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27/08/2016

Europe’s energy revolution taking shape?

Energy

Europe’s energy revolution taking shape?

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As the EU’s energy liberalisation drive heats up, European consumers may be wondering when and in what shape the EU’s new energy policy will begin to transform the way energy is produced and consumed, and if the change will mean lower prices or higher industry profits.

The unbundling saga

On 6 May, Parliament’s Industry (ITRE) Committee voted in favour of breaking up large energy firms through ownership unbundling, meaning the separation of a firm’s power generation assets from its distribution assets (EurActiv 07/05/08).

The outcome of the vote was widely seen as a setback for Germany and France, who had put forward a proposal for a ‘third way’ on energy liberalisation that was rejected by a narrow margin of MEPs. The committee’s rejection of the proposal came shortly after it emerged that the Commission would only consider the third way if strict conditions – too strict, according to Berlin and Paris – were added to the proposal (EurActiv 05/05/08).

But the committee’s vote and the Commission’s stance have not settled the issue of the third way. Germany and France, who with the support of six other member states form a blocking minority in the Council, have shown no sign of backing down from their opposition to ownership unbundling, raising the spectre of drawn-out negotiations. 

The climate link

Although the liberalisation package is focused on technical and regulatory aspects of the EU’s electricity and gas markets, “fully competitive markets are an essential pre-requisite” for a “new energy path towards a more secure, sustainable and low-carbon economy, for the benefit of all citizens,” according to the Commission press release that accompanied the 19 September proposals.

Brussels is thus concerned that a delay in the adoption of the liberalisation proposals may have a negative impact on the wider climate change efforts outlined in the climate and energy package.

Shaky investor certainty and lack of investment are at the heart of these concerns, as continued control over national and regional energy markets by a limited number of energy firms creates few incentives to invest in electricity grid upgrades and other infrastructure investments necessary to boost the efficiency of energy production and transmission, according to the Commission.

Europe is also struggling to find the cash necessary to fund renewables and expensive ‘clean’ technologies like CCS.

UK Liberal MEP Chris Davies, Parliament’s rapporteur on a Commission proposal for a legal framework for CO2 storage, argues that the EU Emissions Trading Scheme (EU ETS) could be leveraged to solve the financing problem.

CO2 stored with CCS technology should be given double credit under the EU ETS, he told EurActiv in an interview. The Commission is divided on the issue, but may be “open to persuasion”, he said.

Consumers on standby?

In addition to adopting a position on the third way proposal, MEPs also voted in favour of consumer protection measures designed to bring down energy prices for consumers in the EU (EurActiv 08/05/08). National authorities should “mandate electricity undertakings to introduce pricing formulas which increase for greater levels of consumption,” according to a proposed amendment backed by MEPs from all political groups. 

Currently, large energy consumers like industrial installations can negotiate with power suppliers for lower energy prices. The amendment, if adopted in the final text of the proposal, would “turn the system on its head,” according to UK Liberal MEP Fiona Hall, one of the supporters of the amendment.

Large consumers would instead pay higher prices in order to motivate energy efficiency improvements, while consumers who use less energy, such as low income households in particular, would in turn pay lower prices. 

In response to queries about whether industries would oppose such moves, Hall told EurActiv that “this should not be the concern. Climate change should be the concern,” she said.

MEPs, backed by the EU consumer organisation BEUC, are also in favour of allowing regulators to impose temporary price caps on energy in the event of sudden price hikes.

Background

Since EU leaders committed in March 2007 to slashing EU CO2 emissions by at least 20% by 2020 while increasing the use of renewables by 20% during the same period, the Commission has put forward two major 'packages' of policy proposals. 

The 'third energy package', released on 19 September 2007, is part of an ongoing push to liberalise the EU energy market that, according to the Commission, will bring down energy prices and increase consumer choice (EurActiv LinksDossier).

The 'climate and energy package' of 23 January is geared towards the 20% targets. It includes a revision of the EU's carbon market, a proposal to boost renewable energy use, a revision of EU state aid rules for the environment and a new legal framework for the capturing and storing of CO2 produced by fossil fuel power plants (carbon capture and storage – CCS).

Both packages have been mired in controversy, however, and rising energy prices as well as increasing signs of climate change have raised concerns about whether the measures can be adopted in time to fend off serious economic and environmental fallout.

Further Reading