the  regional  initiatives  and  the  Florence  and 
Madrid Forum have not resulted in the development of common standards and approaches for 
cross-border trade. For that reason, the European Commission's proposals under the new third 
internal  market  package  include  the  establishment  of  an  Agency  for  the  Cooperation  of 
Energy  Regulators.  The  Agency's  main  proposed  tasks  are  intended  to  complement  at 
European level the regulatory tasks performed by national regulators. Given the outstanding 
concerns  as  to  the  independence  of  the  regulators  in  some  Member  States,  and  given  that 
strong regulators are necessary for a properly functioning market, the Commission's proposals 
also aim to strengthen the powers of the regulatory authorities.  

In  order  for  market  integration  to  take  place,  there  also  needs  to  be  effective  cooperation 
among TSOs. The Commission will therefore formally designate the European Networks of 
gas  and  electricity  transmission  system  operators  (ENTSOG  and  ENTSOE)  as  having 
responsibility  for  harmonising  network  access  rules  and  operational  rules,  exchanging 
information between TSOs and coordinating new investments. 

7. Customer dimension 

To help inform consumers of their rights, the Commission organised an EU-wide information 
campaign on citizens' consumer rights and developed a European Energy Consumer Checklist 
of ‘frequently asked questions’ by consumers about their own retail energy markets, in their 
own  language.  In  addition,  the  Commission  launched  the  Citizens’  Energy  Forum22  to  help 

21 
22 

See figure 5.3 of the Technical Annex. 
The first meeting of the "London Forum" was organised on 27 and 28 October 2008. See website of DG 
TREN www.ec.europa.eu/energy/gas_electricity/forum_citizen_energy_en.htm.  

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consumers  by  working  to  enforce  their  existing  EU-wide  rights  and  to  provide  them  with 
clear,  straightforward  information  on  what  choices  are  available  to  them  when  it  comes  to 
buying  their  gas  and  electricity.  The  Forum  will  develop  recommendations  aimed  at  better 
implementation and enforcement of the rights of energy consumers, and better electricity and 
gas retail markets; it will also prepare recommendations on billing. The 2008 Eurobarometer 
illustrates the need for consumers to be provided with further information on the operation of 
the  internal  gas  and  electricity  market23.  The  Consumer  Markets  Scoreboard  is  a  new 
initiative  by  the  Commission;  it  will  also  cover  electricity  and  gas,  and  will  include  key 
indicators such as prices, consumer complaints, switching and consumer satisfaction.  

Consumer response — switching  

Only a small number of Member States have managed to provide overall and comprehensive 
figures for switching. For electricity, BE and SE reported an annual switching rate of around 
10%  per  eligible  meter  point  of  the  national  retail  market  for  200724.  The  annual  switching 
rate for the medium-sized industry was quite significant in DK and IT (over 20%) and in SI 
and SE (around 10%). NO, SE, NL and the UK accounted for the highest switching rates for 
small industry and households. Taking annual switching rates per volume into account, high 
switching rates were reported for large industrial users in BG, LU, PL, DE and ES.  

For  gas,  there  are  no  consistent  figures  available  on  supplier  switching.  As  regards  the 
switching rates for the whole gas retail market, only seven Member States reported figures per 
eligible  meter  point;  four  Member  States  reported  figures  per  volume.  Switching  rates  (per 
eligible meter point) for small industry and households are worth mentioning, particularly in 
NL (8.3%) and in the UK (18.4%). The switching rates for the whole gas retail market (per 
volume) are high in DK and ES (+ 20%) and slightly less so in HU and DE . 

Switching levels vary considerably across Member States, with some mature markets - such 
as  the  UK  -  experiencing  relatively  high  rates  and  a  number  of  others  showing  little  or  no 
activity.  At  the  level  of  small  industry  and  households,  the  reported  figures  suggest  that 
electricity consumers tend to be more active than gas consumers.  

Regulated prices 

As  acknowledged  in  the  Communication  on  a  single  market  for  21st  century  Europe25,  the 
single  market  must  continue  to  focus  on  areas  that  have  a  bearing  on  the  daily  life  of 
consumers, such as energy. This includes the existing EU regulatory safeguards on universal 
service, public service obligations and also vulnerable consumers.  

Coexistence of open energy markets and regulated energy prices is still quite common among 
EU Member States: more than half of the Member States have regulated prices. The Member 
States that have regulated prices for electricity and gas are: BG, DK, EE, FR, HU, IE, IT, LV, 
LT, PL, PT, RO, SK and ES. In GR, CY and MT there are regulated prices for electricity. DE 
abolished  regulated  electricity  prices  in  2007  (households  and  small  businesses).  FI  has 
regulated prices for gas. In most Member States price regulation is not confined to household 
customers.  

23 
24 
25 

See Figures 2.6 – 2.8 of the Technical Annex. 
See table 2.2 of the Technical Annex.  
A Single Market for 21st century Europe, p 5, COM (2007) 724 final. 

