Power Generation Market Concentration in Europe 1996-2004.

An Empirical Analysis.

The liberalisation of the European power market has significantly changed the framework of the electricity industry. The process of market opening and securing fair, transparent and sustainable third party access is still under way. But (incomplete) liberalisation can be thwarted by concentration trends in the electricity generation market.

This study analyses the market concentration trends in six regional markets in Europe from 1996 to 2004 based on different methodological approaches.

The analysis shows two very different development patterns. On the one hand, the market concentration in the United Kingdom decreased significantly in recent years and lead to electricity generation markets which could be described as unconcentrated, similar to the Scandinavian power production market. On the other hand, market concentration and its trends are occurring in all other regions. In markets which are characterized by former centralized state monopolies, the concentration indicators remain very high. Furthermore, especially in the German market, which is historically characterized by a diversity of power generation, mergers have pushed the concentration indicators to levels which are more and more critical.

Given this background, it is necessary to create more strict competition rules in the electricity markets as a necessary counterbalance to these developments. Key elements of this approach are a stricter unbundling, a premium for decentralised power generation taking into account long term avoided network costs, the elimination of other market distortions as well as disinvestment obligations for market dominating generators.