Competition in the European Power Market

Presentationgiven by Dr. Hans-Wilhelm SchifferSenior Manager RWE Power AG, Essen

at the 20th World Energy Congress

"The Energy Future in an Interdependent World"

Special Session on"Competition in the European Energy Market"

on 13 November 2007 in Rome

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The new objectives of the Commission− do they lead to a sustainable and coherent policy?

Morecompetition

Marketintegration

Non-discrimination

Securityof supply

3rd Liberalization Package

Climate Change Package

Energyefficiency

Emissionreduction

Energy mix(RES, nuclear)

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Market integrationPhysical base for an internal market not yet established,

markets and trading not yet consolidated

serious congestion

limited congestion

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European wholesale forward prices converge – varying price levels have fundamental reasons

30

35

40

45

50

55

60

65

70

75

80

85

90

July

Trading day

Price [EUR/MWh]

Germany France Netherlands Belgium

Scandinavia UK Spain

2005Jan Jan July Jan July

2006 2007

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JanJan

Comparison of wholesale electricity price and prices for coal, oil, and gas

German powerFront year

Coal API#2 Front year

Oil BrentFront month German power and commodity prices - January 2003 = 100 %

70

90

110

130

150

170

190

210

230

250

270

Feb-0

6Gas BAFA

2003Jan July Jan July JanJuly

2004 2005July

2006July

2007

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Market and competition:Non-discriminatory grid accessand efficient exchanges"According to our information there are no significant cases of discrimination against competitors in Germany today"(M. Kurth, German Regulator)

Necessary measures

How to be reached

� Equal access to information for all market participants

� Non-discriminatory grid connection

� Efficient and integrated energy exchanges

� Clear legal framework for regulation and effective supervision

� Consolidate market places enforce level playing field without interference

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Ownership unbundling (TSO)in the EU in the power sector

Ownership unbundling

No ownership unbundling

Ownership unbundling –but mostly state ownership

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19.2

16.7

13.811.6 10.7 10.0 9.0 8.6 8.2 7.2 7.2

5.4 5.4 5.0 3.93.0 2.8 2.0

Hungary

Pola

nd

Denm

ark

East

Port

ugal

Denm

ark

West

Italy

Irela

nd

Engla

nd/W

ale

s

Gre

ece

Germ

any

Czech R

epublic

Spain

Fra

nce

Austr

ia

Belg

ium

Neth

erlands

Fin

land

Sw

eden

Does ownership unbundling lead to lower transmission grid fees?

Euro/MWh Grid fees TSOs

Ownership unbundling

Source: ETSO Synthesis Report 2006; Impact Assessment (SEC(2007)

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Market and competition: ownership unbundling and electricity prices

12.0412.5413.1611.45

16.38

19.49

0

5

10

15

20

25

End price Price ex VAT Price ex taxes & levies

Source: Euostat, KEMA, VDEW, EP-1

+ 48 %€ ct/kWh

+ 31 % - 5 %

UK Germany

Standard household(3,500 kWh/a)

Jan. 2007

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At 16 %, Germany's share of cross-border transmission capacity in installed generation capacity by far exceeds the EU objectiveof 10 % as stipulated in Barcelona.

There are no examples in the EU showing that full unbundling results in more investments. There is no empirical evidence to suggest that countries that have implemented ownership unbundling have more interconnectors than those that have not.

In Scandinavia, the ownership of transmission systems has been unbundled, but the transmission grid in and between the various Scandinavian countries is insufficiently developed.

Netherlands-based TenneT is refusing to connect a new power plant to the grid saying that its grid capacity is insufficient and that the development would take at least 12 years (although simpler solutions would be possible).

Countries with ownership unbundling do not have more grid investments

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Grid reliability:Grid security in EuropePower outage times in min./a

141

315

300

215

180

123

103

68

65

30

27

15

Norway

Portugal

Spain

Italy

Sweden

Finland

UK

France

Austria

Netherlands

Germany

Ø

Source: AT Kaerney, 01/2007

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Conclusion

� In Europe, power producers and traders are part of a competitivemarket.

� The market position of individual power producers is effectivelyrestricted by the fact that they are part of a network in the single European energy market.

� Ownership unbundling neither leads to lower electricity prices nor greater grid investments nor increased security of supply.

� RWE's extensive investments in the development and renewal of grids contribute to market integration.