Power trade and competition in Northern Europe

Abstract The EU Electricity Directive has encouraged a movement towards closer integration of power markets in Northern Europe. At the same time, the industry is undergoing significant restructuring, with vertical separation and horizontal concentration being two key features. The effectiveness of competition in the region will crucially depend on the extent and conditions of cross-border trade between the countries concerned. Most importantly, the conditions and cost of access to transmission networks will determine the nature of market integration and its impact on competitive conditions. There is a risk that high transaction costs, tariff distortions and weak unbundling will act as barriers to trade, thereby limiting the extent of competition. While the EU is currently pursuing voluntary solutions among system operators, it is likely that regulations governing international transmission infrastructure will be required.