EU nears energy liberalisation finishing line

The European Parliament yesterday (22 April) endorsed an agreement struck by the EU institutions to curtail the power of energy giants and move closer to a truly internal gas and electricity market. However, critics said the measures did not go far enough in breaking up energy monopolies.

The Strasbourg plenary vote put an end to year-long squabbles over the third package of legislation to liberalise EU energy markets. The text will now be transmitted for adoption by the EU Council of Ministers representing the 27-member bloc, formally putting an end to the process.

The new legislation consists of two directives on rules for the internal electricity and gas markets, two regulations on conditions for access to those markets and one establishing an ‘Agency for the Cooperation of Energy Regulators’.

The Parliament and governments clashed on a number of issues, including the separation of vertically integrated power companies’ production and transmission assets, consumer rights and the power of independent transmission operators.

Working under pressure to push through the legislation – deemed crucial to the EU’s energy security – before the elections, the Parliament dropped a demand that full ‘ownership unbundling’ had to be the only option for the electricity market.

Instead, MEPs signed up to a deal which also allows companies to opt for two alternative models which let them retain ownership of their gas and electricity grids. This is, however, on the condition that they either hand over the operation of their transmission networks to an independent system operator (ISO), or adhere to rules which guarantee that the two sectors can operate independently. Such rules include the establishment of a supervisory body and the provision of “cooling-off periods” for employees before moving from transmission to generation.

Legislation too weak, say critics

MEPs voting against the new legislation said it was neither strong enough to contain energy giants’ power, nor to provide for genuine competition. 

At a time when German cartel authorities are starting to investigate market-price manipulation by the four big domestic energy utilities, and France’s EDF is answering charges of spying on Greenpeace activists, Green MEPs Claude Turmes (Luxembourg) and Rebecca Harms (Germany) argued that the outcome of the legislation was testament to the fact that “energy oligopolies still have most EU governments and energy ministers in their pockets”. 

They warned that in a few years’ time, the EU would be discussing a fourth liberalisation package.

Smaller energy suppliers have long complained of big players depriving them of access to energy grids. Successful market liberalisation is also seen as a prerequisite to guarantee that renewable electricity can access to networks, helping to achieve the EU’s commitment to produce 20% of its energy needs from renewables by 2020.

Lower energy prices promised

The new legislation is expected to reduce consumers’ energy bills by stimulating more cross-border trade, which would increase competition on EU markets. However, the Commission has argued that this would not guarantee lower prices, as the liberalised market cannot control energy sources and taxes.

Consumer protection and universal access

Nevertheless, the agreement endorsed yesterday takes consumers’ concerns into consideration, largely due to heavy haggling by the Parliament. As a trade-off for the compromise on ownership bundling, Parliament obtained recognition of the concept of energy poverty, obliging member states to offer measures such as social security benefits to provide vital energy supplies to poorer customers, and requiring governments to guarantee universal access to electricity for all households.

Moreover, the new legislation gives consumers the right to change their gas and electricity suppliers within three weeks and without charges. They are also promised access to all relevant gas and electricity consumption data, allowing them to control their energy bills.

Member states are now expected to endorse the agreement some time in the summer.

European Commission President José Manuel Barroso said the adoption of the internal market proposals demonstrates that Europe is able to "deliver on its promises". "This is a major step towards a truly integrated European energy market, and the right European Union response to the structural challenges we face," he added.

EU Energy Commissioner Andris Piebalgs said the deal benefited both consumers, who would get the "lowest possible prices" and better protection, and businesses, which would "gain more business in a competitive market". "A clear regulatory framework for a functioning internal gas and electricity market will help the EU to meet the challenges of climate change, increased energy import dependence and global competitiveness," he said.

MEP Eluned Morgan (Socialists, UK) said the European Parliament had stood up for poorer energy customers who have been ripped off by the big energy companies. "The Commission must now ensure that companies that own both generation and transmission systems play by the new rules and don't continue to abuse their dominant positions," she added.

