Transmission and distribution grid are central assets
The transmission and distribution grids connect generation and consumption. For this job, extensive infrastructure is required. The transmission grid, often called the high-voltage grid, transmits the power over long distances. In substations around Europe, the power is brought to a lower voltage level in transformer substations. From there on the electricity is further distributed over the distribution grid towards the end-consumers. Very large industrial consumers are often connected directly to the transmission grid, though.
The transmission and distribution grids are central assets. It is almost impossible for another company to erect a second grid. It requires massive investments, but also the permits for building such a large infrastructure. Therefore, energy infrastructure is de facto a natural monopoly.
To avoid market power abuse and assure a reliable operation of the grid, not only the ownership is unbundled but the natural monopoly is also regulated. An independent regulator guards the level-playing field of the free market. For example, they monitor the access tariffs the TSOs and DSOs charge to producers who want to connect their plant to the electricity grid. In the end, there can only be free competition between generators when there is non-discriminatory access to the power grid.
In Belgium, the transmission grid operator (TSO) is Elia. The distribution grid is split up in several geographical areas. Some examples of Belgian distribution grid operators (DSO) are Eandis and Infrax (Sibelga (Brussels), ORES and RESA (Wallonia).The CREG is the national regulator for both electricity and gas markets. They guarantee transparency and competitiveness of the energy market, defend consumers’ interest and advice authorities on energy issues.
From a monopoly to a single European electricity market
In fact the European electricity market with free competition as we know it today is very young and still in development. Three decades ago, the European electricity sector was a monopoly. Vertically integrated companies were responsible for the generation, transmission, distribution, and supply of electricity to the consumers. These companies virtually set the electricity prices without much competition to challenge them. Since those companies also held the grid infrastructure, market access of new players was impossible.
In 1996, the European Union started to gradually open the market for competition – to liberalize the energy market just like it did before with several other sectors. The aim was and is to create one single integrated internal European electricity market across all EU member states to reduce overall grid costs and benefit security of supply.