Market Development of the SEE electricity market

In addition to focusing on the development of energy infrastructure networks, the countries of the SEE region have started to cooperate in the creation of a regional electricity market (REM). The European Commission has spearheaded work in this field and proposed that the countries open their national electricity markets, based in the rules currently in force and being developed by the European Union and integrated within the EU's Internal Electricity Market. In practice this means that the countries of SEE will have to establish compatible national electricity market models in line with the EU Electricity Directive (Directive 2003/54/EC) and secondary legislation. This proposal was discussed in detail and a preliminary agreement was reached at the first South East Europe Electricity Regulation Forum (SEEERF), held in Athens on 13-14 June 2002. A final agreement was reached in the Athens Memorandum of Understanding, signed 15 November 2002.

 

In support of the process, the Commission has financed the establishment of a Regional Energy Community Secretariat (ECS) and will help to build the mechanisms necessary for the smooth operation of the Regional Structure for SEE Electricity Market Development. It works in close co-operation and under the surveillance of the European Commission and report regularly to the European Commission and to the relevant stakeholders where appropriate.

 

The Ministerial Council adopted on the 9th of December 2005 Electricity Transition Strategy Paper. This paper was adopted after a substantive consultation process which involved all stakeholders of the Athens process. The aim is not to bind any party but to provide a consensus on the challenges and offer some tentative suggestions as to how on a common basis they can be overcome.

 

The main issues to be addressed under the Electricity Strategy Paper are:

• The status and reform of distribution companies;
• Payments reform and transparent pricing policies;
• Compatibility of national market designs; and
• Phasing and reform sequence;

Special emphasis needs to be put on the social aspects of reform

The European Commission developed a market options paper on the South East Europe Electricity Market which thoroughly discussed at the 6th and 7th Athens Forum and finally the Treaty Parties agreed in an approach that outlines basic market design elements notably requirements of the EU legislation. ).

 

Improving the balance between energy supply and demand is crucial to boost and sustain economic development in South Eastern Europe. This requires a strong commitment by the countries of the region towards market oriented reforms in order to: improve overall energy conservation and efficiency, reduce an excessively high energy intensity of production compared to international standards, strengthen national institutional capacities and adapt legislation and regulation to EU norms and practices. It also means that countries should be prepared to draw fully on the substantial gains which can result from energy trading among themselves and with their neighbors. This implies that the current fragmentation of energy supply is overcome through cooperation among the various entities concerned and through physical connection/reconnection of the network. A regional approach to energy supply, therefore, offers significant advantages both in terms of improved utilization of existing supply and production capacities as well as optimizing future investments. Major steps have already been taken over the last couple of years towards achieving these objectives in both the electricity and natural gas sectors.

 

Building on the signed Memoranda of Understanding 2002 and 2003, the so-called Athens Memoranda, the European Commission in conformity with the legal constraints of Article 300 of the EC Treaty (Treaty of Nice) - obtained a negotiating directive from the Council on 14 May 2004 to conclude a legally binding agreement having essentially the same content to the two Memoranda.

 

The Energy Community Treaty was signed in Athens on October 25, 2005 and entered into force on July 1, 2006.

The signature of the Energy Community Treaty means that the European Union and nine partners of South East Europe - Croatia, Bosnia and Herzegovina, Serbia, Montenegro, the Former Yugoslav Republic of Macedonia, Albania, Romania, Bulgaria and UNMIK on behalf of Kosovo - will create the legal framework for an integrated energy market. Negotiations with Turkey are ongoing for joining the treaty at a later stage.

 

The development of the Regional Electricity Market is coordinated by the European Commission and the Energy Community Secretariat (ECS). The Secretariat runs the day to day work of the Energy Community and undertakes analytical work, both tasks under the co-ordination of the Commission. The Secretariat is also one of the main institutions of the Treaty and the only one that is independent of the parties of the Treaty.

 

The electricity sector in South East Europe has a medium to long term regional reform plan, which is set out in the Athens Memorandum of Understanding signed 15 November 2002. Under this MoU, full members of Energy Community were obliged to implement national legislation creating electricity regulators and transmission system operators by June 2003 and to open the market for all non-domestic consumers by June 2005.

 

This reform plan was extended to cover the natural gas market under the Athens 2003 Memorandum of Understanding, which obliges full members of Energy Community to implement national legislation in accordance with Directives 2003/54/EC (electricity), 2003/55/EC (gas), 85/337/EEC (environmental impact assessment) 1999/32/EC (reduction of sulphur content of fuels) and 2001/80/EC (Large Combustion Plants). Legislation is required to be adopted by 1 July 2005 though the timetables for implementation may be later than those applying to EU Members.

 

The major commitments are: 

• to create a regionally integrated energy market for electricity and natural gas networks and to integrate that market into the wider EU market;
• to establish common rules for generation, transmission and distribution of electricity; 
• to similarly establish common rules for the transmission, distribution, supply and storage of natural gas; 
• to establish state level national energy authorities, regulators and transmission system operators; 
• to establish compatible state and regional electricity and natural gas market action plans;
• embryonic regional level dispute resolution mechanisms; 
• to open the markets in line with EU commitments but with a suitable transition period (all non-domestic markets are projected to be open by 2005); 
• unbundling of integrated utilities; 
• authorization procedures for new infrastructure that are transparent; 
• an anti-corruption programme; 
• to implement grid codes and other technical and commercial codes that are necessary for the functioning of the market; and, 
• regulated third party access, tariff systems that encourage trade, and technical codes necessary for the operation of a trade based regional system. 

Benchmarking this process is under way. Action Plans for long term implementation of the (electricity) REM are being drafted at regional level by the Council of European Energy Regulators (CEER) and at national level by EuropeAid contractors on behalf of the European Commission for implementation from 2004.