The original timetable for liberalisation of the energy markets in the Netherlands - as set out in 1998 for electricity and 1999 for gas - pro-posed a gradual liberalisation in three phases, over ten years.
Today large industrial consumers are already free to choose their supplier, while medium-sized customers were to acquire freedom of choice on 1 January 2002, with domestic and small business consumers free to choose their supplier from 1 January 2007.
But in the 1999 energy report the Dutch minister of economic affairs revealed her intention to review these dates, given national and international developments in the sector.
A strong factor in this change of mind is the will of consumers, who have strongly indicated that they want to have access to a competitive market as early as possible. Another influence has been the increase of foreign companies in the Dutch utility market that are familiar with a liberalised market, together with the faster pace of the liberalisation process in neighbouring countries.
Other European countries have shown that it is possible to implement a competitive utility market faster than the Netherlands originally proposed. In the UK, for example, the government decided in 1993 to bring forward the opening of the domestic and small-business gas market from 2002 to 1996. In Germany an even more radical approach was taken to the opening of the electricity market, with the government essentially declaring it open overnight.
Finally, the number of privatisations, mergers and acquisitions is growing rapidly, which could result in privatised monopolies if the market is not open.
Against this background, the Dutch ministry of economic affairs asked PA Consulting Group to review the market opening dates in the Netherlands and to propose a new, accelerated timetable for market liberalisation based on a number of technical and organisational requirements. The review found a significant difference in the way the electricity and gas markets were envisaged to work.
For electricity, it transpired that a clear market model is emerging with the completion of the technical codes through which the monopoly functions will be provided.
The electricity act requires total unbundling of distribution and supply, while an independent system operator, TenneT, operates the monopoly functions on the basis of regulated access. A regulator (DTe) controls access to the monopoly functions (including tariffs) and is responsible for checking compliance with the act.
The gas market model is less defined, with a significantly reduced controlling role for the government. Unlike electricity, for gas there are no monopoly functions. The gas act stipulates anyone’s right to be connected to the transport and distribution grids, but access is on a negotiated basis. Tariffs will have to be transparent and will be published. Distribution and supply are to be administratively separated, and the Dutch Competition Authority will, when requested, review the fairness and competitiveness of tariffs.
No gas regulator or independent system operator have been envisaged. In most cases, incumbent operator Gasunie will provide sys-tem operator services. Gasunie owns most of the high and medium pressure grid and has contracted 100 per cent of the Dutch storage capacity.
The multiple roles of Gasunie (system operator, retailer, grid owner) cause mistrust in the sector and will result in a less than liquid wholesale market.
Based on the review, PA recommended the following new opening dates. For electricity, 1 January 2002 for medium-sized consumers and 1 July 2003 for everybody else. A market for green electricity could be opened sooner but would need to be a very simple solution.
Because the development of the gas market is at least six months behind electricity, opening dates of 1 July 2002 and 1 January 2004 were recommended.
However, it has to be noted that most Dutch distribution companies are horizontally integrated: they have been offering gas, electricity and sometimes water and cable television services to their domestic customers for some time. In this respect, the Netherlands is ahead of other countries.
For this reason, the importance of synchronising the gas and electricity dates, particularly for the domestic market, was also investigated, and PA concluded that the date for full competition should be synchronised at 1 July 2003.
The ministry discussed the PA proposals with industry and agreed on 1 January 2002 and 1 January 2004 for both gas and electricity. These dates were discussed in parliament and approved last March.
The major issues faced by the Netherlands in making liberalisation a success are:
- Separation of regulated and monopoly functions
As total separation is not in the gas act, market forces are likely to prevail. Without separation, the gas market may be frustrated and may not achieve acceptable liquidity.
Eventually, it is likely that Gasunie will nee to separate its network management function from its supply business. In March this year, Gasunie announced that it will separate into independent units of transport and distribution and for supply, in an attempt to overcome concerns in the sector about its dual role.
- Leadership and decision making
As with any programme of this size and complexity, full co-operation between market parties involved in delivering the competitive market is essential. This normally requires the right amount of leadership and authority, supported by an effective governance structure.
To address this concern, the Dutch ministry of economic affairs has announced the creation of a platform for accelerated energy liberalisation.
The platform comprises representatives of all the parties involved, namely ministry of economic affairs, EnergieNed, TenneT, Gasunie, VNO-NCW, MKB Nederland and Voeg.
Wim Dik, the former chief executive of KPN who was involved with the liberalisation of the Dutch telecoms market, has been asked by the government to be the independent chairman of the platform.
The activities of the platform, which will over electricity and gas, include solving both ethnical and organisational problems in and between existing and new companies in the market. In addition, the platform will agree on ways to achieve consumer protection.
The majority of the work to introduce competition as defined in the Netherlands rests with the distribution companies. However, they already face a significant amount of work, integrating different businesses after the recent spate of takeovers and mergers. They also have to separate their network and supply businesses for electricity and gas (administratively only) as stipulated by law.
Given this large burden of work it is vital that, for a robust liberalised market to open on time, the work to put in place the infrastructure for competition becomes top priority.
By implementing a liberalised market in this way, many years of market evolution are effectively being replaced by an imposed solution. What is needed is an overall view of the market, to determine how it will work as a whole and to determine and eliminate any potential distortions. This overall market perspective (wholesale and retail) should be provided by the platform.
Whatever solution is chosen, the market will evolve. We have seen major changes in the Scandinavian and UK electricity markets since opening. In Sweden, the requirement for half-hour meters has been removed as a barrier to competition.
In the UK, the wholesale market is under-going an extensive change with the new electricity trading arrangements (Neta), and further changes to the retail market.
The Netherlands looks set to be the next country to truly open its utility markets. Following the UK’s approach, the Dutch are trying to put in place a properly working competitive model before they declare the market open. This is in contrast to Germany, which opened its markets without the supporting processes in place and then allowed the market to evolve, driven by market forces.
Whichever way is chosen, the road to liberalisation is not smooth. To make it happen, the Netherlands will need not only a clear market model, but also a firm belief that it will work, together with fit-for-purpose leadership and governance.
Finally, a major boost of resource allocation and investment is needed – in particular, by the distribution companies.
