Let's open electricity market also for electricity suppliers

29.03.2012, 11:00

Moonika Kukke, Attorney at Law of Law Firm GLIMSTEDT who specialises in Energy Law writes that from January 1, 2013, consumers will be able to start buying electricity from a supplier they have chosen themselves, with staying true to their current supplier also being an option.

Which, however, are the options in choosing that right supplier? The Electricity Market Act states that public or private limited companies with a share capital of at least 31,950 euro are eligible to become electricity suppliers. To qualify, a prospective electricity supplier has to be issued by the Estonian Competition Authority with an activity licence, on which the supplier has to pay a little over 600 euro in a levy for every year of operation. An electricity supplier also has to be registered at the Register of Economic Activities. At the moment, 36 distribution network operators and 4 suppliers in Estonia meet these requirements.

The EU has made it quite clear that the objective is to create an internal electricity market by 2014, which will mean that the basic EU principle of the free movement of capital, goods, services and labour would extend also to the electricity sector. Electricity may be supplied across borders.

The core objective for opening the electricity market is to introduce a larger number of electricity suppliers competing amongst one another to provide a consumer with real options and ensure that, even in the world of rising energy prices, keen competition will keep prices under control.

In the light of such an objective, it is well worth considering whether it makes sense to maintain the current tough requirements for qualifying as an electricity supplier. Finland, for instance, imposes no requirements on an electricity supplier with respect to operating licence or type of business association. The Finnish approach fully matches the approach set out in the EU directive on internal electricity market, under which both natural persons and legal entities may engage in supplying electricity. The directive also includes an admonition to the Member States that when an electricity supplier has already undergone the process of becoming an electricity supplier, another Member State should recognise its status as an electricity supplier as well. Under the current Estonian legislation, however, this is not possible, as the entire journey to become an electricity supplier has to be embarked upon anew.

In addition to the current electricity suppliers, who might also be interested in supplying electricity in Estonia? There is no doubt that electricity suppliers in both the neighbouring countries and other European countries are looking towards Estonia; however, pending the completion of the second sea cable EstLink 2 in 2014, their interest may remain subdued and dwindle further, should it become apparent that supplying electricity requires having a private or public limited company in Estonia instead of just setting up a branch for the electricity supplier in Estonia.

In Estonia, supplying electricity might be interesting to energy cooperatives set up in local communities in order to command greater bargaining power and negotiate better prices. By the same token, as the distributed generation of electricity keeps developing, generators including both natural persons and legal entities may wish to start supplying their local communities with electricity they generate themselves. When it comes to multiple properties, it may also be cheaper for real estate managers/developers to buy electricity and then resell it, instead of each property owner buying their own electricity. 

The only risk the removal of constraints on operating as an electricity supplier may entail is a supplier’s inability to supply electricity to its customers. However, the risk of a contractual party being potentially unable to perform its obligations is common in any business. When it comes to electricity, risks are hedged by the fact that in such an event the consumer is supplied with electricity by the distribution network operator whose network its electrical installation is connected to.

Moonika Kukke
Attorney at Law, specialising in Energy Law