MCI and European Competition Forecasts

Content

• Chapter 1 Executive Summary
  • Competitive intensity in the gas and power markets is unsurprisingly lead by the UK with widely varying conditions elsewhere
  • The UK and Sweden lead the field in terms of power market competitive intensity
  • After the UK, the Dutch market is the most competitive gas market both now and in 2008
• Chapter 2 Introduction To Mci
  • The MCI Index assesses the competitive environments in 10 key European gas and power markets and forecasts switching behaviour
  • The MCI Index shows how attractive a particular market is to new entrants in terms of the competitive environment
  • The MCI Index is calculated by deriving a weighted average of scores over 9 key metrics
  • Scores were devised by Datamonitor and then tested, validated and revised through an extensive series of expert interviews
  • Two methods of calculation are used in order to ensure accuracy of results and to remove erroneous or misleading scores
• Simple Additive Measure
• Multiplicative Measure
  • Users can adjust scores and weightings using the accompanying Excel model
  • Calibration of the underlying metrics
  • Effectiveness of regulator
  • Ease of Third Party Access
  • Effectiveness of balancing & data transfer
  • Wholesale market fragmentation
  • Retail market fragmentation
  • Traded market maturity
  • Access to market information & assistance
  • Consumer representation
  • Propensity to switch
  • This report is aimed at those needing a greater insight into the current and future competitive environments in Europe's energy markets
• Chapter 3 European Market Overview
  • All of the markets in the MCI Index are subject to the terms of the EU gas and power directives
  • Compliance with the terms of the directives has varied widely across Europe
  • Total and sectoral demand vary widely in the MCI Index markets
  • Demand growth rates also vary significantly between markets
• Chapter 4 Market Trends
  • Czech Republic - Gas
  • The development of liberalisation will drive all of the Market Framework scores higher by July 2008
  • Retail fragmentation is the highest current and future score of the Supplier Push factors
  • Customer Pull factors all score at the lower end of the scale
  • By July 2008 switching activity in the residential market will lag significantly behind the non-residential market
  • The Czech Republic's gas metrics all score in the lower half of the scale
  • Czech Republic - Power
  • Market Framework factors are unlikely to develop significantly by 2008
  • Supplier Push factors are curtailed by the lack of a traded market and the dominance of CEZ
  • Customer Pull factors achieve only limited scores both now and in July 2008
  • Switching rates will be limited in the residential sector by July 2008, though greater momentum will be seen in the residential sector
  • Market Framework metrics exert a significant influence over the Czech power scores
  • The Czech Republic's gas metrics all score in the lower half of the scale
  • France - Gas
  • Regulatory effectiveness is the key driver of the Market Framework scores
  • Supplier Push factors in France are influenced by the reduction in wholesale fragmentation expected by 2008
  • Customer Pull metrics all score low marks both now and in 2008
  • Switching rates in both the non-residential and residential sectors are likely to be lower than in other markets
  • Market Framework metrics are the key driver behind France's overall gas score
  • France - Power
  • Increased pro-action and momentum from the Regulator are likely to drive the Market Framework metrics higher by July 2008
  • Growth in the Supplier Push metrics will be mainly driven by reduced retail fragmentation between 2005 and 2008
  • None of the Customer Pull metrics score particularly highly both at the current time and in July 2008
  • Residential switching will only be at modest levels by 2008, though non-residential switching will continue to develop
  • Relatively low consumer representation and the ongoing dominance of EDF serve to constrain France's overall power scores
  • Germany - Gas
  • Germany's Market Framework score is curtailed by the lack of a regulator and the relatively undeveloped TPA regime
  • The large number of municipal energy retailers drives the Supplier Push metrics
  • Germany has consistently low scores for all of the Customer Pull metrics, with little improvement likely by 2008
  • Forecast switching rates for 2008 are at the lower end of the European scale
  • A highly fragmented retail market is not enough to offset the low scores gained in most of the other metrics in both 2005 and 2008
  • Germany - Power
  • The already low Market Framework scores are further constrained by the current lack of a regulatory body
  • Supplier Push factors all score relatively highly given the well developed nature of the German power market
  • Customer Pull metrics are likely to remain low for the foreseeable future
  • Switching in both sectors will be curtailed by the fact that market opening occurred back in 1998
  • A mature traded market and a relatively fragmented wholesale market are insufficient to offset the low scoring metrics
  • Ireland - Gas
  • All of the Irish Market Framework factors will be at the upper end of the scale by 2008
  • The consolidation of new market entrants will increase the scores of the Supplier Push metrics
  • Continued switching following full market opening in 2005 will drive the Customer Pull metrics higher in 2008
  • The development of competition between 2005 and 2008 will continue to result in increased rates of switching
