EU Urges Nations to Step Up Power, Gas Market Integration

The European Union urged the bloc’s national governments to step up integration of power and natural-gas markets in order to reduce energy prices and ensure secure supplies.

The 27 EU countries need to deliver on their pledge to implement European legislation, known as the “third package” and aimed at breaking down national barriers by 2014, the European Commission, the bloc’s regulator, said in a policy paper published today in Brussels. Governments should also avoid premature changes to the design of their power markets through the introduction of capacity mechanisms, the EU said.

“When it comes to gas and electricity, citizens and businesses are interested in two things: security of supply at any time and affordable price,” EU Energy Commissioner Guenther Oettinger said in a statement. “We will best achieve this with a functioning European energy market.”

The policy paper adopted today will be sent to member states, the European Parliament and other EU institutions. At stake is an EU campaign to win energy-policy authority from national officials that compares with existing European powers over monetary, antitrust, trade and agriculture matters.

Even 20 months after the deadline, some member states have not yet introduced domestic rules in line with the EU energy legislation, the commission said. The EU regulator, which has the power to sue member states for failing to enact the bloc’s laws, said it will continue pursuing infringement procedures.

Further Progress

The EU should tolerate no delays in completing the internal energy market and should push for further progress to accomplish a cost-effective shift to a low-carbon economy it targets by 2050, according to power industry lobby Eurelectric.

“A quicker implementation of the target models for day-ahead market coupling, intra-day, balancing and forward markets is needed to fulfil the ambitions for an integrated European market by 2014,” it said in an e-mailed statement.

The cornerstone of the EU energy legislation seeks to make dominant power and gas companies such as Electricite de France SA and EON SE improve access to transmission networks for competitors. To that end, EU nations must choose one of three options: force the dominant companies to sell or spin off the transmission business; require them to hand over management of the grid to an independent operator; or oblige them to make the unit more independent through internal actions.

Market Regulation

Another part of the third package established the Agency for the Cooperation of Energy Regulators, or ACER, to oversee national authorities and transmission-system operators, advise European regulators on market regulation and decide on cross-border issues.

A third part created a “European Network of Transmission System Operators,” or ENTSO, for electricity and gas whose task is to develop codes for matters such as grid access, congestion management, interoperability and transparency.

The EU also said it aims to ensure that consumer rights are “properly respected by all market players.” Only nine member states -- Austria, Czech Republic, Germany, Finland, Luxembourg, Netherlands, Slovenia, Sweden and the U.K. -- do not have regulated retail energy prices in place, the commission said.

“Prices set by state intervention do not provide consumers with the best deal,” according to the commission. “They risk giving a false impression of protection that de-incentivizes them from actively exploring better options, including energy efficiency services. Furthermore, regulated end-user prices impede investments.”

Back-Up Plants

The EU regulatory arm also said that a premature move to a system that rewards utilities for running back-up plants when renewable power is insufficient risks fragmentation of the internal market and may hinder investments. Systems that reward availability as well as generation are known as capacity markets.

“Before introducing such mechanisms member states should analyze whether there is a lack of investment in generation and why,” the commission said. “Before member states intervene in the market on a national basis, cross-border solutions should be considered.”

European countries including Germany and the U.K. are considering how to ensure there is enough round-the-clock power output to meet demand as nuclear reactors are being phased out or renewables generation falls short. One alternative is capacity mechanisms that allow utilities to fix prices for guaranteeing backup power supply in advance.

Capacity mechanisms could be used only if “market distortions preventing the functioning of energy-only markets are previously addressed and if their design carefully assess their potential interference in implementing the internal energy market,” gas sector association Eurogas said in a statement.

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