MEP Giles Chichester (EPP-ED, UK) said a liberalised internal energy market should provide for more competition and price transparency, preventing energy providers from keeping prices artificially high. "By giving energy companies greater opportunity to trade outside of their own countries, the EU's newly liberalised energy market should provide consumers with more choice and lower prices," he said.

Green MEPs Claude Turmes (Luxembourg) and Rebecca Harms (Germany) criticised the outcome for being "inadequate". "We recognise that there are important steps forward in re-regulation, such as granting extended powers to the national energy regulators and ensuring better protection for the most vulnerable consumers. However, in light of the new series of mega-mergers in the European power sector, it is clear that the new package of legislation is not strong enough to contain the almost gangster-like domination of the sector by energy oligopolies," they said.

MEP Anne Laperrouze (ALDE, France) commented that the third package should not be reduced to a single issue on ownership unbundling. "The projections are real: more capacities to the regulators, more rights for the consumers, more transparency to facilitate the development of renewable energies, more technical collaboration between network operators, more cooperation between regulators through the Cooperation Agency, the continuation of energy efficiency, and energy saving, integration tools for better consumption, for example intelligent meters," she said.

BEUC, the European consumer organisation, described the energy package as a "missed opportunity" to advance competition in Europe's energy markets. "Even if the new energy package consequently offers more rights to consumers, these rights cannot be ensured without real competition, and in particular without full ownership unbundling," said Monique Goyens, BEUC director-general.

The European Wind Energy Association (EWEA) stated that the two options to full ownership unbundling offered in the agreement would compromise the EU's binding target to source 20% of energy from renewables in 2020. "Neither alternative will allow fully effective power market competition," said EWEA Chief Executive Christian Kjaer. He added that opt-outs would put a massive bureaucratic burden on the member state and grid operator in question.

Speaking to EURACTIV in an interviewDavid Buchan, a senior research fellow at the Oxford Institute for Energy Studies, said the EU's achievements on energy market integration had been "remarkable". Putting things into context, he said the US electricity system was "very fragmented and segmented" in comparison to the European one, with three grids operating at different speeds and "integrated monopolies," "where outside competition is not allowed".

In Buchan's view, the EU market was much more integrated and coherent. "On the internal market, I think what is being done is just about the maximum that can be done. I don't see any future in having a fourth package of internal market legislation."

On 19 September 2007, the Commission presented its 'third package' of proposals to further liberalise the EU's energy market (see EURACTIV LinksDossier).

The proposals sparked much controversy, particularly over the issue of 'ownership unbundling' - meaning the break-up of large vertically-integrated energy firms like EDF and E.ON, which simultaneously control electricity production and distribution assets.

France, Germany and six other member states led resistance to the unbundling plans. Together, they tabled an alternative proposal in February 2008, which they argued would guarantee a similar result without forcing energy firms to split their energy production and transmission businesses (EURACTIV 01/02/08).

Energy ministers finally clinched a deal in November 2008, agreeing that energy producers from countries which are not fully open to competition would be forbidden to buy up the transmission businesses of energy companies in European countries where full unbundling has been introduced (EURACTIV 13/10/08).

The measure was directed at France, which had been opposed to unbundling, while EDF, the state-owned energy firm, went on a shopping spree across Europe.

Trialogue negotiations - which began between the institutions in January 2009 - were slow to make progress, with the Parliament and EU member states refusing to budge from their initial positions (EURACTIV 12/02/09). The pressure was on, however, as all sides wanted to reach an agreement before the end of the current Parliament's mandate, which ends in June 2009.

On 23 March, EU lawmakers finally clinched a deal on the legislation. Parliament caved in to the Council's insistence that ownership unbundling would only be one of the options on the table, but received provisions to strengthen consumer rights in return (EURACTIV 25/03/09).

  • Shortly before or after summer break: Member states to endorse the agreement.

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