  • Ireland's gas scores are largely driven by the Market Framework metrics
  • Ireland - Power
  • Market Framework metrics generally score highly and are likely to further improve by July 2008
  • The Supplier Push metrics will continue to be constrained by only modest gains from new entrants and the lack of wholesale power
  • Customer Pull metrics will remain relatively low by 2008, despite the progress resulting from full market opening in 2005
  • Switching activity in the residential sector will continue to be much lower than the non-residential market
  • Irish power market metrics are constrained by the lack of a traded market
  • Italy - Gas
  • The assertion shown by the Italian regulator has a major impact on the Market Framework metrics
  • Reductions in both wholesale and retail market fragmentation are the key driver of the Supplier Push metrics
  • Customer Pull metrics are mainly driven by propensity to switch
  • Continued switching is likely to occur in both sectors between now and 2008 pushing switching rates higher
  • The Italian gas market achieves higher scores on the more heavily weighted metrics
  • Italy - Power
  • Italy's Market Framework score is driven by the Regulator's proactive reforms and strong stance on promoting liberalisation
  • Growth in the wholesale power market will increase the Supplier Push metric by July 2008
  • Customer Pull factors are likely to remain relatively low in July 2008
  • Switching rates in the Italian power market are likely to be similar to those seen in the gas market
  • Low scoring Customer Pull metrics constrain Italy's overall scores
  • Netherlands - Gas
  • The relatively high Market Framework scores reflect the status of the Netherlands as an established and mature gas market
  • Supplier Push factors are driven by the existence of, and growing liquidity in, the TTF wholesale market
  • Customer Pull scores have been constrained, and will continue to be constrained, by a lack of strong consumer representation
  • Switching activity will be higher than in many other markets by 2008 owing to full market opening occurring ahead of EU deadlines
  • Dutch gas scores reflect the Netherlands' role as a significant gas producer and a mature market
  • Netherlands - Power
  • The Market Framework metrics are driven by the competency of the regulator and its focus on social as well as market issues
  • Supplier Push factors will grow by July 2008, though only to a minimal degree
  • Customer Pull factors are mainly driven by a medium propensity to switch
  • Switching rates will continue and are likely to remain higher than in many other markets
  • Strong market framework factors and a mature traded market are the key drivers of the Dutch power market scores
  • Poland - Gas
  • None of the Market Framework metrics increase their scores significantly between 2005 and 2008
  • A lack of access to wholesale gas supplies constrains Poland's Market Framework scores
  • Customer Pull metrics will remain at the lower end of the scale by 2008
  • Residential switching rates are likely to remain modest, though greater momentum will occur in the non-residential sector
  • Only a modest improvement in Poland's scores is likely to be discernable between 2005 and 2008
  • Poland - Power
  • Market Framework scores will remain modest in 2008
  • Low levels of retail and wholesale fragmentation drive the Supplier Push metric both currently and in July 2008
  • Customer Pull metrics are very much at the lower end of the scale and are likely to remain so in July 2008
  • Residential switching is likely to remain at modest levels, though non-residential rates are likely to grow more rapidly
  • A high degree of fragmentation in the retail and wholesale markets partially offsets the modest scores achieved in other metrics
  • Spain - Gas
  • Spanish Market Framework scores will increase only slightly by 2008
  • Reductions in wholesale and retail fragmentation will drive the Supplier Push metrics higher by July 2008
  • The Customer Pull metric is most heavily influenced by switching rates both currently and in the future
  • Following an upsurge in residential switching, both sectors will continue to see increased switching activity in July 2008
  • Spain's gas scores are constrained by the lack of a traded market and relatively low levels of consumer representation
  • Spain - Power
  • Market Framework metrics will remain in the middle range both currently and by July 2008
  • Supplier Push metrics are currently modest, though by July 2008 will begin to increase
  • Customer Pull metrics will remain relatively low in July 2008
  • Switching rates in both the residential and non-residential sectors will continue to rise
  • As in the gas market, Spain's power scores are constrained by the lack of a traded market and low levels of consumer representation
  • Sweden - Gas
  • The undeveloped nature of the Swedish gas market constrains the Market Framework scores
  • High levels of wholesale and retail fragmentation combined with a lack of wholesale gas constrain the Market Framework scores
  • Customer Pull metrics will remain at the lower end of the scale between now and 2008 given the immature nature of the market
  • Switching rates in the Swedish gas market are likely to remain modest
  • The immature and undeveloped nature of the Swedish gas market mean that both current and future scores are modest
  • Sweden - Power
  • The Swedish Market Framework metrics are likely to move up the scale by July 2008
  • Supplier Push metrics are driven by the existence of the Nord Pool market
