Pan-European Energy Contracts

SUMMARY

Overview

Introduction

This report details the opportunities for pan-European suppliers to use large multinational contracts as a vehicle to enter new markets. While all the potential is there for this to occur, widespread contracting in this manner is years away as large structural and market barriers remain for both buyers and suppliers.

Scope

• an understanding of the structural barriers and the affect of market opening in allowing pan-European contracts.
• a profile of the UK based pan-European energy buyers.
• an assessment of the motivation of both suppliers and buyers to contract in a pan-European manner.

Highlights

Different stages of market opening, combined with structural barriers prevent genuine EU-wide markets in energy from forming.

The EU25-wide market for multinational contracts could be as high as 400TWh of MEU power and 1,200TWh of non-residential gas volume.

Pan-European contracts are desired by both buyers and suppliers, however for very different reasons.

Reasons to Purchase

• understand the feasibility of pan-European contracts.
• quantify the scale of the UK's potential pan-European buyers.

TABLE OF CONTENTS

• CHAPTER 1 EXECUTIVE SUMMARY
  • Widespread pan-European contracting is years away as large structural and market barriers remain
• CHAPTER 2 STRUCTURAL BARRIERS AND MARKET OPENING
  • Different stages of market opening, combined with structural barriers prevent genuine EU-wide markets in energy from forming
  • Price differentials between markets are evidence that significant structural and market barriers to pan-European competition exist
  • To improve international market liquidity, 9 key power and 6 key gas networks have been promised priority access to EU funding
  • While the majority of power markets in the EU are open to competition....
  • ... switching rates are typically still low bar among the largest industrial buyers
  • The mixed bag of national and regional coverage by pan-European utilities adds complexity to any possible EU-wide energy deals
  • Many of the utilities operating in the UK are foreign owned but are not completely pan-European
  • Many European utilities are aiming for greater levels of vertical integration, reducing crucial wholesale market liquidity
• CHAPTER 3 UK BASED PAN-EUROPEAN BUYER PROFILES
  • The EU25-wide market for multinational contracts could be as high as 400TWh of MEU power and 1,200TWh of non-residential gas volume
  • The Datamonitor annual Major Energy User (MEU) survey covers a third of the UK power market and more than half of the gas market
  • While only a quarter of survey respondents have EU sites, they buy 55TWh of power and 104TWh of gas volume, making them among the largest consumers in the UK
  • A UK buyer with EU sites has an average per-site consumption of 760MWh in comparison to UK-only buyers that have 200MWh
  • Buyers with EU sites represent the very largest consumers of gas in the UK with an average site consumption of 4.3GWh, 5 times higher than sites with UK-only buyers
• CHAPTER 4 BUYER PULL AND SUPPLIER PUSH
  • Pan-European contracts are desired by both buyers and suppliers, however for very different reasons
  • Buyers are aware of the price differentials across the EU and would appreciate access to cheaper energy from foreign markets
  • Buyers would like utilities to aggregate data and billing across all of their EU-sites which may prove laborious in many cases
  • Despite the complications of billing, pan-European contracts represent for suppliers one of their strongest chances to grow their business into other markets
  • While multinational companies will be important wins for suppliers, losing them in the future may put them in a difficult position
• CHAPTER 5 APPENDIX
  • SPP writing team
  • If you have any questions regarding this product please do not hesitate to contact the report writing team
  • For further information about this report, please contact your sales manager or any of the analysts above.
  • List of Figures
    • Figure 1: Average spot power prices and interconnections within the EU
    • Figure 2: Power market opening by country, 2005
    • Figure 3: Switching rates by country, Power, 2005
    • Figure 4: Switching rates by country, Gas, 2005
    • Figure 5: Share of EU power markets held by utilities operating in the UK
    • Figure 6: Datamonitor Buyer Segmentation
    • Figure 7: Respondents to MEU 2005 survey with EU locations
    • Figure 8: Average power volumes and sites of EU and UK only buyers
    • Figure 9: Average gas volumes and sites of EU and UK only buyers