Published on May 2nd, 2014 | by Guest Contributor2
Netherlands Shows How Liberal Energy Market Works
May 2nd, 2014 by Guest Contributor
Originally published on EnergyPost.
By Karel Beckman
The EU has set itself a deadline to “complete” the internal energy market by 2014. However, many EU member states have not yet adequately implemented the EU’s energy directives. There is still a lot of scepticsm in Europe about the blessings of a competitive, integrated energy market. One of the countries that has done most to liberalise its energy market is the Netherlands. So what has been the result for energy consumers? Energy Post’s editor Karel Beckman found out first hand recently when he went out to buy an e-reader. Here is his personal account.
The other day I went into an electronics shop in Amsterdam – called the Mediamarkt – to purchase an e-reader. After I had selected the latest Sony model, and a receipt had been made out to me for €138, the shop assistant asked if I was perhaps interested in a sales offer from an energy company.
I thought, why not? I was taken to another desk inside the shop which was run by Essent, an old established Dutch utility company which was privatised some years ago and is a now subsidiary of the the large German utility RWE. I got to talking to an intelligent young salesman, whose first name was Ramazan.
Ramazan told me it might be a good idea to sign a three-year contract with Essent at a fixed price, since that would protect me against possible price rises in the electricity sector. I said I believed electricity prices would likely come down rather than go up, and he immediately admitted that, yes, there was overcapacity in the market, especially as a result of all the German renewable energy. Still, he added, you never know. And prices for natural gas were quite likely to go up, with the Ukraine crisis and all that. I had to admit that he had a point there. He seemed very well informed!
He went on to make me a very attractive offer. But before I tell you what it was, I have to explain a bit of the wider context of this story.
In the Netherlands we often complain (or used to anyway) that we are the most well-behaved boy in the EU classroom. In other words, we obediently do (did) what the teacher in Brussels tells us – and more. This was certainly the case when it came to the unbundling of our energy companies. The Dutch government adopted very radical requirements, demanding total ownership separation of all supply and distribution activities. This is more stringent than required by EU law, which allows utilities to retain ownership of networks as long as supply and distribution activities are carried on separately. The latter is the case for example in Germany.
No such luck for Dutch energy companies. (Two of them are actually still fighting the unbundling requirements in court.) Production and supply companies now operate entirely independently of the network operators. Almost all of them are privately owned now, whereas the network companies (the distribution system operators) are by law required to stay publicly owned (usually by provincial and local authorities). Thus, intriguingly, whereas a company like RWE still owns extensive distribution networks in Germany, its Dutch subsidiary Essent has had to divest its networks completely.
The Dutch government decided on this course because it believed competition could best be served through complete unbundling and letting private players serve the market. At the same time, the government, through the state-owned high-voltage network operator Tennet, invested hundreds of millions of euros in expanding interconnections with neighbouring countries, building new high-voltage cables not just to Germany and Belgium but also to Norway and the UK (with more cables to Norway and Denmark planned for the future). At the same time, Dutch electricity exchange APX was one of the most active proponents of “price coupling” in North West Europe. Thanks partly to APX, first power trading on the French, Belgian and Dutch markets was integrated. This was later gradually extended to the whole of North West Europe. (Indeed, in May of this year price coupling will be extended to South West Europe, making spot power trading possible in a single market across a large part of the EU.)
The Netherlands, then, is a model country when it comes to following the EU’s liberalisation policy, as laid down in the famous Third Energy Package (2009). As most readers will know, the EU has promised that the internal energy market will be “completed” by the end of this year, but many EU member states have by no means “completed” the process. Many probably don’t even believe in the blessings of competition and integration or have vested interests resisting it.
Too Good to be True
So what is the result of this exemplary Dutch energy policy? Let’s go back to the shop floor of the Mediamarkt (a German-owned chain store actually). When I asked Ramazan what offer he could make me, he took me to a large computer screen and asked for my address. After he had entered this into the computer, he informed me – correctly – who my current supplier was, how much I had to pay for my electricity and gas, and what type of contract I had with them! In fact, I did not have a fixed contract anymore, as he could see on his screen, so I was free to switch supplier at a moment’s notice.
The electricity price he offered me was a fraction higher than what I was paying to my current supplier, but the gas price was a bit lower. The total amount was about the same. However, I could get a €90 euro annual discount on certain fixed costs. And I was offered a voucher for €175 (!) to spend in the Mediamarkt. Essent, he told me, had made a deal with Mediamarkt to sell energy through its shops for five years. “We believe this works better than door-to-door sales.”
So I was offered a deal effectively worth €265. What was the catch? Well, the contract was for three years – but, as a matter of fact, as Ramazan explained (again correctly), under Dutch law customers are entitled to switch suppliers after one year. I actually liked the price guarantee, because under the contract I had I was not sure what price I was paying at any moment.
If this deal sounds too good to be true, you should realise that competition in the Dutch retail energy market is so fierce that suppliers will actually buy off existing contracts before the expiration date if the penalty is not too high. So I decided to sign up.
When I had signed the contract, Ramazan asked me if I owned my house (I do) and how old my condensed boiler was. About 8 years old, I said. A bit too soon to replace probably, he said. But if you want someone from Essent to come by and advise you, let me know.
This reminded me of the interview I had very recently (and quite coincidentally) with the CEO of RWE, Dutchman Peter Terium, who told me that he wanted to transform RWE/Essent from a power producer/retailer to “the holistic energy manager of the future”. My vision, he said, “is that RWE will put solar panels on your roof, a battery in your shed, a heat pump in your cellar, and we will also manage this complex energy system for you.” My experience in the Mediamarkt proves that the company is working on this. Whether or not they will succeed is another matter of course.
In any case, I walked away with a free E-reader worth €138 plus an extra voucher to spend another €37 in the Mediamarkt. I felt I had done well for myself on that Saturday morning.
And wouldn’t you know it, when I was home, later in the day, someone rang the doorbell – a salesperson from another energy company who wanted to sign me up. I had to tell him I am now off the market for another year. But I can’t wait to switch suppliers again next year.
In researching this story, I tried to get more information on switching rates in the various EU energy markets, but I was not able to find a good recent report. If you happen to know of a good source, please leave a comment here with a link. Much appreciated!
The European Commission did put out a report recently on energy price developments across the EU: http://ec.europa.eu/energy/doc/2030/20140122_swd_prices.pdf
As to the e-reader, in case you are curious: I discovered I don’t like reading from a small computer screen. I will stick with paper for the time being…
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