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The aim of this article is to provide a mid-term evaluation of liberalization of electricity retailing in Europe, taking into account four limitations to policy analysis: different and often conflicting theoretical points of view, shortage of routinely collected data, problems in disentangling the effect of retail liberalization from those of other related reforms and pervasive regulatory interventions. Lacking a common analytical framework to assess the costs and benefits of electricity retail competition, we firstly built a comprehensive theory on retail liberalization and we then use European Union data on market structure and its dynamics to test the consistency of theory and practice. The analysis highlights the presence of an oligopolistic supply structure, as well as a limited level of customer engagement in the market, which in the case of small consumers is partially justified by the presence of switching costs and informational complexities. Asymmetries in the rate and speed of cost-pass through make the market opaque, challenging the sole reliance on "light-hand" regulation to guarantee a sound market functioning. We identify the situations in which some form of "hard" regulation appear to be necessary to secure the continuity of supply even after the introduction of competition and we propose several implementation solutions according to the weight attributed to the objectives of supply continuity and customer protection. In the light of evidences about European markets, we suggest that the attribution of the Default/Last Resort service through an auction mechanism may favor both the development of upstream and downstream competition, without deterring customer switching.

The literature demonstrates the likely reduction of wholesale electricity prices due to a larger penetration of renewable energy sources (RES). When markets are organized as two or more inter-connected sub-markets within a larger power market the final impact of increasing RES production may be less straightforward given the presence of network constraints. We tests this phenomenon by analyzing the impact of RES production on the probability of congestion and on the size of congestion cost in Italy. Using a database with hourly observations for a five year period we estimate two econometric models on five zonal pairings: a multinomial logit model for the occurrence and direction of congestion and a three stage least square model for the size of congestion costs. The analysis suggests that the effect of a larger local wind and solar supply is to decrease the probability of suffering congestion in entry and to increase the probability of causing a congestion in exit compared to no congestion case. Increasing hydroelectric production has a similar effect. These results hold for both importing and exporting regions, but importing regions are less likely to cause congestion in exit, therefore the installation of new RES capacity in these zones may have a positive effects in terms of flow balance between regions. Concerning the cost level, a larger local RES supply seems to push the congestion cost towards negative values as it decreases the marginal cost for balancing the system. This is true for all zones in the case of explicit congestion cost, but it is only verified in importing regions in the case of implicit congestion cost. This result suggests that the increase of RES production should be promoted in importing zones, but the overall growth should be controlled in order to avoid congestion in the opposite direction.