The liberalisation of energy markets has given rise to a raft of new regulatory challenges, with policymakers and regulators devising increasingly elaborate responses. Traditional measures of market power have been refined to recognise the power to set prices in time frames which may be only minutes in duration. Dominance is being addressed through measures including regulated contracts, virtual independent power auctions and regulated bidding. Third-party access rights are being structurally reinforced by network unbundling.
More recently, in Europe, we are seeing financial regulatory tools increasingly being used to ensure transparency in energy markets and the integrity of price information. Traditionally, energy trading has been the subject of fairly light-touch regulation in Europe, save for commodity derivatives which are regulated under the Markets in Financial Instruments Directives (Directive 2004/39/EC) (MiFID I) but are subject to exemptions that are helpful to energy companies. By contrast, investment firms have been regulated at an EU level and availing of passport rights since 1993 following the introduction of the Investment Services Directive (Directive 93/22/EEC).
In more recent years the increased spotlight on commodities markets and derivatives at a European level is most obviously demonstrated by the introduction of the Regulation on Wholesale Energy Market Integrity and Transparency (Regulation (EU) No 1227/2011) (REMIT). REMIT draws on financial regulatory principles from the Market Abuse Directive (Directive 2003/6/EC) (MAD I) but, in addition, the scope of financial regulatory rules themselves has changed to bring the energy market participants within their focus more directly.
This article was first published in Who's Who Legal: Energy 2016.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.