On 23 May 2025, Páll Gunnar Pálsson, CEO, took over.
The Competition Authority, a session at the Samorka Conference in Akureyri. The session
bar the headline „The role of competition supervision in the electricity market“. Also
took part Árni Páll Árnason, Vice-President of the EFTA Surveillance Authority, and Hanna
Björg Konráðsdóttir, Head of the Electrical Safety Division at the Energy Authority. Katrín Helga
Hallgrímsdóttir, a lawyer for Samorku, chaired the meeting.
The Competition Authority's contribution to the meeting is as follows:
„Dear attendees,
I would like to begin by thanking you for this opportunity to discuss the role of competition oversight in the electricity market and to address other enthusiasts in this field.
First, a little about the Competition Authority: Modern competition law was enacted in this country in 1993, in connection with the entry into force of the EEA Agreement, and the Competition Authority in its current form was established in mid-2005.
As you are no doubt aware, the Competition Authority has the task of promoting effective competition in business. The tasks are, on the one hand, to enforce the competition rules of the Competition Act and the EEA Agreement against companies in all sectors of the economy, and on the other, to promote the fact that other government authorities, ministries and institutions work towards more effective competition through their actions. Thus, the authority has the powers to enforce changes in the activities of businesses and government, and is at the same time the champion of competition.
Consequently, the authority communicates and, where appropriate, collaborates with numerous organisations involved in Icelandic business life. This applies to government authorities that supervise activities in specific areas of economic life (sectoral regulators), including the energy supervision of the Energy Authority, economic authorities, authorities for economic offences, and consumer affairs authorities.
This also means that the competition authorities, by their very nature, have considerable oversight of Icelandic business life and how it develops. There, we often witness how entrepreneurial boldness, competition oversight and other government measures open up and accelerate changes in business operations and market functioning towards more effective competition. All to the benefit of the public, customers and competitors.
In this context, it can be useful to mirror the electricity market of the last two decades with the development of other markets during the same period. Take the telecommunications market as an example: there have been significant changes there since the end of the last century. At that time, telecommunications services in this country, both sales and infrastructure, were run by a state-owned monopoly. Following the implementation of the EEA Agreement, a European regulatory framework for the telecommunications market was introduced, which was intended, among other things, to open up competition.
The implementation of that regulatory framework, the enactment of competition law and competition enforcement, not least against the dominant firm, paved the way for new competitors to enter the market, which subsequently underwent significant changes based on innovation and technological development. Today, few of us could imagine not enjoying the fruits of effective market competition. This competition also extended to telecommunications infrastructure, and competition in the rollout of fibre optics has placed us at the forefront in Europe and significantly increased Iceland's competitiveness.
However, this does not mean that all competition problems in the telecommunications market are a thing of the past; for example, smaller competitors believe that they are still being treated unfairly in various respects by the larger ones.
Returning to the electricity market: In a similar fashion to the telecommunications markets, the policy was established in the European Economic Area at the end of the last century to create scope for increased competition in the generation and sale of electricity, and to separate this activity from transmission and distribution. Those rules were implemented in this country by the Electricity Act 2003.
Although the framework has been in place for this period, much smaller changes have occurred than in the telecommunications markets. A high degree of oligopoly and concentration continues to prevail in the production and wholesale of the Icelandic electricity market. One generation company, Landsvirkjun, accounts for a significant proportion of all generation, and the next largest companies, Orka náttúrunnar and HS Orka, have a much smaller share. Furthermore, Landsvirkjun owns almost all of the country's hydropower, which makes the company's unique position and strength even greater when considering the characteristics of hydropower and the fact that it is a controllable energy source.
In terms of electricity retail, three companies, namely Orkusalan, Orka náttúrunnar and HS Orka, hold the largest share, with the first two being publicly owned. These companies, along with Fallorka in Akureyri and Orkubú Vestfjarða, have strong ties to the distribution networks despite their separation. These strong historical connections mean that the share of the associated retail companies in their respective supply areas remains very high.
Other smaller companies have since entered the market in recent years, such as Orka heimilanna, N1 rafmagn and Straumlind, and have had some impact.
In recent years, complaints and suggestions from smaller market players to the regulator have been on the increase, partly in line with the ongoing energy transition. The companies believe they are facing barriers from larger, established companies. Regardless of whether an actual breach is involved, these complaints suggest that there may be barriers resulting from the strong market position of individual companies, close links between retail companies and distribution networks and, possibly, other conduct by incumbent companies, most of which are publicly owned.
Having monitored this development, the Competition Authority is of the opinion that the government, in the formulation and implementation of the regulation, has missed opportunities to promote competition. We have reason to believe that the formulation and implementation of laws and regulations in this area has, to an excessive degree, taken into account the interests of larger, established companies, rather than the long-term interests of general users in effective competition.
Competition barriers of this kind, whether from businesses or governments, are likely to have a negative long-term impact on consumers and businesses. They can also harm the development and establishment of new activities in the energy transition sector. The effects can, for example, manifest as rising electricity prices.
