Energy Company strategies in the Dynamic EU energy market (1995-2007)

The CIEP Energy Paper Energy company strategies in the dynamic EU energy market (1995-2007) addresses the increasingly complex and uncertain environment in which energy companies in the EU have to operate since the liberalisation process started.

The paper argues that changes in the external environment, like market saturation and security of supply concerns, were insufficiently taken into account when the new market rules were designed. Furthermore, the new market rules were designed as 'one-size-fits-all' solutions and as such neglected different starting points between member states. This resulted in a number of inconsistencies between what the policy intended and what the actual outcomes were. In addition, it did not leave enough room to explore synergy between company strategies to cope with the changing environment and the actual policy objectives.

Energy companies have to operate in an increasingly complex and uncertain environment. This changing environment makes it necessary for energy companies to reassess the existing growth opportunities. As the European market reached the maturity stage (growth rates have declined), energy companies are left with two basic growth opportunities. The first one is growing in new markets, in other words, becoming European instead of national companies. This trend is widely practiced in the European energy industry and has led to consolidation (through mergers and acquisitions) and an increased average scale of the European energy players. The other growth opportunity is growing with new products. Most major European energy companies have chosen to be active in both the gas and power businesses.

The vast changes that have shaped the EU energy sector are a combination of a changing focus and roles of government within their policy possibilities and profound changes in the international energy markets. Liberalisation and privatisation change the organisation of the industry, but also impacts on the distribution of risks and benefits through the value chain. The emergence of tight energy markets refocused policy-making and company strategies to varying degrees from competition to security of supply. In the EU, the various levels of regulation, EU and national, competence in policy-making, asymmetric exposure to import-dependency and divergence in the pre-existing organisation structure of the national energy sectors had to morph into a more alike energy sector across the EU. The possibilities for companies to respond to a dynamic environment is different from the outset. This is partly due to the qualities of the company, but also due to the time and room to manoeuvre in the home market. National government played an important role in this complex process of change, in the first place as decision-makers at the EU level and secondly in the way they translated the changes into the domestic situation. Because of the complexity of changing the EU energy market regulation as whole and the slowness of this process on the one hand, and the rapidly changing international energy business environment on the other hand, companies perceived the regulatory environment as uncertain and not always conducive for them to be able to strategically respond to change.