Nigel Blackaby
Features Editor

In the wake of a series of major power blackouts affecting national power grids across Europe, the European Commission has proposed a legislative package to strengthen infrastructure and address security of supply by encouraging an increase in power production.

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The focus of attention amongst European Union legislators in recent years has been on the introduction of a fully competitive market in electricity. With the ink barely dry on directives aimed at ensuring choice for all electricity consumers by 2007, the European Commission has turned its attention to the issues of security of supply and infrastructure. In December 2003, the Commission proposed a legislative package that is intended to complement the opening up of both electricity and gas markets by encouraging investment in infrastructure and preventing the reoccurrence of the blackouts that took place across parts of Europe in the summer of 2003.

In announcing the proposals, Loyola de Palacio, vice president responsible for energy and transport, said, “This new framework is decisive for reinforcing the European energy single market and preventing Europe having to face a situation like the so-called California experience.” Palacio made it clear that, in her opinion, the incidents affecting supplies in Europe during the preceding summer were nothing to do with the market opening process.

At the heart of the new proposals are a set of measures aimed at stepping up investment in power production and strengthening member states’ transmission and distribution networks. National regulators will be required to define security of supply targets. Failure to comply with these targets could lead to financial penalties. The directive also seeks to promote investment in high voltage networks and interconnections between different countries, linking power production and demand across borders. The Commission believes that increased co-operation between system operators is an indispensable element in preventing potential new security of supply incidents. On infrastructure, Loyola de Palacio explained, “I am particularly eager to see concrete decisions being taken on some of the key interconnectors between member states since these will improve both the competitive framework and security of supply. The current situation, whereby the necessary investment is held up in interminable disputes on planning issues cannot be allowed to continue.”

Proposals

The adoption of the new proposals by the Commission was delayed a number of weeks while arguments raged over the appropriateness of measures, which some argued favoured the big electricity companies and disregarded environmental concerns. In the event, the Commission included measures aimed at energy demand side management and energy conservation, although these have not satisfied the environmental lobby.

In recognising the role demand side management has in improving security of supply, the Commission has proposed a directive on energy efficiency and energy services under which annual end-user energy savings of one per cent within the EU are required. All types of energy will be taken into account from electricity to natural gas and common definitions and measurements are to be introduced. The underlying objective is to offset future increases in energy consumption against energy savings but any reduction in demand will also result in a reduced environmental impact. The measures have drawn criticism both from both environmentalists and the renewables industry. They oppose the measures, believing that the overall package will undermine the EU’s efforts to cut greenhouse gas emissions, are costly and ineffective. The Commission “wants to impose on member states irreversible energy investments on new power stations and high voltage grid lines that will deeply affect the EU’s energy and climate policies,” said a spokesperson for WWF.

Other proposals under the “Energy Package” include a revision of the guidelines for the Trans-European Energy Networks (TENs) for gas and electricity. These measures will provide support for projects that help integrate new member states into this framework. They will introduce a Declaration of European Interest for some key cross-border projects on the Priority Axis and enable the nomination of a European Co-ordinator for a project. The Commission believes these measures will make Trans-European energy networks more efficient and effectively link the new member states to the Energy Single Market whilst developing similar approaches with neighbouring countries.


Italy was one of the European countries that experienced blackouts last summer
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Adequacy

The Commission also proposes to strengthen the internal gas market by establishing a new regulatory framework for gas transmission at European level that will mirror existing legislation for cross border electricity exchanges. The EU legislation will incorporate the guidelines agreed by the sector and empower the national regulators to ensure their implementation.

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The future adequacy of Europe’s power transmission system and the need for additional investment was the subject of a recent report produced by the Union for the Co-ordination of Transmission of Electricity (UCTE), the body representing the interests of 22 European transmission system operators. It concluded that reliability of the UCTE system as a whole should stay at an acceptable level over the period 2004-2006, due to additional generation coming on line and the development of national and international transmission grids, but after 2006, the potential for a deficit in power generation will exist unless additional investment decisions are taken soon. The UCTE pointed out that the increasing role of renewable energy sources in the generation mix is liable to create some new problems concerning the availability of sufficient balancing power. It said that Spain and Germany in particular would need significant development of their 400 kV transmission networks.

Eurelectric

Eurelectric, the body that represents Europe’s power industry, has issued its own position statement on security of supply in the wake of the 2003 power outages. Although it suspects the cause of the blackouts was the result of technical and communication difficulties and not in any way connected with market liberalization, it warns against complacency, over-regulation and undue market interference. Eurelectric points out that the emergence of a single European electricity market has increased the flow of power among member states, which means that transmission lines are, due in some instances to lack of transmission capacity, more frequently operating close to their thermal limits. It says that the change from an integrated business approach to an unbundling of the business leads the different parts of the value chain to behave independently and makes a similar point to the UCTE about the impact of “intermittent” power generation on the grid.

Eurelectric is calling for legislators and policymakers to help create an attractive climate for investment in the European electricity industry. Hans Haider, chairman of Eurelectric, believes that in the next 25-30 years, a further 600 GW of electricity generating capacity needs to be built. “We are living with the capacity created under monopoly conditions. New capacity must be built and this needs to be achieved quickly,” said Haider.

The European Commission believes that a combination of investment in new transmission, continued efforts to constrain growth in demand, and some construction of new generation facilities is needed to support the single market and help prevent power blackouts and that these conclusions have the support of transmission system operators. The energy package will now be forwarded to the European Parliament and Council for consideration.