ISSN 1392-2785 Inzinerine Ekonomika-Engineering Economics(2). 2009 COMMERCE OF ENGINEERING DECISIONS The Ownership Unbundling of Electricity Transmission System Operators: the European Union Policy and the Case in Lithuania Saule Milciuviene, Agne Tikniute Mykolo Romerio University Ateities str. 20, LT – 08303 Vilnius, [email protected], [email protected] One of the main strategic goals of the European Union Keywords: transmission system operator, ownership is the creation of competitive single electricity market. The unbundling, electricity market. effective unbundling of monopole activity of transmission of electricity from competitive activities of supply and Introduction generation of electricity is the key element of competitive In September of 2007 the European Commission electricity market. Thus the Commission proposed the proposed the third legislative package for the European model of ownership unbundling of the transmission system Union electricity market. One of the most important operator from supply and generation of electricity. The proposed changes is related to the unbundling of electricity defining element of an ownership unbundling model is that transmission activities from the generation and supply of the network of electricity transmission is operated and electricity. owned by one independent company, which clarifies the Electricity market transformation has been undertaken incentives, responsibilities and liabilities for the network. in response to fundamental economic and technological National strategies on development of electricity changes. Globally, the world electricity consumption is markets vary considerably from country to country due to expected to double in the next 25 years, and to triple in different national constraints. As Lithuania is a member of developing countries. Efficient investments are needed to the European Union, its national energy strategy has to be support the electricity infrastructure expansion required to consistent with the policy of the European Union. sustain economic growth (Chao, 2006). Lithuania also has to seek the best strategy to develop The European Commission argues that the new electricity market at the national level taking into account legislation have to resolve the structural failures of the its national conditions. Changes in the structure of electricity market in a number of areas. For example, the electricity supply, which will occur because of shutting current rules on separation of monopolistic network down of the reactor of the Ignalina Nuclear Power Plant, activities from the supply and production of energy do not have prompted the government to review its current energy effectively prevent a large number of network operators to policy related to development of national and regional discriminate against new users of the network in favor of electricity market. vertically integrated supply and production companies. The objective of the article is to analyze the consistence Consequently, new companies entering the electricity of recent changes in shareholding of Lithuanian electricity markets, who have no choice but to use the existing companies with the model of ownership unbundling of the networks – as building their own network would be too transmission system operator. expensive – have a hard time securing a market position The first part of the article is devoted to the analysis of due to discriminatory access conditions, lack of available ownership unbundling model of the transmission system network capacity and lack of transparency on network data operator. It discuses (i) existing models of unbundling of Simply put, vertically integrated companies – that is the transmission system operator, (ii) the necessity and companies that deal with supply, production and the objectives of ownership unbundling of the transmission operation of the electricity networks – have an interest to system operator, (iii) the main features of ownership remain dominant in their national supply markets, while unbundling of the transmission system operator, (iv) the their networks help them retain this position. main problems and advantages of implementing ownership National strategies on development of electricity unbundling of the transmission system operator. The markets vary considerably from country to country due to second part of the article analyses the development and different national constraints. As Lithuania is a member of changes in the ownership of shares of Lithuanian the European Union, its national energy strategy has to be electricity companies. It discuses (i) the formation of consistent with the policy of the European Union1. national investor – LEO LT AB; (ii) the specific problems Lithuania also has to seek the best strategy to develop related to the unbundling of supply and generation of electricity from distribution and transmission of electricity. The main conclusion is that that the creation of LEO 1 In the enlarged European Union, there is a complex process of new LT AB is inconsistent with the ownership unbundling model, transformations representing a new phase of the political, social, economic modernization. The priorities of these transformations are the which is the most favored by European Commission, as further activities of integration processes in the whole space of the future legislative policy of the European electricity market European Union and the intensive creation of the knowledge based and the best for enhancement of competition in the sector. society and global market oriented knowledge economy (Melnikas, 2008). - 82 - electricity market at the national level taking into account publicly supported electricity monopolies, with little or no its national conditions. Changes in the structure of cross-border trade in electricity (Walde, 2000) electricity supply, which will occur because of shutting The single electricity market as an accepted European down of the Ignalina Nuclear Power Plant, have prompted Union objective has only been fully recognized relatively the government to review its current energy policy related recently, with the acceptance of the new electricity to development of national and regional electricity market directive 96/92/EC in 1996 (Walde, 2000). But the (Milciuviene, Milcius, Praneviciene, 2006). directive 96/92/EC has not reached the required level of The objective of the article is to analyze the electricity market unification and liberalization and was consistence of recent changes in shareholding of Lithuanian profoundly amended in 2003. But these amendments still electricity companies with the model of ownership have not been sufficient to create single electricity market. unbundling of the transmission system operator. On the 19th of September 2007 the European The first part of the article is devoted to the analysis of Commission made a proposal to change the directive (the ownership unbundling model of the transmission system directive of the European Parliament and of the Council operator. It discuses (i) existing models of unbundling of amending Directive 2003/54/EC concerning common rules the transmission system operator, (ii) the main features of for the internal market in electricity). One of the main ownership unbundling of the transmission system operator, issues is the proposal to implement the ownership (iii) the necessity and objectives of ownership unbundling unbundling of the transmission system operator. The of the transmission system operator, (iv) the main Commission has given “ownership unbundling” as its problems and advantages of implementing ownership preferred option, but also made provision for a second unbundling of the transmission system operator. The option—the creation of an independent system operator to second part of the article analyses the development and operate the transmission assets separately from their changes in the ownership of shares of Lithuanian vertically integrated owners. electricity companies. It discuses (i) the formation of During the adoption procedure2 of new directive the national investor – LEO LT AB; (ii) the specific problems European Parliament and Council have taken different related to the unbundling of supply and generation of positions on the regulation of the transmission system electricity from distribution and transmission of electricity. operator. In Lithuanian science this article is the first attempt to The Council approved a solution whereby transmission analyze the problems of the ownership unbundling model network operators have to be effective separated from in the electricity market. The novelty of this article is the supply and generation activities without ownership analysis of Lithuanian electricity companies according the unbundling. This model would enable companies to retain European Union model of ownership unbundling. The ownership of transmission networks provided that the research is not restricted to the analyses of legal norms. It networks were operated by a new independent joins into the logical succession the goals of legal transmission network operator. This option is designated to regulation imposed by the European Union and Lithuanian the Member States where the transmission network legal acts and relation of those goals with the specific belongs to a vertically integrated company on the date of structure of the Lithuanian electricity market. In Lithuania entry into force of the new Directive (the Council meeting the problems of the regulation of electricity market were Transport, Telecommunications