Directly Exposed to Competition (Exemption)

The directly exposed to competition exemption is one of the most distinctive and commercially significant features of the Utilities Directive (2014/25/EU). It recognises that the rationale for subjecting utilities buyers to procurement rules, namely their protected market position, falls away when genuine competition exists. If a contracting entity operates in a truly competitive market, the market itself disciplines its sourcing behaviour; procurement law provides no additional benefit and may create unnecessary compliance burden.

What is the Directly Exposed to Competition Exemption?

Articles 34 and 35 of Directive 2014/25/EU establish the exemption mechanism. A contracting entity (or a member state on its behalf) may apply to the European Commission for a determination that a specific activity in a specific geographic market is directly exposed to competition. The Commission assesses two cumulative conditions:

First, the activity must be carried out in a market that is open (that is, market access is not restricted by law or in practice to a limited number of participants). This mirrors the analysis of whether an exclusive or special right effectively bars entry.

Second, the activity must be subject to actual competitive pressure (that is, there are real competitors, pricing discipline, and genuine contestability). A liberalised electricity generation market where dozens of operators compete for the same customers meets this test. A water distribution network with a single licensed operator does not.

If the Commission adopts a decision confirming both conditions, contracting entities carrying out that activity in that geographic area are exempt from the Utilities Directive for contracts relating to that activity. The exemption is activity-specific and geographic: a company that operates both an electricity distribution network (which typically is not exempt) and electricity generation (which may be exempt in a liberalised market) must still follow the Directive for its distribution procurement while being free to procure commercially for its generation activities.

Exemptions have been granted across several EU member states for electricity generation and supply, gas supply, and certain postal services. The Commission maintains a register of decisions under Article 34, and affected buyers will typically refer to the relevant Commission decision in their procurement documents (or their absence from TED) to explain why they are not running a regulated procedure.

In the UK after Brexit, the equivalent mechanism under the Utilities Contracts Regulations 2016 is administered by the Secretary of State, who may issue a notice determining that an activity is directly exposed to competition. Existing Commission exemption decisions adopted before Brexit exit day were preserved in UK law.

Why it matters for bidders

The exemption is critical for suppliers tracking utilities markets. If a buyer has obtained an exemption for a specific activity, it is legally entitled to procure commercially for that activity, without publishing contract notices on TED, without running transparent tender procedures, and without giving suppliers the right of challenge under the procurement remedies regime. Suppliers who are accustomed to regulated utilities procurement cannot assume that all buyers in a liberalised sector will publish opportunities openly.

Example

A Belgian electricity generation company holds licences to operate gas-fired and wind power plants. It also operates an electricity distribution network in a defined region. The European Commission has determined that electricity generation and supply in Belgium are directly exposed to competition. The company may procure turbine maintenance services and fuel supply commercially, without following 2014/25/EU. However, for its distribution network activities (which are not covered by the exemption), it must run regulated procurement procedures above threshold, including publishing on TED and maintaining a qualification system for its approved contractors.

Frequently Asked Questions

How do I find out whether a buyer has obtained a competition exemption?

The European Commission publishes its Article 34 decisions in the Official Journal of the EU (OJEU) and maintains a list of active exemptions. Buyers that have obtained an exemption will generally state this on their websites or in procurement documents. If a buyer in an apparently regulated sector is not publishing notices on TED, it is worth checking whether an exemption decision covers their activity.

Can an exemption be revoked?

Yes. If market conditions change (for example, if competition reduces because a sector re-consolidates or if regulatory barriers are reintroduced), the Commission may revoke an existing exemption on its own initiative or on application by a member state or contracting entity. Buyers should therefore not assume that an exemption is permanent.

Does the exemption apply to all contracts of an exempted entity, or only to contracts related to the exempt activity?

Only to contracts related to the specific exempt activity in the geographic area covered by the exemption decision. If the same entity carries out other covered activities that have not been exempted (such as network operation alongside exempt generation), procurement for those other activities remains subject to the Utilities Directive.