Power Generation Market Concentration in Europe 1996-2005. An Empirical Analysis

The liberalisation of the European power market has significantly changed the frame-work of the electricity industry. The process of market opening and securing fair, trans-parent and sustainable third party access is still underway. However, (incomplete) liber-alisation 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 2005 based on different methodological approaches.

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

Given this background, it is necessary to create stricter competition rules in the electric-ity 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 distor-tions (decommissioning funds, etc.) as well as disinvestment obligations for market-dominating generators.