Source: Proceedings of the 3rd International Energy Symposium “Dichotomies and Challenges”, 19-21 Sep 2001, Stift Ossiach, Ossiach/Austria. Published as Vol. 74 of the Series “Forschung im Verbund”, Oesterreichische Elektrizitaetswirtschafts- Aktiengesellschaft, Vienna/Austria, December, pp.131-140. Impacts of market liberalisation on the electricity supply sector: a comparison of the experience in Austria and Germany Reinhard Madlener & Eberhard Jochem Centre for Energy Policy and Economics (CEPE), Swiss Federal Institutes of Technology ETH Zentrum WEC, CH-8092 Zurich, Switzerland Tel: +41-1-632 06 52, Fax: +41-1-632 10 50, E-mail: madlener@cepe.mavt.ethz.ch Abstract The impacts of market liberalisation on the electricity supply sector depend on many different factors and boundary conditions. Comparing these impacts in Austria and Germany, two countries which both participate in the European internal market and have a central geographical location in Western Europe, and which both have borders and important trade relationships with Central and Eastern European countries, provides some important insights with regard to the following aspects: (a) the differences in the primary energy supply mix for electricity generation; (b) the substantial excess capacity, not only in the two countries analysed but also in the EU as a whole, and its uneven reduction due to different market opening speeds within the Community and differences in the plant stock composition; (c) the utility company structure, including ownership and traditional energy supply and customer relations; (d) the changing situation faced by co-generation and small power producers; and (e) the relevant regulation of third-party access to the grid, electricity transmission, and prices for small/captive consumers. Last but not least, the paper also covers the influence of the expected increase in the volumes of electricity traded in the two countries, also with their Central and Eastern European neighbours (where the level of the playing field may not yet be equalised in the near future), and the concerns that this may lead to conflicts in the achievement of the energy policies, environmental policies, and climate change policies aimed for at the national and European level. 1 Introduction The liberalisation of the electricity sector, like in other network-based industries, induces substantial structural change, and the consequences for a particular country are often hard to predict, as experience has shown, e.g., in the UK and Norway. This change causes an urgent need to (often rapidly) adjust to a new market environment – by adapting the prices and quantities offered, the marketing strategy, and also the portfolio of products and services purchased and sold. However, the strategic and operational adjustments required may be quite different, depending on the particular boundary conditions (domestic energy resource base, CO 2 reduction obligations, etc.) for the electricity industry in question and the actual impact of market liberalisation on the electricity supply sector. In the course of the European electricity market liberalisation, as stipulated in the EU Directive 96/92/EC, the German Federal legislation decided for an instant full liberalisation by April 1998 (EnWG 1998), while the Austrian parliament opted for a stepwise market opening, starting in February 1999 (ElWOG 1998), in accordance with the minimum limits given in the EU Directive. Following the rapid restructuring of the industry in Europe, however, and in the light of the uneven exposure of Austrian power utilities to competitive pressures, it was decided in 2000 to completely open the Austrian power market by October 2001 as well (ElWOG 2000), as Germany, still way ahead of many other EU member states. Given the different market opening schedules, and other differences, such as in market size and in the pre-opening organisational and ownership structure of the utilities, it seems to be worthwhile to compare the impacts of liberalisation in the two countries – with an annual per capita electricity consumption beyond 6,500 kWh, comparatively high environmental standards, and traditionally strong electricity trade relationships with Central European countries. Besides, factual competition in the power sector in both countries has developed at an impressive pace. The findings can also provide some useful hints for utilities and public administration in those countries that are currently planning to open their electricity markets within the next couple of years (like Switzerland and most EU accession countries). 2 Primary energy supply mix for power generation – the starting point The primary energy basis for electricity generation in the two countries is significantly different and can be expected to have some specific implications on the behaviour of the participants in the electricity markets in both countries. Whereas electricity generation of the German power sector has been traditionally heavily dependent on coal (hard coal: around 25 %; lignite: around 26 %) and nuclear energy (ca. 36 %), with almost negligible shares of hydro (1.5%) and wind power (0.4%), respectively, the Austrian power sector has its major basis in hydro power (44%) and fossil-fuel