EU adviser: Energy Union should take ‘holistic approach’

Jean-Arnold Vinois

Europe’s energy policy is no longer based on a difficult balance between competitiveness, sustainability and security of supply. It has now become a holistic project which includes all these dimensions in a multi-disciplinary approach, argues Jean-Arnold Vinois.

Jean-Arnold Vinois is adviser on European Energy Policy at Notre Europe – Jacques Delors Institute. He is honorary director of the European Commission – Directorate General for Energy, and he continues to act occasionally for DG Energy to promote the internal market for energy and related initiatives. Since 1 April 2013, he has acted as special adviser to Günther H. Oettinger, the Commissioner responsible for energy.

Vinois retired from the Commission on 1 January 2013. In his last position, he was acting director for the internal energy market in the Commission’s Energy Directorate General.

He answered EURACTIV’s questions in writing.

In a new policy paper, the Jacques Delors Institute – Notre Europe makes a critical assessment of the EU’s energy policy, which is currently based largely on the 2020 climate and energy package. Can you briefly outline the main successes and shortcomings of that policy?

The initial success of that policy, agreed in March 2007, was to bring the then 27 member states to a major agreement on the so-called energy policy for Europe, driven by the three 20% targets to be met by 2020 on greenhouse gas emissions reduction, renewable energy and energy savings.

At a time of strong economic growth and worries about the world’s ability to cope with declining resources, climate change was the main driver of energy policy. Competitiveness was not seen as a serious problem until the financial crisis of 2008.

Security of supply came as a renewed concern for Europe as a consequence of the January 2009 Ukraine-Russia gas dispute, which produces a major gas supply disruption affecting half of the European Union.

And between 2007 and 2014, many unexpected events occurred: poor economic growth, the Fukushima nuclear accident, the collapse of the carbon price, the continuous high price of oil, the shale revolution in USA, the explosion of renewable supported by generous subsidies and ill-conceived national interventions affecting negatively the electricity system.

These events created a feeling that the energy policy decided in 2007 was inappropriate and causing high prices and a lack of competitiveness for European industry compared to its US competitors.

In contrast with these adverse events, major progress were registered in the integration of the internal market for electricity and gas, with a working wholesale market and decreasing prices, more harmonised rules and decisive actions by several actors like the Transmission System Operators (TSOs) and the regulators.

A genuine infrastructure policy was also designed with the Ten Year Network Development Plan, the Network Codes and the identification of Projects of Common Interest. Reverse flows were made possible on many gas pipelines reinforcing the security of supply of the Eastern member states. 

However, the spectacular increase of wind and solar installations which are in principle welcomed, surprised the utilities and revealed some shortcomings in the electricity market that some member states started to address with measures undermining the integration of the European market.

So-called “smart” energy technologies were not fully exploited to enhance the efficiency of the system and the demand response management. The lack of a genuine energy diplomacy damaged Europe’s negotiating position on the gas market, with the Russian politically-led South Stream pipeline finally abandoned and the disappointing progress of the Southern gas corridor. The lack of compliance remains too frequent as well as the lack of transparency and accuracy of energy data.

Nevertheless, it seems that the three targets set in 2007 will be met, not because of tools like the Emissions Trading Scheme (ETS) but because of the other events which happened during the period 2007-2014 such as the economic crisis and the generous subsidies for renewables.

The report lists 30 findings about the facts occurring during that period, and they include the lessons to be drawn today to repair without delay the shortcomings identified, and to pave the way of the Energy Union project that may emerge from this rapid evolution.

What are your proposed solutions to overcome those shortcomings?

After more than one year of debate in 2014 around the EU energy policy, it seems that the shortcomings are well identified by all stakeholders and the institutions.

A key issue is to recognise the efforts made and the progress achieved since 2007 and to bring effective solutions to the remaining problems. It is essential not to throw the baby with the bathwater. It is also vital to keep all players motivated to continue their efforts to achieve a well-functioning internal market, through reliable interconnections and able to integrate fully the diversity of EU energy resources.

The internal market is the cornerstone of the European energy policy and the first priority is to make it work. This means also being more serious about implementation of the rules by all actors, and to complete the existing instruments with those which are still missing such as an effective regulation dealing with security of electricity supply and the improvement of the existing gas security of supply.

Such a regulation would help frame at European level the capacity remuneration mechanisms and strategic reserves promoted by several member states, to take into account the existing resources available in other countries, instead of letting them be arbitrated by the state aid guidelines.

There is also room for enabling several players to work at European level, such as the TSOs in electricity and gas and ACER. Coordinating in real time the electricity grid and the gas system would optimise the use of the EU resources and would reinforce the solidarity and the security of supply for all. And the retail market, left outside the Europeanisation of the market, needs to work in favour of the integration and the efficiency of the market instead of undermining it.

