SCISSORS EFFECT

Subject: Economics

Context: A Research Paper by David Robinson argues that the problems facing the European electricity majors reflect a ‘scissors effect’.

Concept:

• The paper highlights how structural trends and government intervention are damaging the major European electricity companies and affecting consumers.
• On the one hand, it argues that is a dynamic process whereby certain revenue streams fall, while costs rise, literally cutting profitability. On the other hand it extends that profitability is being hit – or will be soon – both upstream and downstream.
• The paper emphasizes underlying structural trends (stagnant demand, decarbonization and more active consumer participation) and government intervention as causes of the scissors effect.
• If the causes are structural, as argued here, these companies may be unable or unwilling to finance the investments required to meet the EU policy goals of energy security, environmental sustainability, and acceptable costs.
• According to this paper, the first priority should be the debate about future role of governments and competitive markets.