Energy in Europe

1. Energy in Europe A necessity for all economic and human activity

2. Energy and other EU policies

3. Three pillars of EU energy policy • COMPETITIVENESS • complete single energy market • cut Europe’s energy bill • create jobs • boost R&D and create markets in which EU can become a global leader • SUSTAINABILITY • reduce environmental degradation and greenhouse gas emissions • increase energy efficiency • increase role for renewables • SECURITY OF SUPPLY • reduce Europe’s dependence on energy imports • help balance trade

4. Shifting Priorities • 1951–73: balanced supplies and competition • 1973–85: security issues dominant • 1985– : market-led but increasingly complicated by emerging environmental concerns • 21st - security resurgence? Environmental issues strong. Competition to be completed

5. Medium term objectives: 20/20/20 • By 2020 • European greenhouse gas emissions (GHG) 20% below 1990 levels • Renewable share to increase to 20% of EU energy consumption (currently about 13% but varies across member states) • EU energy efficiency to increase 20% • By 2030 • GHG emissions 40% below 1990 levels by 2030 • Minimum 27% of renewables in energy consumption • Increased energy efficiency of 27% • Long term objectives: Energy Roadmap for 2050 • GHG emissions to be 80–95% below 1990 levels

6. The competitive pillar: the case of the single electricity market

7. “Electricity should, as far as possible, flow between Member States as easily as it flows within Member States ” European Commission, ‘Medium Term Vision for the Internal Electricity Market’, 2004

8. Why electricity (1)? • Key inputs for many businesses – costs, competitiveness • Fracking has given US business an advantage Source: International Energy Agency

9. Why electricity (2)? • Traditionally, a very regulated market • An example of potential transformative power of liberalisation but results disappointing • EU electricity market worth approximately 5% of EU GDP – an important sector in its own right • Big integrationist role → TENs and deregulation • General and sectoral specific aspects to liberalisation – some highly technical

10. Problems with liberalising electricity • A strategic sector • Markets closed and heavily regulated pre-SEM • regional or national monopolies • mostly state – some private monopolies • Resistance of incumbents • Public service obligations • End of long term contracts? investment impact? • All stages of electricity production seen as ‘natural monopoly’ – i.e. from generation through to supply

12. Why liberalisation breakthrough? • ‘Natural monopolies’ view eroded via disaggregation of activities and liberalisation in some states – e.g. electricity: • generation (production) • transmission (long distance, high voltage transport) – tends to remain monopoly activity • distribution (last stage, low voltage transport to end user) • supply (trading) – e.g. sales, metering, etc.

13. Three electricity packages • Classical SEM/liberalisation rationale • end of closed national markets → competition, choice, competitiveness and lower prices

14. First two Electricity Directives Stage 1: 1996 Directive – ⅓ market to be open by 2003 • By 2001 – 66% of EU market open • from 100% in UK, Finland, Sweden, Germany etc. to less than 5% in France, Ireland, Portugal, Greece Stage 2: 2003 Directive • Deadlines for full opening of market • 1 July 2004 for all business customers • 1 July 2007 for households • Other technical measures to help market operate more effectively

15. Stage 3 • Response to poor results from first two stages and 2007 Commission inquiry into competition in gas and electricity markets: • overly concentrated markets – 3 biggest generators had >60% of market in 20 member states • insufficient integration between member states – infrastructure and regulation • lack of transparent market information – not enough switching • inadequate unbundling between network and supply interests • customers tied to suppliers via long term downstream contracts

16. Key features of 3rd package • 3 March 11 – target date for transposing of package into member state law (not met) • 5 highly technical legal acts • Unbundling – separation of transmission networks from supply and generation • solves conflicts of interest – prevents network operators favouring their own energy production and supply companies • 3rd country aspect – 3rd country wishing to acquire interest in or control over an EU network will have to comply with same unbundling requirements as EU companies – aimed at Gazprom?

