A proposal to further liberalise the EU’s energy market, due on 19 September, is to present member states with alternative options to full ‘ownership unbundling’ in an effort to ward off a veto threat from nine countries led by Germany and France, EU officials have told EURACTIV.
- Weighing the options
The EU executive is currently considering two main options for its upcoming proposal, scheduled for release on 19 September, it emerged from discussions with EU officials, speaking on condition of anonymity.
The first option is to force “integrated” energy companies, which own both energy production and distribution infrastructure, to completely sell off their gas and electricity-transmission networks, so-called full ownership unbundling.
But German and French energy giants, backed by their respective governments, have put up staunch opposition to this proposal. In addition, a clause in Germany’s Constitution prohibits public authorities from forcing companies to sell their assets.
As a possible compromise, the Commission may allow companies to maintain ownership as long as the shares of the energy producing company are “split” from the shares of the transmission network company.
The idea is that shareholders of the energy transmission company would push for greater investment in transmission networks in order to attract more market entrants, thus fostering the kind of competition the Commission believes is currently being stifled by integrated energy firms, which have little incentive to to increase the number of competitors on their grids.
The second option on the table would also allow companies to maintain ownership of their assets, but the management, including investment and other commercial decisions, would have to be transferred to an Independent System Operator (ISO), which would pay a fee for the use of the networks.
Any ISO, according to leaked Commission documents, would need to be bolstered by increased oversight powers for national regulatory authorities in order to guarantee price transparency, network access and investments. National regulators would in turn be supervised and/or assisted by a new European agency with powers of arbitration, particularly in the case of cross-border disputes.
- Ownership unbundling: a non-starter?
During their last meeting in June, a majority of EU energy ministers voiced their opposition to the idea of full ownership unbundling, prompting Energy Commissioner Andris Piebalgs to lament that “the majority is not with me at this stage” (EURACTIV 07/06/07).
Member-state reluctance is also reflected in the Conclusions of the March 2007 European Council, which call for “timely and full implementation of the letter and spirit of existing internal-market legislation relating to the opening up of the gas and electricity markets”. In other words, member states are asking that exisiting Directives are fully implemented before more far-reaching legislation is tabled.
The March conclusions do call, however, for “effective separation of supply and production activities from network operations (unbundling)”, as well as increased powers for regulators. But this is in reference to the “legal unbundling” stipulated in the second energy liberalisation package, and there is no mention or explicit support in the Council’s conclusions for full ownership unbundling.
- Plus ça change?
The absence of member state support for ownership unbundling might prompt the Commission to give more consideration to the so-called ISO+ option.
But a Commission official, speaking on condition of anonymity, admitted that some key industry officials are no more enthusiastic about increased regulatory pressure resulting from an ISO scenario than they are about ownership unbundling. One industry official apparently compared the choice to putting either salt or pepper in one’s coffee.
The Commission has also expressed its own reservations about the ISO option. In its “Energy Policy for Europe” paper, published in January 2007, the Commission notes that, in the absence of full unbundling, “disincentives to adequately invest in networks without ownership unbundling can not in any event be fully addressed by Regulators”.
Given the apparent lack of enthusiasm for either option being discussed by the Commission, there is also some speculation that the EU executive may opt to maintain the current status quo while pushing for better implementation of existing directives and reinforced powers for national energy regulators.
This last option is apparently being championed by Enterprise Commissioner Günter Verheugen, along with German Chancellor Angela Merkel and French President Nicolas Sarkozy.
- Investments and price signals
“Providing that the right policy and legislative frameworks are in place, the Internal Energy Market could stimulate fair and competitive energy prices and energy savings, as well as higher investment”, writes the Commission in its Energy Policy for Europe paper.
France, which is able to provide low energy prices through massive state-backed investments in nuclear power several decades ago that are now fully amortised, argues that the best way to guarantee low prices and network investments is by regulating prices with the help of state-backed guarantees.
But, according to one Commission official, current EU state-aid rules mean that massive “Pompidou style” investments in conventional energy sources are “out of the question” for the future, meaning that the French model of low, regulated prices will expire once masive re-investments in energy infrastructure are required.