  • Customer Pull factors score relatively highly, though are unlikely to move significantly between now and 2008
  • Strong rates of switching are likely to continue into 2008 in both the residential and non-residential sectors
  • Most of Sweden's power market metrics show only limited movement between 2005 and 2008
  • UK - Gas
  • The developed and fully deregulated nature of the UK market allows it to achieve the highest Market Framework score in this study
  • The maturity of the UK's wholesale market has a strong impact on the Supplier Push metrics
  • High levels of switching, and facilities to assist this switching, result in high Customer Pull scores
  • Switching rates will continue to develop, though at a slower rate than in other markets given the already advanced stage of liberalisation already reached
  • The UK's role as a major gas producer and its mature market structure mean that most metrics score at the top end of the scale
  • UK - Power
  • The UK's Market Framework metrics all achieve scores at the top end of the scale
  • Supplier Push metrics are driven by the existence of a fragmented wholesale market and the well developed traded market
  • All of the UK's Customer Pull metrics score at, or close to, the top end of the scale
  • Switching activity will continue to develop in the UK, though at a slower rate than in the less developed markets
  • The UK's score is constrained only by the current levels of retail market concentration
• Chapter 5 Competitive Outlook
  • Current levels of competitive intensity in Europe's gas markets reflect the widely differing market structures and levels of maturity
  • Other than Sweden and the UK, current levels of competitive intensity in the MCI power markets are relatively uniform
  • By 2008 the UK will remain the most competitive market, though other markets will be increasingly competitive to varying degrees
  • By 2008 all of the markets will have achieved positive multiplicative scores and will see advancements in competitive intensity
  • Given its long history of liberalisation, it is unsurprising that the UK achieves the highest gas and power scores
  • In terms of overall competitive intensity scores, the UK and Dutch markets are currently the most attractive commercial prospects
  • By 2008 relative gas / power competitive intensity will be only marginally changed, though important differences lay in individual metrics and their changes over time
  • Czech Republic
  • The Czech Republic achieves low scores for both gas and power market competitive intensity with little improvement by 2008
  • New entrants to the Czech power markets will need to mitigate the threat posed by dominant players and low switching
  • Commercial opportunities in the Czech gas market appear to be very limited both now and in 2008
  • France
  • France's current levels of competitive intensity are low, though a strong improvement in gas competitiveness can be expected
  • The dominance and formidable challenge represented by EDF means that new entrants need to aggressively build market share at the lowest possible cost
  • New gas market entrants will need to overcome a series of threats in the short term, though by 2008 significant commercial opportunities will exist, particularly in the south of the country
  • Germany
  • The lack of a regulatory body constrains the current gas and power scores
  • Mitigating regulatory uncertainty and ensuring cost effective TPA are the key challenges facing entrants to the German power market
  • Germany's gas market competitiveness improves by 55% between 2005 and 2008, the highest increase in all the markets analysed
  • Ireland
  • In spite of being in its relative infancy, the Irish gas market is at a similar stage of competitiveness to the power market
  • Despite a favourable TPA regime, new entrants will need to ensure they gain access to power and overcome switching lethargy
  • The issues facing new entrants to the Irish gas market are similar to those facing entrants to the power market
  • Italy
  • Competitiveness in both the Italian gas and power markets is in the mid range of the other markets analysed
  • The opportunities in the Italian power market are stronger than in many other markets, though grid issues need careful attention
  • Gas market switching rates are currently twice those in seen the power market
  • Netherlands
  • Relatively liquid traded wholesale markets are key elements leading to high levels of competitive intensity in the Dutch markets
  • With a stable regulatory environment and a mature traded market, the Dutch power sector has its attractions to new entrants, though balancing efficiently remains an issue
  • Despite being the most competitive market after the UK in both 2005 and 2008, opportunities in the Dutch gas market may be limited by the wave of new entrants with first mover advantage
  • Poland
  • There is a wide degree of diversity between the levels of competitive intensity in the Polish gas and power markets
  • Growing environmental pressures are creating strong commercial opportunities for generators
  • The difficulties associated with obtaining gas are just one of the many reasons why the Polish gas market is an unattractive option for new entrants
  • Spain
  • Although the gas and power markets are currently at different stages of development, their competitive intensity scores converge in 2008
  • Developments in the Spanish power market will create improved competitive intensity, though challenges remain to be overcome
  • Strong demand growth and continued gasification enhance the attractiveness of the Spanish market to new players
