Preconditions and Impacts of Regional Electricity Market in Southeast Europe

Abstract

In the context of actual economic and energy crises when energy issues have become crucial development topic, the paper focuses the issues of regional electricity market in Southeast Europe. The electricity sector in Southeast Europe has gone through extensive economic reforms and the establishment of regional electricity market has been an important motive. In October 2005 the Treaty establishing the Energy Community was signed as the only legally binding document for all SEE countries. Although the Treaty is in its implementation phase, the electricity trade grows after 2000 and in 2006 accounts for 23% of final electricity consumption, with Croatia accounting for 42% of total imports. Perspectives of the future electricity trade depend on the progress regarding institutional framework within Energy Community Treaty, but there are also some economic and technical preconditions that have to be fulfilled. The analysis shows that there are different resource endowments across SEE region regarding installed capacities, which generate strong potentials for trade. Electricity production costs and final electricity prices differ among SEE countries, which also represent the strong trade basis. The technical preconditions are now fulfilled because after 14 years of unsynchronous work, in October 2004 power systems in SEECs finally operate according to the UCTE. The goal of the regional electricity market is to improve the reliability and security of supply, achieve economies of scale and enhance complementarities between systems. It is expected to promote use of the most costeffective capacities and reduce overcapacity of the existing base load, thereby reducing generation costs by around 10%. The regional market is an effective way to achieve a diversified energy mix and to optimize use of regional supply and production capacities. Besides short-term benefits, the final economic goal of SEE regional electricity market is to overcome the limited size of SEE national markets and to create large and more stable regional market that will be more competitive and more interesting for private investors.

Keywords: regional electricity market, Southeast Europe, regional electricity trade, economic reforms

JEL Classification: L16, L94, Q43, Q48