17. Regulation: • must be truly independent from industry and government • statutory powers and duties to be strengthened: decisions will be binding on companies and will have power to impose penalties • will be required to co-operate with regulators from other member states • Agency for the Co-operation of Energy Regulators (ACER) set up • not a European regulator but provides framework for co-operation among national regulators • some powers for cross-border issues • e.g. exemption requests for infrastructure projects involving more than 1 member state

18. new European network for Transmission System Operators (TSOs) • to develop common commercial and technical codes and security standards • Consumer protection • to strengthen and increase transparency of retail markets Commission also showing increased willingness to use competition policy instruments to prise open energy markets • e.g. 2008 investigation into E.On’s alleged restrictive practices

19. Need to increase trade • Electricity trade exists but constrained by inadequate interconnections – reduces competition possibilities • Matter of physical infrastructure • Question of regulation of cross-border trade • Import capacity less than 10% of installed capacity – France, Greece, Ireland, Italy, Portugal, Spain, UK (Germany – 11%)

20. Competition – the future? • More Commission legal challenges to open markets properly • Utilities – one of least internationalised sectors – liberalisation is changing this • M&A activity and restructuring to continue – has been intense and can raise competition issues • Electricity changes to be mirrored by gas – more slowly • Cannot be separated from other energy policy concerns – environment and security

21. Security of supply

22. What is energy security? – an umbrella term Source: Cambridge Energy Research Associates

23. Energy security? • Stakeholder perspectives • Consumers: enough supply to meet demand at reasonable prices without interruption • Producing countries: security of demand and revenue • Oil and gas companies: access to new reserves ability to develop new infrastructure; stable investment regimes • Policy makers: supply disruption risks; security of infrastructure; geopolitical concerns

24. Energy insecurity growing • Declining indigenous production – all fuels • Increased demand from China, India, etc. • EU dependence on energy imports steadily increasing for decades

25. Energy import dependency by member state, 2013 % Wide variation in import dependency among member states Source: Eurostat energy database

26. European import dependency • Europe’s dependence on energy imports to increase further in next 10–20 years • Increasing dependency on Middle East (oil) and Russia (gas) • potential for commercial/political blackmail • Ukraine gas: 2006, 08 and 2009 • Belarus gas: 2010 • political instability/conflict – e.g. Russia–Ukraine conflict and turmoil in Middle East

27. What is the energy security problem? • Will Europe become more and more dependent on countries it does not trust for its energy supplies? • Will Europe be able to obtain oil and gas supplies? • Will the carbon emitted in the burning of these fuels create unsustainable global climatic trends?

28. Policy response: 1. Promote essential infrastructure • Baltic interconnection • Develop Southern Gas Corridor from Caspian and Middle East – (i.e. bypass Russia) • Develop LNG capacity – important for member states dependent on one supplier • Mediterranean energy ring – link Europe with southern Mediterranean Vast solar and wind potential • North–South gas and electricity links with Central and South-East Europe • North Sea offshore grid – connect national grids and plug in offshore wind projects

29. Policy response: 2. Greater focus on international relations • Improve physical, commercial and political links with key external suppliers: • Norway • Russia • Caspian countries • OPEC • 2006 European Energy Community – extend SEM and other energy initiatives to Balkans • Recognise common producer and consumer interests

30. Examples of EU–Russia tension: interplay between economics and geopolitics • Earlier Ukrainian and Belarusian gas crises have hardened Western attitudes • Tensions between Moscow and Estonia, Lithuania, Poland and others • Russian reluctance to ratify the Energy Charter has sparked interest in alternative transport routes • Forced sale/renegotiation of license held by Western firms • Fears of Russia’s supply chain • Ukraine – impact of sanctions and uncertain long term outcome of the dispute

31. Policy response: 3. Promotion of energy efficiency • Improve efficiency – reduce consumption – helps security and shows interaction of 3 pillars • Myriad of initiatives • Buildings • Labelling • R&D • Finance • 20:20:20 and 2050 Energy Roadmap

32. Policy response: 4. Greater use of indigenous supply • Role of coal and nuclear? • Future of fracking in Europe? • Greatest potential = renewables • Currently c. 10–13% EU final energy consumption • 20% of total energy consumption by 2020 and 27% by 2030

33. Environment

34. Sustainability • Helps security of supply • Energy central to many environmental issues and the subject of key initiatives • Emissions trading schemes • Promotion of energy efficiency • Carbon capture and storage • Energy technology innovation • Increased use of renewables

35. Renewable energy as % of total consumption

36. Benefits of 20% energy savings target by 2020 Source: European Commission estimates