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Journal Article / Electricity

Does More International Transmission Capacity Increase Competition in the Belgian Electricity Market?

Author(s): KÜPPER Gerd, DELARUE Erik, DELVAUX Bram, MEEUS Leonardo, BEKAERT David, WILLEMS Bert, PROOST Stef, D'HAESELEER William, DEKETELAERE Kurt, BELMANS Ronnie

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ABSTRACT

The electricity industry has traditionally been vertically integrated. Individual utilities were responsible for all the components of electricity supply: generation, transmission, distribution, and retail. Liberalization began in the 1990s, with the aim of increasing efficiency by relying on competitive wholesale and retail markets. Those parts of the value chain that exhibit characteristics of a natural monopoly, namely the transmission and distribution network, remained state-owned or state-regulated. The first European directive to create a competitive internal market for electricity dates from 1996.  As a consequence, the Belgian electricity market has been gradually liberalized over the past years. Since January 2007, the market is fully liberalized up to the final residential consumer. However, many studies have expressed concerns over the level of market concentration. This article aims, therefore, to give some qualitative and quantitative results as to the potential effects of increasing international transmission capacity on market power in Belgium. We set the scene by describing several of these studies that focused on the existence of market power in the Belgian electricity market and possible remedies (Section II). This section, therefore, does not necessarily reflect our own opinion. Consequently we briefly describe the recent relevant changes in the Belgian market, which occurred after these studies have been performed (Section III). Finally we present our own analysis that revisits some of the concerns raised in previous studies and that discusses the effects of one possible market power remedy, i.e. increasing international transmission capacity (Section IV).