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Energy market for households remains concentrated

HOUSEHOLD markets of natural gas and electricity remain highly concentrated in Slovakia in spite of market liberalisation, with traditional suppliers remaining strong.

(Source: Sme)

But the Institute of Financial Policy (IFP) a governmental think tank, believes that a partial deregulation may help the market as the current regulatory framework can hamper the development of competition.

“Without functioning competition and protection of vulnerable consumers we do not recommend deregulating the sale of gas and electricity to households,” Martin Haluš, from the Institute of Financial Policy (IFP) a governmental think tank, wrote in a paper commenting on the current situation on the household markets of gas and electricity.

The gas market in Slovakia is even more concentrated than the electricity one. Traditional suppliers, i.e. those who were here before the liberalisation of the market started, covered as much as 89 percent of the electricity market (down from 100 percent in 2010) and 73 percent of the gas market (96.3 percent in 2010). IFP ascribes this also to the existence of one traditional gas supplier (SPP) compared to three suppliers (ZSE, VSE and SSE) in the electricity market.

“Clients have minimal financial motivation to change the supplier and they are loyal and satisfied with existing services,” writes Haluš. “Growing marketing activities can help to enliven the market and indicate slowly growing power of new players. But the growth of competition slowed down in 2014 in general.”

When compared with abroad Slovakia belongs to countries with a higher scope of concentration, especially in the case of gas.

“High concentration, still present in many countries, indicates weak development of competition and is often used for defending price regulation,” writes Haluš.

IFP believes that a partial deregulation may improve the current design of the market when gas and electricity sellers would also offer prices higher that those set by regulation, but simultaneously they would be obliged to offer the regulated rate too.

“Partial deregulation would free the hands of sellers who would be able to offer rates also for higher than regulated prices,” writes Haluš. “Simultaneously they would be obliged to offer also rates capped by the regulator. Such a dual system works in most countries of the EU. This approach would mean a higher flexibility of sellers and provide a new impulse for arrival of new players.”

Topic: Energy


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