Leaked draft of Internal Market communication shows EU not satisfied with progress

September 20, 2012 | 00:00

Leaked draft of Internal Market communication shows EU not satisfied with progress

In a leaked draft of a policy paper not expected until mid-October, the European Commission's energy department says the EU is not on track to meeting a 2014 deadline to complete the EU internal energy market. The document, entitled "Making the internal energy market work", is undergoing internal revision as we write, but it gives a flavour of what the Commission's priorities are.

First, enforcement: the Commission is pursuing, as a matter of priority, infringement procedures against those member states that have failed to fully transpose the EU's third energy market liberalization package from 2009. This set out to open up the European energy market, notably by unbundling energy transmission and supply.

The Commission points out that despite progress, the generation market remains highly concentrated. In seven member states more than 80% of power generation is still controlled by the historic incumbent. Energy markets are still perceived as un-transparent and relatively closed to newcomers. Investments in generation are "dangerously close to being driven by subsidies". And companies still need fairer access to transmission grids. So far 25 Transmission System Operators (TSOs) in 11 member states are certified as unbundled.

The emphasis on competition is all the more pertinent because the Commission recently opened an anti-trust investigation into Russian gas giant Gazprom, saying it might be hindering competition in central and eastern European gas markets.

For member states that are behind on the issues of consumer protection and empowerment, the Commission will facilitate exchange of best practices, provide guidelines and help define the "vulnerable" consumer. A background document accompanying the new policy paper suggests priorities for action in each member state to build up their energy market.

After enforcement, the Commission's second big concern is that consumers remain disengaged. EU consumers could save up to €13bn a year if they switched to the cheapest electricity tariff available, the

A background document accompanying the new policy paper suggests priorities for action in each member state to build up their energy market
Commission says. They don't because of a lack of awareness, energy services and market incentives. While the EU's new energy efficiency directive will help, as will efforts to stimulate micro-generation, dynamic pricing, smart grids and meters, there is more scope for policy action on this front, the Commission says. It wants to get rid of regulated prices for one, "giving markets the freedom to serve customers".

Capacity markets

The third and final big priority for the Commission is introducing flexibility into the energy system, i.e. making it "smart". Market-based arrangements that encourage and reward supply- and demand-side flexibility are needed, it says. The Commission will encourage the development of "well-functioning, cross-border wholesale markets in all timeframes", promote demand response (including the roll out of smart grids and meters and the development of demand response services), and promote the integration of storage and flexible generation into the energy system.

But it sounds a warning call on capacity markets. These could be counterproductive "if not well designed and/or if introduced prematurely or without proper coordination at EU level". They must "treat demand fairly" and distinguish between base load and peak load. "Nationally-based capacity mechanisms can increase costs for all member states by preventing best use of generation and flexibility across borders," warns the Commission.

It doesn't want member states to introduce capacity mechanisms without having fully analysed why there is a lack of investment in generation. It also wants them to study the impacts on neighbouring countries and the internal market, and to investigate alternatives such as demand reduction. The Commission says capacity mechanisms are public service obligations subject to EU control. It intends to launch a consultation on criteria to assess capacity mechanisms and it plans to establish an "electricity coordination group" to consider security of supply measures at European scale.

Further targets

By the end of 2012, the Commission says it will define further targets for the deployment of "smart grid components", review the mandate granted to European standardization organizations (for smart grids, meters and electric vehicles), and identify so-called Projects of Common Interest (PICs) for energy infrastructure that could benefit from accelerated permitting and EU funds. It says member states need to go beyond the targets for smart meters set out in the third market package - an 80% roll-out by 2020 - and draw up action plans with targets for the implementation of smart grids.

Even to meet the 2020 smart meter target, investments will need to rise from some €1bn today to €4-5bn in 2015, the Commission cautions. In the context of smart grids and meters, it believes policymakers need to reflect on the role of Distribution System Operators (DSOs) and new market entrants.

There is nothing new on harmonization of renewables support schemes in the draft policy paper - the Commission merely repeats it is reviewing guidelines on state aid for environmental protection and the exemption for renewables, and that it will develop best practice guidelines - nor on the potential role of the EU Emission Trading Scheme vs. a renewables target for 2030. But by tackling the issues of enforcing the third market package, empowering consumers and making the energy system "smart" the Commission's draft policy paper sets out a plan for action that will impact on how energy is produced and consumed in Europe.


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