The role of the Commission is essential in all these actions. It has to play its role of maker of good proposals to be swiftly agreed by the Council and the European Parliament, of facilitator of dialogue between the member states and with the players, and not least of guardian of the Treaties to ensure the implementation of the rules securing a level playing field.

On the external side, the European Union has to act in a united way in its dealings with third countries. It is not the time anymore to make bilateral deals ignoring the existence of the internal market and the energy policy. It is time to convey a clear and unequivocal message to our external partners, whoever is the spokesperson.

Finally this agenda requires the European governance to be strengthened with the Commission playing its role, the member states acting together under the impetus of the European Council and acting regionally with the concerned stakeholders while respecting the European rules.

The new role of consumers, the application of the information technologies and a more holistic approach should bring European energy policy to a new level of maturity enabling another major breakthrough: the Energy Union.

The Energy Union was identified as a major priority by the Juncker Commission, with a specific Commissioner dedicated to the initiative. Yet there is little detail yet about the content of that policy. What are your recommendations?

The Jacques Delors Institute welcomes the priority granted to the Energy Union by President Juncker and the subsequent reorganisation of the Commission. The support of the European Council in its conclusions of October 2014 is also noted. This is fully in line with the recommendations made by Jacques Delors and Jerzy Buzek in 2010 when they promoted the idea of an Energy Community, which included already many proposals that we are reiterating today.

It is particularly refreshing to read the July 2014 Political guidelines of Jean-Claude Juncker and the mission letters to the Vice-President in charge of the Energy Union and to the Commissioner in charge of Energy and Climate. They show the willingness to put energy in the global context and to end deceptive silo approaches. As President Juncker said clearly, these silo mentalities have to be transformed in a holistic approach that is the only one able to bring significant results.

Of course, these good intentions have now to be translated into concrete actions and the first one will be the adoption by the Commission at the end of February 2015 of a Communication describing the Energy Union.

In our view, while addressing all the shortcomings already mentioned previously under the first question, and repairing the obvious loopholes of the 2007 European energy policy, there is a need to give a wider vision of energy based on the global context and the decreasing role and status of the European Union on the one hand and the challenges emerging from an ineluctable energy transition on the other hand.

Energy Union is a tangible European project whose drivers should be a sustainable economic development, solidarity and inclusion and global strategic action and resilience. We then propose ten building blocks of such Energy Union taking into account the ongoing structural changes that we have observed.

We see for instance a major shift from the supply side to the demand side, with all resources being articulated in a single energy transition, energy efficiency being a fuel and carbon taxation offering a predictable and stable carbon price as the internalisation of the external costs of energy.

We suggest promoting an “energy valley” in Europe resulting from an industrial energy strategy driven by innovation, with a priority on low carbon technologies, favouring innovation beyond deployment, and to digital energy to make smart energy customers.

There is a need to invest in education on the challenges and behaviours around the energy transition.

The Energy Union is inclusive and gives solidarity a tangible content. It develops a social energy policy, addressing the energy poverty and the changes in employment while practicing a social dialogue.

As the Energy Union concerns all citizens, it is key to innovate in the governance, by involving all in the process through a regular State of the Energy Union expressed at the highest political level and a virtual energy community of all players to make them fully involved in the energy transition. Solidarity means also a true optimisation of European resources and infrastructures.

Last but not least, Europe is a world player and must have a resilient and strategic Energy Union going with it. An energy trade policy for the defense and promotion of the EU’s sustainable economic interests outside EU requires a clever combination of the risks of all the member states, with a large diversification of suppliers, supported if need be by pooling the purchase of external gas supply, in exceptional circumstances, as well as the financing of major transnational infrastructures.

The EU could develop trade agreements including energy, allowing all its companies to act equally in the concerned countries. At the same time, the access to the EU internal market by third countries companies should be subject to authorisation and certification. European public-private partnerships should be established to promote low carbon energy cooperation and development. For instance an Electricity for All programme could be deployed for all countries where 25% of the population has no access to electricity. We also see the need for a European Energy Diplomacy, based on a single message with multiple voices, acting at bilateral and multilateral levels.

A fully operational and credible Energy Union needs to rely on a common platform for common analysis, understanding and forward-thinking. With the right combination of national and European resources, it could take the form of a European Energy and Climate Information Agency.

In one word, the European Energy policy is not anymore a policy based on a difficult balance between competitiveness, sustainability and security of supply. Moving from the European Energy policy to the Energy Union means that the latter is a holistic project which includes all these considerations in all the actions it is promoting. It is multidisciplinary, multinational, inclusive and eliminates the silo mentalities affecting the present policy.

What can be realistically achieved by this Commission?

Referring to what has been done since 2007, there is a great hope that a lot can be done during this legislature. It is a matter of political will of the member states and of the determination of the Commission, securing the support of the European Parliament. The players are ready to engage on a clear European path and they know that there is no escape to an energy transition based on low carbon technologies and efficiency. The Commission should, without delay, engage in a serious debate on the content of the Energy Union through its coming Communication, and translate it quickly in proposals.