In light of all this, I would like to mention a few points that the Competition Authority considers it particularly important to consider:
a) That changes which would lead to a strengthening are not implemented on the position of companies that are already in a strong position, either under the protection of a high market share, public ownership or links with companies in transport or distribution, at the expense of smaller companies.
It is very important in this context that the government, ministries and institutions are independent from those operating in the market, possess a high level of knowledge of the electricity market themselves, and do not need to rely on the expertise of companies operating in the market, whether they are publicly owned or not.
Similarly, it is worth emphasising that companies with a dominant market position have a strong obligation not to abuse that position. This obligation is particularly strong for companies that previously enjoyed a statutory monopoly or other privileges from the public authorities. This was emphasised by the EU Court of Justice in a recent case concerning the Italian electricity company ENEL (judgment of 12/5/2022). This means that dominant energy companies, which are or were state-owned, must take particular care not to engage in any unlawful practices that could hinder the entry or growth of new or existing companies.
b) That the position of smaller businesses is not weak with the introduction of rules that otherwise reduce competition. Particular attention must be paid to the position of retail businesses, as well as smaller producers who have started or are planning to start trading. Experience shows that such businesses are often operationally simple and cost-effective, and they positively shake up an established market with innovation and increased efficiency.
c) To consider ways to to promote greater fiscal discipline among buyers, the public, households and businesses, in relation to electricity companies.
For the most part, the public has enjoyed low electricity prices and has therefore often seen no reason to switch supplier. However, these circumstances do not justify the government's long-standing failure to promote and establish the necessary consumer relationships with suppliers, as the distribution companies had effectively taken control of communications with consumers instead of the suppliers. In 2019, the Energy Regulator concluded that the distribution companies had broken the rules by enrolling all new electricity customers, without checking their preference, with the supplier that was or had been in a ownership relationship with the distribution company.
This decision by the Energy Authority subsequently led to a new regulation and a joint response from the energy companies. As a result of the implementation, energy companies effectively retained their existing customers, rather than the change leading to competition for consumers' custom. This constituted a significant barrier to entry, which can be assumed to have affected competition to this day. For these reasons, and in light of rising electricity prices, there is a particular need to encourage public/consumer pressure on electricity companies.
d) On this note, the Competition Authority believes that it needs to ensure that the separation between distribution networks and their associated sales companies is adequate, not just in appearance but in reality. In our dealings with energy companies, we sometimes see indications that the perspectives of distribution networks and associated sales companies are merging, which is manifested, among other things, in their reliance on the same advice in some cases.
e) The licensing process for further energy generation should be simplified. and increased efficiency is ensured. Under current circumstances, this is an important step in promoting an increased supply of electricity and thereby creating better conditions for effective competition in electricity generation. The Competition Authority has, in this regard, expressed its support for the Minister of Energy's bill, which is currently before the Althingi.
f) That energy security is defined in law and that the responsibility of the parties involved in ensuring such security is clear. The Competition Authority supports the main objectives set out in the Minister for Energy's bill, which is currently before Parliament, but has raised views on specific points in its report.
At the same time, the mechanisms available within the EEA Agreement's regulatory framework must be implemented and utilised to ensure public and critical community infrastructure have access to electricity in the event of a power shortage. The Competition Authority is aware that a clear and transparent prioritisation must be in place.
g) To ensure that fair market conditions in trade on an organised electricity market are guaranteed.. The Competition Authority supports the energy minister's bill on this and considers it urgent that it is passed as soon as possible. The Authority has received complaints against both companies, which currently hold licences as electricity market operators. It is also noteworthy that, to date at least, Landsvirkjun has decided not to sell into Elma's next-day market, but only into Vonarskarð.
All of this highlights the importance of clear rules governing conduct and price formation in organised electricity markets, as is considered self-evident in the securities markets. A lax approach to this can lead to abnormal pricing.
h) And into this group: To be ensured by all available means that the association of electricity companies and its member companies operate within the framework of competition law. In light of all that has been set out above, this is particularly important.
If competition is strengthened, partly through the measures mentioned here, the public, businesses and the electricity companies themselves will benefit. Experience shows that when competition emerges in markets where strong, well-established companies previously operated under the protection of the state, these established companies also benefit from effective competition. This is partly because they are forced to operate in a more competitive manner. If we recall the development of the telecommunications market, the telephone division of the Post and Telegraph Administration (later Póstur og Sími hf.) faced a changed competitive environment which undoubtedly had a positive effect on its operations. The postal division of the institution, however, was left under the protection of the state, and its monopoly on letter post was repeatedly extended. There, the development has been different and slower.
Finally, I would like to stress that the steps taken in the electricity market in the coming years will be of great importance for the public interest and the national interest. The public will not accept ever-increasing electricity prices. And there is not much time for strategy. Active competition is worth the effort.“
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