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Facing up to reality

The European Commission has furthered its ambitions for a single energy market by announcing plans for a common energy policy. Can it bring all 25 states into line?

Siàƒ¢n Green

A regular Strategic European Energy Review, a European regulator, and greater investment in networks and energy research and development are just a few of the proposals put forward by the European Commission in its new vision for Europe’s energy markets.

The Commission has identified six priority areas and proposed more than 20 concrete suggestions for actions to be undertaken by member states to make the region’s energy markets more competitive, sustainable and secure.

“We are in a new energy century. Demand is rising, European reserves are declining, there is underinvestment, and our climate is changing,” said European Commission President José Manuel Barroso, revealing the energy policy Green Paper in March. “We must have an approach that matches this new reality.”

His views were echoed by Energy Commissioner Andris Piegbalgs: “The completion of the internal market, the fight against climate change and security of supply are common energy challenges that call for common solutions. It is time for a new European Energy policy.”

The Green Paper envisions the development of a single energy policy for the European Union, and has been driven by recent events that have highlighted Europe’s dependence on energy imports and the need for investment.

Facing up to new challenges: Europe’s new energy sector vision
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According to the European Commission, the need for investment in energy infrastructure is now urgent. To meet growing energy demand and to replace ageing infrastructure, it estimates that around g1tr will be needed over the next 20 years. In addition, energy import dependency is rising; it currently stands at 50 per cent, and unless domestic energy is made to be more efficient, this will rise to 70 per cent in 20-30 years.

The first step in overcoming these, and other, challenges, will be to complete Europe’s internal energy market, a proposal which includes measures such as a European energy grid code, a priority interconnection plan, a European energy regulator and new initiatives for ensuring a level playing field and network unbundling.

Another of six priority areas identified by the Commission is the need for cooperation among member states on internal security of supply issues, including possible changes to legislation regarding oil and gas stocks.

The Commission also wants member states to be more consultative on issues of energy mix in order to ensure that Europe’s mix as a whole remains diverse and sustainable. In addition, it believes that the EU should develop a common external energy policy. “Europe needs to speak with a common voice on worldwide energy matters,” said Barroso. “We need to speak equally to the main energy producers and consumers, and we need a new partnership with Russia.”

The Commission notes that the development of a single energy policy is a long term goal, but Barroso is confident that it can be achieved given Europe’s resources, scale, and the instruments at its disposal – for example its research and development programmes and resources. He acknowledges, however, that political will is also required.

The Green Paper was discussed, and widely endorsed, at both the Energy Council and the EU Spring Summit. However, several key proposals were rejected, including – not surprisingly – the creation of a European regulator. Member states are also insisting that their sovereignty over primary energy resources and choice of energy mix be respected.

But a key sticking point may actually turn out to be the completion of the internal energy market. Under existing legislation, this is due to be complete by mid-2007; the Commission’s aim is that complete unbundling and market opening will ensure that the market operates efficiently, with all players competing on a level playing field.

The political will within Europe to create this single market is questionable, with a recent spate of merger proposals leading to accusations of protectionism and squabbling between France, Italy, Spain and Germany. The Commission is also investigating a number of companies suspected of anti-competitive behaviour such as monopolising supply networks in Europe. The issue over Spain’s and France’s moves to protect their national energy markets from investment by foreign players was neatly sidestepped at the Spring Summit.

The Commission is clearly frustrated by such developments, and it also believes that progress in network unbundling is falling short of requirements. While many countries are complying with the letter of the directive, they aren’t complying with its ‘spirit’. Recent research by Datamonitor shows that only seven European energy markets have fully complied with both electricity and distribution unbundling, and only four gas markets have complied. The company’s analysis shows that it is the political stance of each national government, rather than operational or technical factors, that determines progress.

So perhaps this is the new reality that Europe faces: political will – or lack of it – is hindering the development of Europe’s energy markets, and it is political will that will see the success or failure of a common energy policy.

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