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Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy

Author

Listed:
  • Adrien de Hauteclocque
  • Jean-Michel Glachant
Abstract
Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a context of market building, these effects are likely to be worsened and thus even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the portfolio of long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulation costs and balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion.

Suggested Citation

  • Adrien de Hauteclocque & Jean-Michel Glachant, 2008. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," Working Papers 0816, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    • Handle: RePEc:mee:wpaper:0816
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    References listed on IDEAS

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    2. Arora, Vipin, 2012. "A Note on Natural Gas Market Evolution in Light of Transaction Cost Theory," MPRA Paper 54974, University Library of Munich, Germany.
    3. Cardinale, Roberto & Cardinale, Ivano & Zupic, Ivan, 2024. "The EU's vulnerability to gas price and supply shocks: The role of mismatches between policy beliefs and changing international gas markets," Energy Economics, Elsevier, vol. 131(C).
    4. Adrien de Hauteclocque & Vincent Rious, 2009. "Reconsidering the Regulation of Merchant Transmission Investment in the Light of the Third Energy Package: The Role of Dominant Generators," RSCAS Working Papers 2009/59, European University Institute.
    5. Jean-Michel Glachant & Yannick Perez, 2011. "The Liberalization of Electricity Markets," Chapters, in: Matthias Finger & Rolf W. Künneke (ed.), International Handbook of Network Industries, chapter 10, Edward Elgar Publishing.
    6. Idrisov Georgy & Gordeev Dmitry, 2017. "Theoretical and Practical Aspects of Natural Gas Pricing in Domestic and Foreign Markets: The Case of Russia," Working Papers wpaper-2017-274, Gaidar Institute for Economic Policy, revised 2017.
    7. Oggioni, Giorgia & Smeers, Yves, 2012. "Evaluating the application of different pricing regimes and low carbon investments in the European electricity market," Energy Economics, Elsevier, vol. 34(5), pages 1356-1369.
    8. Brodrechtova, Yvonne, 2015. "Economic valuation of long-term timber contracts: Empirical evidence from Germany," Forest Policy and Economics, Elsevier, vol. 55(C), pages 1-9.
    9. Boussena, S. & Locatelli, C., 2013. "Energy institutional and organisational changes in EU and Russia: Revisiting gas relations," Energy Policy, Elsevier, vol. 55(C), pages 180-189.
    10. Leigh Hancher & Adrien de Hauteclocque, 2010. "Manufacturing the EU Energy Markets. The Current Dynamics of Regulatory Practice," RSCAS Working Papers 2010/01, European University Institute.
    11. Sadek Boussena & Catherine Locatelli, 2011. "La sécurité, question clé des relations gazières entre l'UE et la Russie," Post-Print halshs-00625223, HAL.
    12. Roberto Cardinale, 2023. "Liberalization and the volatility of gas prices: Exploring their relation in times of abundance and scarcity," Competition and Regulation in Network Industries, , vol. 24(2-3), pages 72-96, June.
    13. Cardinale, Roberto, 2019. "The profitability of transnational energy infrastructure: A comparative analysis of the Greenstream and Galsi gas pipelines," Energy Policy, Elsevier, vol. 131(C), pages 347-357.
    14. Guy Meunier, 2011. "Imperfect Competition and Long-term Contracts in Electricity Markets: Some Lessons from Theoretical Models," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 6, Edward Elgar Publishing.

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    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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