Plenary Session1 - Energy Market Regulation and Competition: Promoting and Protecting
Stakeholders’ Rights in Competitive Energy Markets
The Role of Regulation in Reformed Energy Markets
Mr Claude Mandil
Executive Director, International Energy Agency
Many countries have introduced competition into energy markets during the past decade. But
markets do not solve all problems. While competitive energy markets have the potential to deliver
considerable efficiency benefits, they have created a new player, with a very challenging role: the
regulator.
As the regulator is supposed to be distinct from the government, there is sometimes the sense that
this ends government involvement in the energy sector. Actually, because energy is regarded as
an ‘essential service’, governments will always have a responsibility to ensure the efficient
outcome of the market. Regulation has traditionally played a key role in increasing transparency,
encouraging competition, creating a level playing field, etc.
Several important policy challenges have to be addressed by policymakers beyond delivering
efficient market-based outcomes: diversification of primary energy sources; ensuring adequate,
timely and well located new network investment; ensuring access to reliable and affordable energy
services; and ensuring environmentally acceptable outcomes.
Successful regulators will need to be responsive to changing policy requirements to ensure that
regulation continues to support the development of efficient energy markets. In particular this
raises the challenge of balancing the legitimate interests of all stakeholders, including balancing
the interests of competitors at each step of the value chain and of users and suppliers through the
value chain.
When facing these challenges, governments and regulators should avoid two mistakes. The first:
playing the role of each other. The second: trying to create greater administrative certainty through
more extensive and detailed regulation. More extensive regulation may only increase regulatory
uncertainty and the risk of regulatory failure, and may restrict efficient market responses, possibly
putting the benefits of competition reform in jeopardy. Instead, governments should to the greatest
extent use market mechanisms to achieve their policy goals (e.g. emission permits, green tickets)
and rely on competition and robust competitive arrangements to drive the operation and
development of efficient energy markets taking into account their policy objectives, with regulation
used as a safety net to manage the natural monopoly components and other aspects where
markets may not always deliver desirable outcomes. Not only would this provide a least cost
regulatory option in many cases, but it might also make the regulatory task easier.