An integrated and competitive electricity market

March 17, 2010 | 00:00

An integrated and competitive electricity market: a stepping stone to a sustainable future

Speech delivered at the Eurelectric Conference : "Building a secure and sustainable future: how can market integration contribute"

Ladies and Gentlemen,

It is a great honour and pleasure for me being invited to participate in this conference. I am also happy to see the distinguished crowd that Eurelectric managed to gather today. This shows how topical the issue of market integration is; and rightly so.

I am convinced that market integration is the only way we can reach our overarching policy objectives. We will never be able to deliver our ambitious energy efficiency or greenhouse gas emission targets without fully utilising the opportunities that large and integrated markets offer. Equally, we would not be able to reap the full benefits of liberalised markets, if competition was only to happen within national borders.

However, market integration can only be brought about, if our markets are properly interconnected and market participants can access them without obstacles. We are not there yet. Our electricity highway is plagued by persistent bottlenecks and the congestions are not optimally dealt with.

Transmission System Operators will have the critical task of building the infrastructure needed to integrate large scale wind energy with both the networks and the markets. This is a huge challenge and, as a result, it is of immense importance that we guard against the risk that vertically integrated companies – because of the interests of their generation arms – fail to invest in their networks or in interconnections with other systems.

The framework of rules to avoid this outcome is now established by the third energy package. The aim is to create an independence of network operation and planning even in situations where the ownership of the network remains with a vertically integrated undertaking.

Electricity networks are truly essential facilities. This means that for network companies the regulator is an essential partner. The well-being of a network company and its customers is dependent on regulatory decisions.

Today, the powers and independence of national energy regulators across Europe differ considerably. Regrettably – in a number of countries they lack the powers to do their job properly. They are also often subject to political interference. This undermines confidence in the market and discourages much needed new investments. As a result of the third energy package, each regulator will have the powers to carry out its role effectively.

But the regulators are national. Their role is less clear when it comes to cross border investments or the harmonisation of different market rules across countries. The third package delivers mechanisms to ensure that networks with a wide European interest are built, so that electricity suppliers can really sell across borders, and citizens and businesses can buy energy sourced from other Member States.

In short we require a European mechanism to allow us that we produce our energy in the most efficient way and we can be sure that valuable wind power is not stuck at a border, or worse never produced, because we have not foreseen cables to carry it.

Such a mechanism is being created with the establishment of a European Agency for Co-operation of Energy Regulators. The Agency will be a strong one. A strong Agency is what we need to face the multiple challenges of regulating the European energy market.

I have talked now at some length about the third energy liberalisation package, because I am certain that the objective of a European-wide, single market in electricity is now within reach.

At the same time, I think that no rules of this world would bring results if the markets were not convinced about the real benefits of integration. In this respect, cross-border mergers and acquisitions of the last decade kicked off a slow change of minds.

They created utilities with different generation and supply portfolios across Europe, all eager to make more of their new business than just the sum of its parts. Since this can only be achieved if markets are conveniently accessible, market integration has increasingly found more supporters than enemies.

To facilitate that, the Commission has initiated a market design project with the view to delivering a roadmap of a truly integrated pan-European market by 2015. Regulators and stakeholders have already successfully identified the main building blocks of the target model. I can ensure you that the Commission will remain on the forefront and keep the momentum to ensure the plans follow action.

Ladies and Gentlemen,

Let me focus briefly on networks. Our "2020" targets will challenge their capacity and responsiveness more than ever before. In the not so distant future they will have to carry large amounts of volatile power from wind mills off-shore. This means they need to be strong. At the same time they will also have to become smart and move beyond merely transporting electricity, allowing customers to be the generators of their own energy.

This will place the grid in the centre of the entire electricity system. This new system will encourage energy efficiency, and facilitate the integration of distributed and renewable generation, and all time allowing ever greater market participation by consumers.

But not to be mistaken, this will not come for free. Between now and 2030, we estimate that hundreds of billions of Euros will have to be spent on the EU's aging electricity network. There are many plans and many network operators are willing to invest in networks.

Networks are a regulated business. Therefore national regulators have an ultimate say on investments. They do this on a national level, but many of the investments we need now are cross-border and of shared benefit. In such cases we need more than a national view on investments. We need to understand the value of investments based on the European interest. Some of these investments are back-up for emergency and might not be provided for by the market. Therefore public funding may be required.

To this end, an Energy Infrastructure Package will be prepared this year. This will include a proposal for an EU Energy Security and Infrastructure Instrument, replacing the current TEN-E guidelines.

More generally, the Commission is looking into ways of improving the regulatory co-ordination and co-operation across borders. As part of the Infrastructure Package, it will present ideas how to harmonise investment rules in the EU and to attract private financing.

Beyond networks, we are also looking at the horizon. Our policy choices now, will have long-lasting implications of our low-carbon, high efficiency energy system sought for 2050. It is in the coming years, not in 2050, that the determining decision will be made. To this end, we will develop in the next months a range of scenarios and discuss policy options with you to test their resilience.

Ladies and Gentlemen,

today, I have set out why we in the Commission consider that a truly integrated, pan-European electricity market is indispensable for competitive, secure and sustainable energy supplies.

I encourage you all to seize the opportunity and finish off this fascinating work we started. Build a market that allows a European response to the climate challenges we are facing.

Thank you for your attention.

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