  • Sweden
  • Sweden's position as the second most competitive power market is in direct contrast to its zero rated gas market
  • Concerns over regulatory stability and the existing dominant players will somewhat temper the otherwise attractive nature of the market
  • The current opportunities in the Swedish gas market appear to be extremely limited with little improvement likely before at least 2010
  • UK
  • The UK unsurprisingly achieves the highest competitive intensity scores in both the gas and power markets
  • Commercial opportunities do exist in the UK power market, though the high level of competitive intensity means that they are more difficult to capitalise on than in other less advanced markets
  • The strong level of competitive intensity in the UK means that the market place is in many ways crowded
  • Although Spain sees the biggest increase in its overall power market score, the attractiveness of entering its residential power market is curtailed by a relatively low forecast switching rate
  • Despite seeing only small increases in their power market scores, the UK and Sweden remain the most attractive non-residential power markets to enter due to high switching rates
  • Germany is an attractive residential gas market to enter given the strong increase in overall score and relatively high forecast switching rate
  • Germany and Ireland appear to be the most attractive non residential gas markets to enter owing to higher end score improvements and likely switching rates
  • Despite the liberalisation process and movement towards a single European market, the idiosyncrasies of each market need to be carefully assessed by new market entrants
• Chapter 6 Appendix
  • The UK will continue to lead power market switching activity, though switching activity in all markets will continue to develop
  • Gas market switching will continue to develop in both sectors of all the markets, though the UK will continue to lead the field
  • Declining UK gas production will lead to greater price spike potential between 2005 and 2007
  • Glossary of terms
• Chapter 7 Methodology
  • An extensive series of expert interviews were undertaken to validate the scoring metrics
  • Related reports and contact details
• List Of Figures
  • Figure 1: Summary MCI Additive Power Scores
  • Figure 2: Summary MCI Additive Power Scores
  • Figure 3: Markets covered by the MCI Index
  • Figure 4: MCI Index Scoring Scale
  • Figure 5: MCI Index Scoring Metrics
  • Figure 6: Adjusting scores and metrics using the accompanying model
  • Figure 7: MCI Metrics
  • Figure 8: Effectiveness of regulator scoring scale
  • Figure 9: Ease of Third Party Access scoring scale
  • Figure 10: Effectiveness of balancing & data transfer scoring scale
  • Figure 11: Wholesale market fragmentation scoring scale
  • Figure 12: Retail market fragmentation scoring scale
  • Figure 13: Traded market maturity scoring scale
  • Figure 14: Access to market information & assistance scoring scale
  • Figure 15: Consumer representation scoring scale
  • Figure 16: Propensity to switch scoring scale
  • Figure 17: Who is this report aimed at?
  • Figure 18: Electricity demand growth 1994 to 2003
  • Figure 19: Gas demand growth 1994 to 2003
  • Figure 20: Sectoral Electricity Demand 2003
  • Figure 21: Sectoral Gas Demand 2003
  • Figure 22: 5 Year Gas and Power Demand CAGR (to 2003)
  • Figure 23: 10 Year Gas and Power Demand CAGR (to 2003)
  • Figure 24: Czech Republic summary gas scores
  • Figure 25: Czech Republic summary power scores
  • Figure 26: Czech Republic gas scores summary
  • Figure 27: French summary gas scores
  • Figure 28: French summary power scores
  • Figure 29: Germany Summary Gas Scores
  • Figure 30: German summary power scores
  • Figure 31: Irish summary gas scores
  • Figure 32: Irish summary power scores
  • Figure 33: Italian summary gas scores
  • Figure 34: Italian summary power scores
  • Figure 35: Dutch summary gas scores
  • Figure 36: Dutch summary power scores
  • Figure 37: Polish summary gas scores
  • Figure 38: Polish summary power scores
  • Figure 39: Spanish summary gas scores
  • Figure 40: Spanish summary power scores
  • Figure 41: Swedish summary gas scores
  • Figure 42: Swedish summary power scores
  • Figure 43: UK summary power scores
  • Figure 44: UK - summary power scores
  • Figure 45: 2005 summary gas scores
  • Figure 46: 2005 summary power scores
  • Figure 47: 2008 summary gas scores
  • Figure 48: 2008 summary power scores
  • Figure 49: 2005 additive gas score vs power score
  • Figure 50: 2008 additive gas score vs power score
  • Figure 51: Czech Republic scores by metric
  • Figure 52: France scores by metric
  • Figure 53: Germany scores by metric
  • Figure 54: Ireland scores by metric
  • Figure 55: Italy scores by metric
  • Figure 56: Netherlands scores by metric
  • Figure 57: Poland scores by metric
  • Figure 58: Spain scores by metric
  • Figure 59: Sweden scores by metric
  • Figure 60: UK scores by metric
  • Figure 61: Increases in Additive Power scores vs 2008 Residential Power Switching Rate
  • Figure 62: Increases in Additive Power scores vs 2008 Non Residential Power Switching Rate
  • Figure 63: Increases in Additive Gas scores vs 2008 Residential Gas Switching Rate
  • Figure 64: Increases in Additive Gas scores vs 2008 Non Residential Gas Switching Rate
  • Figure 65: Electricity switching forecasts by market
  • Figure 66: Gas switching forecasts by market
  • Figure 67: UK supply / demand balance
• List Of Tables
  • Table 1: Forecast switching rates 1st July 2008