Internal dimensions in European energy policy can only be separated from external developments for reasons of clarification and simplification. Yesterday I looked at some essential aspects in the external dimension and today I'll do the same for internal aspects.
1. Creation and running of single market. On 9 March the European Council acknowledged what the Commission had been affirming for a long time. It confirmed that a common energy market covering the three essential areas (network interconnection, free competition and harmonised rules) did not yet exist and it came up with a plan for accomplishing this goal (see report by Emmanuel Hagry in EUROPE 9383 and the complete text of the plan in EUROPE/Documents 2463).
According to the commissioner for competition, Neelie Kroes, there is not enough transparency, the price mechanism is unreliable, cross-border activities are very rare and the level of national market protection is still high. Total opening up of the national markets is, in principle, planned for next July but if it is to function effectively, a number of initiatives are necessary. The Commission is preparing its proposals. General orientations defined by the summit leave a lot of questions unanswered: implementation of targets on energy saving, distribution between member states of the overall production of renewable energies and the reduction of CO2 emissions, competencies of national regulators and how they work, what policy to follow on gas supplies etc.
Judging by the indications available, the Commission will present six draft directives in September that make up a “Regulation-network” package, which cover:
separation of electricity and gas production activities from network management (unbundling: for once, the term is German and not English);
national regulators' powers and their cooperation;
development of cross-border oil and gas transport networks;
market transparency, including a consumers' charter;
solidarity between member states, especially on storage and reserves;
support for the four infrastructure priorities put forward by the Commission and retained in the “summit's” conclusions for their European interest.
See the following points for details.
2. Divergences on unbundling remain. The summit did not keep the two options proposed by the European Commission, namely, separation of network ownership - whereby a producer can still maintain ownership of the network but by handing its management over to an independent management company. The compromise approved by heads of government mentions effective separation that guarantees equality and freedom of access to transport infrastructure, as well as independence regarding investment decisions. Nonetheless, there are still differences of interpretation among the member states, with each of them highlighting aspects they find more interesting. The French minister of energy, Thierry Breton, immediately underscored the fact that France would not be obliged to dismantle Electricité de France (EDF) or Gaz de France (GDF) and that the formula currently being applied (separate management strictly controlled by the regulator but without any obligation for privatisation) is acceptable.
Most of the commissioners affected, however, (particularly the commissioner for energy, Andris Piebalgs and the commissioner for competition, Neelie Kroes, as well as President Barroso) still prefer separation of ownership. Kroes is remaining firm: she believes that if there is no separation, new operators will be unable to access networks and investors will not have any real benefit in investing in infrastructure, which remains at an insufficient level. Other commissioners don't see things this way. The Commission as a whole recognises that there is a need to move on from the freedom of choice stage and its September proposal will undoubtedly maintain the two options it has already suggested, with the possibility of adding other formulas to it that are propitious to improving the current situation.
3. For a more effective market. Given that the hypothesis of the European regulator has not yet ripened, the Commission will officially propose strengthening the ERGEC (European Regulators Group for Electricity and Gas) by consolidating the autonomy of national regulators, which in some cases are unreliable. This body will be given powers to make binding decisions on cross-border issues. Currently, regulators do not have the resources or competencies to make their coordination effective. At the same time (third proposal), the Commission will propose the setting up of a new Community price mechanism for transport network management (TNM) so that (as requested by the March summit) coordination of the transnational networks and their safety is improved by drawing on the practices applied in other areas. This project is apparently not expected to encounter any difficulties.
The fourth proposal in the September package involves market transparency and the energy consumers' charter (Customers' charter, according to the terminology of heads of government).
4. Solidarity among member states. The fifth proposal planned for September involves solidarity, which some member states, like Poland and the Baltic states, find particularly important. Commission services are looking into this project: how can solidarity be expressed in legal terms? Should it imply national stocks and reserves? Will the basis for intervention be voluntary or automatic? The idea of European stocks has not been rejected, for oil there are fewer problems but for gas there's a problem of prices.
The sixth proposal covers another aspect of solidarity: appointment of the four coordinators for the projects of priority European interest. The European Council pointed these four projects out in a “note” in its conclusions: a) high voltage links between Germany, Poland and Lithuania; b) off-shore wind power links in northern Europe (German off-shore installations); c) electricity connections between France and Spain; d) the Nabucco gas pipeline, which will transport natural gas from the Caspian Sea to Central Europe. Commission services observe, however, that finance available in the Community budget for these projects is inadequate; the budgetary authority has only planned for an allocation of €20 million (which must be raising a smile among Nabucco promoters). Member states that have agreed to the summit presidency's conclusions will have to look at this long and hard.
5. The difficult dossier of clean coal. The draft on this subject is expected to be presented at the end of the year by the Commission as part of the “European strategic plan for energy technologies”, which the European Council is proposing to examine during its “spring session” (March or April 2008). This plan will be mainly concerned with tackling technical progress in energy production, including nuclear energy and research projects. Work on clean coal is developing substantially and according to non-official indications, a certain number of observations and objectives have been achieved.
clean coal energy efficiency has to be significantly improved (it currently stands at between 30 and 35%) and combustion techniques need to be perfected;
the Commission intends following the European Council's indication to encourage construction and use of a dozen demonstration installations for commercial electricity production from clean coal by 2015. There is a serious problem of funding, however: the common research and development programme has €50 million for achieving this target, whilst pilot installations cost around €1 billion each! The market for CO2 emission permits (€20-30 per tonne) can of course help companies that have benefited from free allocations to launch themselves in the operation;
cooperation with the USA, China and India is planned;
clean coal could be economically viable by 2020. Therefore, from 2010-20, new coal plants will still not be “clean”. They need high energy efficiency and, above all, they need to be devised in a way that can be adapted to capturing CO2 emissions after 2020, when technology to this end will have been developed.
Poland is the member state that still primarily bases its electricity production on coal but others could relaunch this option if it becomes profitable.
I will complete this review tomorrow with a number of considerations about the two essential and at the same time controversial aspects of European energy policy: renewable energies and ways to meet the ambitious targets outlined by the European Council; prospects for nuclear energy and remaining divergences in this connection. (FR)