IRELAND will be united in 2007. This has been excellent news for Denton Wilde Sapte, which has been playing a large part in the preparations. But, before the Rev Ian Paisley declares “no surrender” outside Stormont, this is for the electricity supply only.

The creation of a single electricity market in Ireland may not be a dividend of the peace process but it is, nonetheless, an example of what politicians such as Tony Blair would like to see happening on a wider scale across Europe.

Indeed, in the week that the French trade unions started to get hot under the collar at the announcement of a partial sell-off of Electricité de France (EDF — said to be the world’s biggest power company), the Prime Minister used the UK’s presidency of the EU to argue in the European Parliament for a single European energy market as a way of fostering competition and bringing down prices.

This proposal was not universally well received and it may well be that the final, definitive battle between globalised, free-market thinking and state ownership will be fought out over the power lines of Europe. And the lawyers who shape the regulatory regimes will be at the heart of it. That is why a number of top City energy lawyers were in Brussels a fortnight ago as part of the UK energy industry delegation to air concerns about the lack of progress being made in the liberalisation of the energy industry in the EU’s key member states.

As has been widely reported, energy across the EU is by no means a level playing field. Little (or no) progress has been made in France and Germany to open up their domestic markets. As a result, these countries have been in a privileged position, able to buy up UK businesses while being themselves immune to takeovers.

“It’s such a slow and reluctant process of change in France and Germany that no one is holding their breath,” says Ian Elder, of Allen & Overy, who adds that “post- Enron, the Americans have gone home” leaving the field free for the French and Germans to move in.

So, if the French and Germans decline to change their systems voluntarily, it is not surprising that the UK’s energy industry delegates to Brussels were firm in their demands, advocating more EU pressure for the speedy implementation of EU directives and regulations. They said that they want to see increased power for consistent and stable regulation to push competition and create the right environment for the investment necessary for new plant and infrastructure needs. On legislation they were equally clear. “Legislation needs to be interactive, coherent and unambiguous to meet wider policy objectives,” they said.

But, while Germany and France delay, the UK is paying the price. Consumers in the UK are having to shell out up to 50 per cent more than consumers in other countries and this has wide implications for business costs. “There is a strong view that energy prices have been kept high in the UK because of the absence of a competitive regime in Europe,” Charles Wood, of Denton Wilde Sapte, says. “Because of the importance of the gas interconnector to Europe in particular, our prices are not independent.”

So, as winter approaches, with “brown outs” supposedly looming, long-term anxieties about energy policy are coming into focus for the business world. And, because the UK is no longer self-reliant on gas, the next two years in particular could be very difficult. Liquid Natural Gas (LNG) seems to be a viable option, but supplies won’t be significant for another couple of years. “Until then we will be tight on gas supply,” Richard Tyler, of Lovells, says. All of which could put unprecedented strain on the post- privatisation system. The hope is that if there is a severe winter then the lawyers will have laid the groundwork for enough flexibility to handle it.

“As demand increases, the question arises — will the trading structure be able to deliver?” Wood asks. “In the past, supply has always been in surplus so the market has never been fully tested. But a lot of thought has been put into developing a variety of contracts that should enable the system to respond to shortages in a positive way.”

But there is no room for complacency. “The Government urgently needs to address its energy policy as there are potentially serious security of supply issues on the horizon,” Henry Davey, of Herbert Smith, says. “Getting the right commercial incentives for the market to respond to the future challenges, coupled with a clear steer of where nuclear will sit within the long-term energy mix, is essential.”

So, for the time being, we are stuck with the curiosity of the UK electricity industry being dominated by the three big state-owned French and German power giants.

“The UK Government and the regulator adopted the position that they did not care about ownership,” Wood says. Elder agrees: “The regulator could have opened up the market to prevent reconsolidation but decided not to do so.” Could this really have been what Margaret Thatcher had in mind when privatisation was first mooted all those years ago?

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