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The negative effects of regulated energy prices continue to be a major concern in terms of the 
proper functioning of the internal energy market, because such effects can lead to a distortion 
of competition (e.g. entry barriers for new suppliers and disincentives to switch supplier) and 
they  do  not  send  the  right  price  signals  (influencing  investments  and  incentives  for  energy 
efficiency)26. Moreover, price control mechanisms might not be compatible with EU law. The 
protection  of  “vulnerable  customers”  should  not  be  confused  with  maintaining  regulated 
prices for all (or certain categories of) consumers. Carefully targeted price regulation may be 
necessary in order to protect individual consumers in certain specific circumstances. 

C. SECURITY OF SUPPLY 

If the EU is to continue to have a secure energy supply, major investments are needed over 
the  next  two  decades.  This  is  confirmed  in  the  Commission's  Second  Strategic  Energy 
Review27 and by the International Energy Agency (IEA)28. 

Directive No 2005/89/EC concerning measures to safeguard security of electricity supply and 
infrastructure  investment  was  due  to  be  transposed  into  national  legislation  by  the  Member 
States  by  24  February  2008.  As  at  the  date  of  this  report,  19  Member  States  have  notified 
complete transposition of the Directive. Certain Member States (HU, SK, PL) have imposed 
electricity export restrictions based on security of supply arguments. However, EU legislation 
allows Member States to take temporary safeguard measures only where the physical safety or 
security of persons, installations or system integrity are threatened.  

For gas, the Communication from the Commission to the European Parliament, the Council, 
the  European  Economic  and  Social  Committee  and  the  Committee  of  Regions,  Directive 
2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply 
is the relevant point of reference29. According to the Communication, the current Community 
mechanism is not sufficient to ensure a timely response to a gas supply crisis that goes beyond 
the  level  with  which  national  measures  can  cope.  Furthermore,  any  real-time  assessment  of 
the gas supply situation and potential responses within the EU is being made very difficult by 
the lack of transparency. 

D. CONCLUSIONS 

In 2007 and 2008 a great deal of effort was put into enhancing competition on the wholesale 
market; significant progress was made through the regional initiatives. There also seems to be 
a  new  trend  towards  building  new  energy  infrastructure.  This  is  crucial  to  overcoming  the 
longstanding fragmentation of EU energy markets. The trend is set to continue but it may take 
some  time  because  the  planning  and  building  of  such  infrastructure  requires  long  time-
horizons. 

This report presents a mixed picture of the progress of completing the internal energy market. 
While the situation in more mature markets is demonstrating the potential benefits of energy 
market liberalisation, there are still a number of areas and Member  States  where significant 

26 

27 

28 
29 

See  also  End-user  energy  price  regulation.  An  ERGEG  position  paper  (ref.  E07-CPR-10-03,  18  July 
2007).  
Second Strategic Energy Review. An EU Energy security and solidarity Action Plan COM (2008)781 
final, 13 November s2008. 
World Energy Outlook 2008, IAE, Paris, 2008, p. 89. 
COM(2008) 769 final, 13 November 2008, available on DG TREN's website.  

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obstacles to the efficient functioning of the electricity and gas market persist. A major concern 
is  the  incomplete  implementation  of  European  electricity  and  gas  legislation.  The  recent 
experience  of  rising  energy  prices  underlines  the  need  to  make  market  integration  and  the 
enhancement  of  cross-border  trade  the  top  priorities.  It  is  therefore  essential  that  the 
Electricity  and  Gas  Regulations  are  properly  implemented  by  all  Member  States.  The 
Commission  urges  Member  States,  regulators  and  industry  to  take  the  appropriate  steps  as 
quickly as possible. The 3rd internal market package is meant to complement the existing EU 
legislation  and  must  not  be  used  as  an  excuse  for  the  inadequate  implementation  of  the 
existing  2nd  internal  market  package.  The  European  Commission  will  consider  initiating 
infringement  proceedings  for  non-compliance  with  provisions  in  the  gas  and  electricity 
Directives and Regulations. 

With  respect  to  market  concentration,  progress  has  generally  been  slow.  A  number  of 
wholesale markets, in particular, still suffer from limited competition and the lack of liquidity.  

There  are  signs  that  the  situation  on  the  retail  market  is  about  to  improve.  Member  States 
should put even more effort into providing comprehensive data for supplier switching.  

A  major  issue  in  the  reporting  period  was  the  increase  in  energy  prices,  in  part  due  to  the 
rising price of oil on the international market. This triggered major increases in energy end-
prices.  Industrial  consumers  in  some  Member  States  were  faced  with  more  severe  price 
increases than in others. Prices for primary energy sources have fallen significantly since the 
summer of 2008. Competition and market opening should ensure that these lower prices are 
passed on to the end consumers.  

While short-term solutions, such as regulated prices, might appear to be advantageous in the 
light  of  rapidly  increasing  energy  prices,  the  present  report  has  stressed  the  likely 
consequences of such measures: investor confidence is undermined, market entry is deterred 
and  the  full  benefits  of  the  internal  energy  market  are  placed  at  risk.  Over  the  coming  two 
decades, the EU - like other parts of the world - has to address the need for major investments 
in  infrastructure.  In  the  long  term  only  a  properly  functioning  internal  electricity  and  gas 
market can send the right price signals to encourage investment. 

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