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Energy Infrastructure and Competition in Europe Essay

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Updated: Jun 28th, 2020

Equal access to the energy infrastructure in Europe has had a wide array of effects on the promotion of competition. Vertical integration is the most common form of energy distribution that is dominant in most European countries. Consequently, the distribution of energy in Europe depends on a single outfit. Nowak notes that “while competition can be promoted in generation/production and supply side of the vertical integration, transmission and distribution segments remain natural monopolies that hinder market mechanisms” (2010, p. 3692).

Therefore, the energy infrastructure in Europe has been detrimental in promoting healthy competition within the industry. The infrastructure that is dominant in Europe favours the dominant companies by allowing them to maintain the status quo whilst making it hard for new businesses to venture into the energy industry. To balance out the lack of competition in Europe’s energy market, there is a need to liberalize the energy industry in the region by ensuring equal access to the energy infrastructure. All these measures require goodwill on the side of the political stakeholders.

On the other hand, lack of infrastructural access within the European energy market is also harmful to the infrastructure itself. The principle of the free market is responsible for various advancements in technology and the energy infrastructure. Market preconditions are also responsible for the high standards that drive the energy market within Europe. Consequently, there is a need to drive the competition within the energy sector in Europe in order to make the sector reflect the natural progress of the overall industry. For instance, one research notes that “if regulated prices are not in line with market prices, suppliers without significant low-cost generation capacities and infrastructural assets or equivalent long-term contracts will not be able to make competitive offers, which they need in order to cover their supply costs” (Alexander & Weeds 2006, p. 23).

Governments can respond to the problems of poor infrastructure through a number of measures. Most of these measures are aimed at liberalizing the market by loosening the control of private entities on the energy infrastructure (Rotaru 2014). Energy infrastructure would suffer from various issues that can be traced back to vertical integration, including degradation of infrastructure, manipulation of standards, and concealment of facts.

Lack of competition in the infrastructure that is responsible for delivering energy to customers in Europe has had various impacts on the elements of cost. Costs of energy translate differently in areas that embrace regulation and the ones that do not (Westphal 2006). Consequently, energy prices are a big determinant of economic stimulation within Europe. Governments are concerned with high-energy prices, but these costs are also subject to a number of factors. Research indicates that consumers are more likely to pay less for energy in markets that are less volatile (Nowak 2010).

Energy is an on-demand product, and this means that consumers are more satisfied with the continuous supply of their product. Therefore, costs are more stable in environments where there is a regulation of infrastructure. For instance, the vertical integration of energy infrastructure is responsible for the instability of energy prices within Europe. One research notes that “the delivery of energy, whether via electricity, gas or oil, is also dependent on the limitations of transmission capacity and the stability of the delivery infrastructure” (Kjarstad & Johnsson 2007, p. 3643). Limiting competition in energy infrastructure access is responsible for costs of energy-products in Europe rising because they limit the availability of these products.

References

Alexander, I & Weeds, H 2006, Regulatory structure and risk and infrastructure firms: an international comparison, The World Bank, Copenhagen.

Kjarstad, J & Johnsson, F 2007, “The European power plant infrastructure-presentation of the Chalmers energy infrastructure database with applications”, Energy Policy, vol. 35, no. 7, pp. 3643-3664.

Nowak, B 2010, “Equal access to the energy infrastructure as a precondition to promote competition in the energy market: The case of European Union”, Energy Policy, vol. 38, no. 7, 3691-3700.

Rotaru, D 2014, “Specifics of the Energy Markets”, CES Working Papers, vol. 3, no. 12, pp. 76-85.

Westphal, K 2006, “Energy policy between multilateral governance and geopolitics: whither Europe”, Internationale Politik und Gesellschaft, vol. 4, no. 5. pp 44-62.

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