As we say in our report, ten immediate actions may be taken, within less than two years, to repair the existing insufficiencies identified by all regarding the internal market, the infrastructures and the governance.

Inside the internal market, regional cooperation should be encouraged and facilitated by the Commission to develop common solutions regarding market coupling, renewable development, generation adequacy, capacity mechanisms, strategic reserves, emergency procedures, common infrastructures, TSOs and regulators’ cooperation. The external relations may be improved quickly if the member states are convinced of the added value and it is up to the Commission to demonstrate it.

The recent events in Ukraine, the South Stream episode, the Southern Gas corridor difficulties and many other problems remind that there is an absolute necessity to develop a coherent and collective approach, supported and promoted by all. Many actions may be taken with third countries partners and many are ongoing such as the Transatlantic Trade and Investment Partnership, the strengthening of the Energy Community, Switzerland, the Mediterranean energy cooperation etc. And there is a great mutual interest in coming to an agreement with the Russian Federation to create a sound legal basis to all our energy relations with this key partner.

We are confident that, based on the clear intentions expressed by the Commission, the latter will be able to move forward the Energy Union project, as all member states are now well aware of their interdependency and of their common interests.

The Jacques Delors Institute report argues that the EU energy policy is now half way between national policies mainly driven by national considerations and a common energy policy based on integrated energy markets. What is the way forward now? Do you think member states will have appetite for a more integrated policy?  In which specific areas?

The energy sector has probably been the last to become European and to apply the fundamental free movement principles of the Treaty. The first internal market package dates back to 1996-1998, well after the supposed completion of the internal market at the end of 1992.

It is a very young policy, started less than twenty years ago with a fast-growing number of member states subject to it and getting a major boost with the Energy and Climate package of 2007. This policy is now credible and the market players have now accepted the rules of the game. 

The member states are still hesitating between their national sovereignty and sharing it at European level.  The Lisbon Treaty, which introduced in 2010 the new Article 194 on Energy, still recognises the exclusive national competence on the choice of the energy mix, the exploitation of the natural resources and energy taxation. These competences have to be reconciled with the common rules of the internal market and the environmental protection requirements.

The internal market offers major benefits to all as already shown with the working wholesale market, although it is undermined by a retail market poorly driven at national and regional levels. These contradictions have to be resolved quickly through the actions proposed to repair the existing insufficiencies of the internal market. 

Once done, we believe that the Energy Union project offers a unique opportunity to go beyond the national prerogatives by developing a comprehensive and attractive project where everybody finds its interest.  Would you imagine us going back to the old days of State-owned energy companies acting inside their borders and mainly governed by the public authorities, at a time where new technologies are revolutionising the generation, the transportation, the distribution and the use of energy and where the customers are willing to master their energy consumption?

In our view there is no alternative to the Energy Union but it surely requires all public authorities to have the courage to address the problems and to explain them to the population.  And it especially requires them to act urgently with determination and to be convincing about the relevance of these actions. While acting quickly on the present shortcomings, this can only be done with a solid and long term project that may be well understood and in line with the main trends identified today; a sustainable development based on modern and clean technologies driven by people who are willing to save the limited resources of our planet.

The EU task force on investment has listed 248 energy transmission projects of common interest (PCI). What is your opinion about this approach?  Do you believe it will work?

The identification of the 248 PCIs was made in 2013 in view of the establishment of the Connecting Europe Facility (CEF), the new EU wide funding tool to finance transport, telecommunications and energy trans-European networks projects during the period 2014-2020.  

Trans-European energy networks projects may benefit from a budget of €5,85bn, provided they comply with the requirements set in the guidelines for trans-European energy infrastructure (EU Regulation 347/2013 of the European Parliament and of the Council of 17 April 2013).

The list of 248 PCIs was established according to these requirements and was published at the end of 2013.  Some of these projects have received a grant from the CEF last October, the main support being allocated to a new gas interconnector between Poland and Lithuania aiming at ending the single supplier dependency (Gazprom) of the three Baltic States.

The process is thus working well. In addition, this list will be updated every two years, based on the work done by the Transmission system operators (TSOs) to update the Ten Year Network Development Plan. These projects are directly related to the reality of the network development in the European Union and the need to integrate the internal market.

Subject to their level of maturity and their need of external financial support, beyond the ability of their promoters to finance them on their own resources as assessed by the competent regulators, these projects could also be eligible for financing by the Juncker Plan for which the EU task force on investment is examining the eligible projects.

However, the eligibility of these projects to obtain such financial support from the CEF and from the Juncker Plan will depend on the provisions of the concerned regulations governing the accumulation of EU financial aid.  In any case, what is important is that there is today a well-established process to identify the energy infrastructure projects of common interest to be financed by EU funds, and that these projects are those needed to integrate the internal energy market.

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