Long-term contracts play an important role in the energy industry, both in the electricity sector and in the gas sector. Gas importers sign long-term take-or-pay contracts with gas exporters, and resell the gas on a long-term basis to gas retailers. Similarly, energy-intensive companies often contract their electrical energy several years ahead.
Continue reading »
Until now the European Union has relied on standard competition rules to deal with abuse of market power in the generation sector. We argue that relying only on general competition rules is insufficient to address those concerns, given the specific characteristics of the electricity market and the high level of concentration in some segments. As a complementary ex ante regulation, we suggest regulators should incentivize firms to sign contracts with retailers by regulating their contract portfolio risk exposure, i.e. a capital adequacy requirement should be imposed.
Continue reading »
