chapter  4
18 Pages

Market competition in the electricity sector

The liberalization of the electricity sector is a key example of policy mismatch between the EU and Iceland. At the end of the twentieth century marketization and liberalization were common themes in sectors that had traditionally been under public control such as banking, telecoms and energy.1 At that time, creating an internal market in electricity came to be regarded by the EU as an important component of the internal market. The so-called ‘First Electricity Directive’ (96/92/EC) was adopted in 1996 with a view to establishing an internal market in the electricity sector. In light of the experience gained from this Directive, further steps were considered necessary by the Lisbon Council of 2000, and in 2003 the ‘Second Electricity Directive’ (2003/54/EC) was adopted, repealing the First Directive. In 2009 a ‘Third Electricity Directive’ (2009/72/EC) was approved, further revising EU policy in this area. The EEA-relevance of these directives is clear as energy is considered a

product to be traded on the internal market.2 However, the incorporation of the First Electricity Directive into the EEA Agreement met with considerable resistance on Iceland’s part. The key aims of the Directive were to liberalize trade in electricity between member states and promote competition in production and sales of electricity. As the Icelandic electricity market is both very small and completely isolated from the rest of Europe, there was concern that the proposed measures would be inconvenient and unsuitable for Iceland (Idnadarraduneytid 2007a: 7). This chapter focuses on the First Electricity Directive, its incorporation

into the EEA Agreement and adoption at the national level in Iceland. The Second Directive also comes into play as, by the time the First Directive was being transposed in Iceland, the Second Directive was on the verge of being approved by the EU and so its aims and objectives were also taken into consideration during the transposition and implementation phase. At the time of writing, the Third Directive (2009/72) had not yet been incorporated into the EEA Agreement and so will not form part of this discussion. First, the origins and the main objectives of the EU’s electricity package are discussed. In line with the Europeanization framework outlined in previous chapters, the level of mismatch is then determined, i.e., the extent to which pre-existing conditions in Iceland clashed with the EU’s requirements. Third, the focus

turns to the first research question posed in this volume, which asks whether non-member states potentially have any uploading capacity. To shed light on this question, Iceland’s attempts to gain an exemption from various aspects of the First Directive are explored. The second research question of this study relates to downloading. The chapter therefore goes on to identify the degree to which the Directive has been implemented or the changes which have taken place within the Icelandic electricity sector as a result of EU requirements.