A Single Energy Market

Investment in infrastructure projects is a key part of the strategy for economic recovery of Europe. Electricity and gas are crucial areas in this context because network inadequacies in transnational interconnections bear the main responsibility for the persistent segmentation of national energy markets within the European Union. This paper analyses three questions. First, an integrated competitive European energy market requires excess capacity of network infrastructures compared to the actual size that only fits today’s non-competitive equilibrium. Second, full proprietary separation between network operators and service operators is a necessary condition for a single European energy market. Third, though necessary, ownership separation may not provide sufficient incentive for ‘private’ investment decisions compatible with the necessary network excess capacity. The demand for such investment must come from an intrinsically public agent.