The European Energy Union and the Riga process

April 2, 2015 | 00:00
The European Energy Union and the Riga process
The European Energy Union and the Riga process
Toward harmonization of internal and external dimensions of the European energy policy

Improvements of the European Union energy policy and further development of integrated energy strategies at the supranational level was one of the principal goals set by Latvia for its presidency of the Council of the European Union in the first half of 2015. Accordingly, inauguration of a common framework for internal and external dimensions of EU policy centered around the notion of a 'concerted voice' of 28 member states.

Even though internal and external dimensions of the EU energy policy have numerous points of convergence, until recently a clear strategic vision on how they should function in unison was absent. In order to correct the situation and develop such a vision and corresponding action plans, the creation of the European Energy Union (EEU) in accordance with the 'Riga process' was initiated and approved.

The Riga process, officially launched at the EEU conference held in Riga on February 6, 2015, is a set of political procedures leading to the establishment of unified European energy policy strategies formulated in 'A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy' (the Strategy). As defined at the conference, internal and external dimensions of the EU energy policy should be optimally balanced in five key areas: energy security and solidarity, full integration of internal markets, energy efficiency, decarbonization of the economy and research and innovations/improvement of the EU energy global competitiveness.

The current political and legal framework of the EU energy sector indeed consists of the two above mentioned dimensions, which are interconnected yet not fully integrated.

The first internal dimension almost exclusively covers domestic energy issues addressing both conventional and renewable generation, harmonization of the regulatory environment, enhancement of cross-border energy infrastructure within the EU and full integration of the internal energy markets of natural gas and electricity. The core of the first dimension is The Third Energy Package and all national energy laws made or amended in accordance with it.

The second dimension, in turn, deals with external affairs, including reliable primary energy and electricity supplies from 3rd countries, regional interconnections of energy infrastructure between EU and non-EU members and intergovernmental agreements (IGA) on the purchase of natural gas. This dimension is represented in several crucial bilateral cooperation initiatives like the EU-US and the EU-Russia partnerships, and one principal multilateral initiative - The European Energy Charter Treaty (EECT) that already provides general guidelines for cooperation between the EU and other industrialised countries. The establishment of the EEU has given rise to many questions on how internal and external dimensions of the EU energy policy actually will be harmonized in practice: which areas of activities will be prioritized and what political, legal and consumers benefits related consequences can be expected, at least in electricity and natural gas sectors.

Taking into account the principles set in Riga, the first, most likely political consequence for these sectors will be the increasing role of supranational guidance in further market integration and development..
In the field of legislation, however, this necessitates a process of revising existing legal strategies toward both regulatory supervision of the electricity and natural gas sectors of member states, with an increasing role of The Agency for the Cooperation of Energy Regulators (ACER) and a decreasing role of national regulators, and regulations for coordinated efforts with regards to IGAs in the natural gas sector. Currently IGAs are negotiated directly between the member states and external suppliers with no regulations or other legally binding documents in place for pre-agreement consultation procedures with the EU authorities. The possibility of the establishment of a pan-European natural gas trading hub to replace the currently existing national/regional hubs cannot be excluded, either.

In the electricity sector, legal consequences might include but are not limited to requirements regarding synchronicity areas of member states’ transmission systems, fully avoiding their synchronization with non-EU areas (de facto elimination of so called 'energy islands' such as the Baltic States), and strengthening rules and procedures applicable to cross-border electricity exchange and system balancing between member states and 3rd countries. Of course, such requirements would have a direct impact on the domestic electricity production industry, transmission system operators (TSO) and to a certain degree - transmission system stability. Moreover, it could result in creation of single EU electricity exchange platform, replacing the currently fragmented regional electricity exchanges, which, in most cases, are independent on privately owned enterprises (for example, the Nordic - Baltic electricity exchange Nord Pool Spot).

All the above mentioned actions would naturally impact existing EU bilateral and multilateral cooperation initiatives with external partners, and require revision of negotiation principles in order to include these political and regulatory novelties.

Finally, as the statement of affordable energy pricing for EU customers permeates the EEU strategies at all levels, it is reasonable to expect that said initiatives will directly address this issue. And indeed, ongoing harmonization, enhancement of integration of internal energy markets and regulatory environments as well as increasing security of supply in imports of natural gas through supranational coordinated IGAs or even a single EU natural gas contracting strategy will definitely benefit consumers in terms of predictable price setting schemes both in mid and long terms periods. It will also lead to minimization of risk of geopolitically or otherwise driven disruptions of energy supplies, and more transparent internal market functionality under stronger centralized regulatory supervision.

Image: Lukasz Radziejewski, CC BY-SA
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