Why did we start with electricity markets in Europe?

Abstract

From a political perspective, the integration of electricity markets followed three main steps, with increasing levels of detail: European treaties, EU legislative energy packages and more detailed market rules that have been developed in the process of creating EU electricity network codes and guidelines. First are the European treaties. The aim to create a common market to eliminate trade barriers between Member States dates back to the founding Treaty of Rome in 1957. Twenty-nine years later, the Single European Act of 1986 was adopted as the first major revision of the Treaty of Rome. It paved the way for what was to become one of the main achievements of the European project: the Single European Act required the adoption of measures with the aim of establishing an internal market by 31 December 1992.1 Later that year, the Council (1986) adopted energy policy objectives for the European Community, among which was that of ‘greater integration, free from barriers to trade, of the internal energy market with a view to improving security of supply, reducing costs and improving economic competitiveness’. In 1988, the Commission of the European Communities published the first document on the internal energy market, which assessed that there were still considerable barriers to trade in energy products within the Community (EC 1988). On 1 January 1993, the European Single Market became a reality for the 12 Member States at that time. However, integrating the energy sector into the European Single Market alongside other goods proved lengthier and more complex than had originally been anticipated. The year 1993 turned out to be only the starting point of a long, and still ongoing, process to build an EU internal market for electricity, as we will show in this book. One reason was the legacy structure of the energy sector and the non-existence of markets at the national level. Up to the mid-1990s, the electricity sector was still dominated by state-owned or state-controlled vertically integrated utilities with regional or national monopolies. Cross-border trade was limited due to a lack of infrastructure and rules to organize this trade.