Vattenfall - Energy market in transition

The energy market in transition

Highly regulated historically, the energy sector has changed radically in the past 15 years.

Deregulation and internationalisation, largely driven by the EU, have resulted in several electricity markets now being totally open to competition.

Supply and demand in Europe’s electricity markets

In total, there are 240 million electricity customers in Europe. Of these, 20 percent are in Germany while the UK, France and Italy have 12-13 per cent each. The total electricity consumption in Europe (the 25 EU member states plus Norway and Switzerland) amounted to 3,150 TWh in 2004. Annual consumption is expected to increase by an average of 1.7 per cent until 2010, primarily in southern Europe and central eastern Europe. There is still a certain level of surplus capacity in Europe, but this is being reduced as older power plants are taken out of operation, and through increased consumption.

Read more in the web version of the Annual Report 2006 (new browser window)

Emission allowances affect electricity prices

In 2005, European electricity wholesale prices rose sharply, mainly due to increased fuel costs and the new trading system for emission allowances. But during the year, prices in Europe also exhibited higher correlation. Electricity wholesale prices are still dependent on local production conditions, although price correlations between countries have increased. Trading in emission allowances has functioned well, but prices have been higher than most analysts expected. High oil and gas prices during 2005 led to increased use of coal in electricity generation. This increased demand for – and the price of – emission allowances, which in turn led to higher electricity prices.

Read more in the web version of the Annual Report 2005 (new browser window)

Deregulation of markets – important events 1989-2007

1989. UK electricity market deregulated

1991. Norwegian electricity market deregulated

1995. Finnish electricity market deregulated

1996. Swedish market deregulated and EU’s first electricity market directive

1998. German market deregulated

1999. Danish market deregulated

2003. The EU’s new electricity market directive with regulations concerning issues such as the separation of operations. ’Green certificates’ introduced in Sweden

2004. Market opening for non-household customers

2005. Trading in emission allowances began in the EU

2007. Market opening for household customers

Read more in the web version of the Annual Report 2005 (new browser window)