"One threat, arguably the biggest one, would be the failure to implement the existing energy packages," said Zachmann, who also advises policymakers in Ukraine and Belarus on energy sector issues.
But he warned this "will not be an easy task because many member states are still reluctant" to implement 'ownership unbundling' rules that encourage integrated energy companies to sell off their transmission grids.
"Some big companies are opposing this and it will be a tough fight for the Commission to really deliver on the objectives of the third package," he said, citing RWE in Germany.
Beyond the third package
Although he admitted that meeting existing liberalisation objectives "will already be hard," Zachmann said "the Commission needs to go beyond" this.
"In the electricity market, I clearly see a point for strengthening the institutions that have been established with the third [energy liberalisation] package, which have very limited powers at the moment," he said, citing the EU Agency for the Cooperation of Energy Regulators, ACER.
The agency, which will be located in Ljubljana, Slovenia, will coordinate the work of national regulatory authorities when it comes to cross-border gas and electricity networks and will become operational on 3 March 2011. It will be able to take binding decisions on cross-border infrastructure but only if national authorities fail to reach agreement between themselves or if they decide to refer the case to it.
But Zachmann warned the agency will not have sufficient powers to dictate energy investments, saying national interests are likely to continue to dominate.
"The question is that some countries may not have the benefit in their own countries even though they have invested money. You then have to assure by redistribution measures that they also get their fair share in the benefits that these new investments bring."
These national egotisms were laid bare recently in the EU's recovery plan, when leaders struggled to agree on a list of energy infrastructure projects of common interest for Europe (EurActiv 17/04/09).
Regarding infrastructure, "what will be important in creating a single market is to have a network development plan that is not only the compilation of national interests and networks but really looks at the European network and the challenges that it will have to cope with in the coming years," Zachmann said.
He said regions such as the Baltic, for instance, would "clearly benefit" from greater network integration, arguing in favour of "cross-border mergers of network companies" there.
"And why not have also the balancing and reserve markets joined together and maybe even envision a joint regional network company that really can build the lines that are most needed irrespective of national borders."
Zachmann said the revision of guidelines for the Trans-European Network for Energy and Transport, due this year or next, will offer the best opportunity to further integrate the EU's energy market.
"These forward-looking network initiatives are great opportunities," he said, citing other network development plans to be prepared by the the EU's new agencies of energy regulators (ACER) and network operators (ENTSO).
'Backwardness' of gas market
The Bruegel analyst said greater market integration will be hardest for the gas sector, due to the limited coverage of gas pipelines and insufficient Liquefied Natural Gas (LNG) infrastructure.
"The backwardness of the gas market is both about infrastructures and rules," he said, referring to contractual clauses that prevent gas flows from being adjusted to demand.
"During the [January 2009 gas crisis between Russia and Ukraine], we actually saw that it was possible to switch the direction of the energy flow and that the problem of interconnectivity was not as daunting as expected," said Zachmann.
"One problem was old destination clauses whereby operators are not allowed to sell in certain areas, and a lack of liquid markets in all European regions".
For example, he said, "the market in France and Germany is divided in zones and you lack a national price for gas, so the situation is not transparent enough and detrimental to consumers".
"This is really hindering the flow of gas from one market to the other. This has been particularly problematic during the crisis in 2009. In Poland for example it was difficult to choose the market from which gas should have been bought since there was no price transparency in neighbouring countries."
He rejected suggestions that long-term gas contracts offer greater visibility for business and ensures price stability in the long-run. "I do not agree. I believe you have to allow for different supply options and then let the market decide."
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