European energy policy currently stands at a crossroads between further liberalisation or protectionist trends as the European Council and Parliament debate the Third Package on electricity and gas markets. At the core of this impasse also sit concerns around security of supply and environmental targets, with the EU still struggling to square the circle between these competing concerns.
- Awareness of EU institutions, decision making processes and potential policy outcomes on security of supply, sustainability and liberalisation.
- Detailed discussion of the Third Package in relation to institutional and Member State positions and potential outcomes.
- Strategic analysis of EU difficulties on providing for security of supply alongside environmental commitments to 2020 and likely outcomes.
- Critical scenarios and timelines for EU policy outcomes on market liberalisation, security of supply and environmental considerations.
Highlights of this title
The liberalisation agenda has temporarily stalled. This has been accentuated by the credit crisis but resistance was already strong before 2007.
The competing policy agendas of security of supply and carbon reduction measures still remain largely irreconcilable for the EU, particularly as the overall effect of EU ETS is likely to increase European dependence on external gas supplies.
A number of policy outcomes still remain possible; our scenarios suggest that the liberalisation agenda will remain stalled on an EU wide basis but may make progress on a state by state basis, and that competing institutions in Europe will continue to conflict on security of supply and emission reduction targets.
Key reasons to purchase this title
- Understand how EU institutions and Member States work when devising energy policy and key positions taken on strategic concerns.
- Gain critical insight into competing EU policy agendas of security of supply, climate change and market liberalisation across Europe.
- Predict opportunities through different scenarios for the European energy outlook over the next five years to tailor strategies accordingly.
SHOW LESS READ MORE >
The European Union is attempting to create a new, comprehensive legal framework regarding energy issues. The processes, institutions and politics behind this agenda will determine the development and nature of markets, in which utilities operate. In order to prepare for this, utilities must understand the matrix in which EU energy policy is formed and the differing forces driving overall strategy. 1
Decisions on EU energy policy are made in a complex and shifting institutional matrix 2
The EUs energy policy seeks to address three essential issues: market competitiveness, sustainability and security of supply 2
Thus far, the EU has struggled to forge a cohesive policy which satisfies these three competing agendas 3
These agendas compete within a complex and shifting institutional matrix in which the commission plays a central role in formulating and enforcing policy 4
The European Commission is the key driver of all EU policy, by way of initiation and enforcement 5
The commission is distinctly pro-liberalization compared to the council, especially under its current head, José Manuel Barroso 5
The European Parliament remains an advocate of liberalization but has only limited legislative powers to promote this agenda 6
The Council of Ministers is the critical decision making body and represents individual states national interests within the EU 6
This is a non-static model in that changes in the presidency and bureaucracy will precipitate changes in policy direction 7
There is no single EU energy market yet and although the third package will leave the door open to future liberalization, state interests will prevail 8
The European Commission has long held a liberal attitude towards how energy markets should function 8
Gains from the first and second packages have been slow to realize, as reflected in Market Competitiveness Index variation across Europe 10
The commission initially envisaged a third package which would force vertically integrated utilities to separate production and transport assets 11
The commissions proposals have been rejected by a Franco-German led bloc, which instead tabled a Third Way alternative 12
The effective adoption of the TSO model elevates the role of regulators in determining how liberal gas markets will become 12
Contrary to EU legislation, many regulators follow government leads in determining tariffs and are subject to political interference 13
Although effective unbundling of gas assets is now unlikely to take place before 2011, liberalization is not completely off the agenda 13
The European Parliament is willing to accept the councils deal for gas but not for electricity - full unbundling seems non-negotiable here 14
The Third Party Clause proved too divisive: individual member states will rule on third-party bids, with advice from the commission 15
The EU has set itself ambitious renewables targets and a tight schedule in which to achieve them 16
Utilities face an uphill struggle to meet renewables targets 16
Capacity constraints in developing new wind generation assets render these targets unrealistic 18
Although the EU ETS is not designed to increase renewable generation it remains a core part of European attempts to reduce carbon emissions 19
The details of EU-ETS Phase III are currently subject to debate, but the scheme remains exclusively focused on emission reductions 19
The success of Germanys feed-in tariff compared to the UKs ROCs has prompted calls for European support for wind 21
In addition to carbon-focused legislation, the EU has also implemented the Large Combustion Plant Directive to combat environmental acidification 22
EU policies on a system wide or Member State level aimed at sustainability come at a financial cost and could lead to more gas 23
The EU is attempting to improve security through diversifying external supplies and encouraging storage and LNG solutions 24
European indigenous gas production is declining and will continue to do so 24
Gas will play an increasing role in Europes generation mix because it is comparatively clean and there are capacity constraints in renewables 25
As European demand for new capacity grows, gas-fired power generation will drive demand for gas 26
This decline in production alongside growth in demand is precipitating a supply crunch for Europe 27
Despite political friction, Russia will be crucial to meeting Europes gas demand in the long term 28
However, underinvestment, mismanagement and the unstable fiscal regime in Russia present a credible threat to European security of supply 29
Carbon capture and storage may yet render coal a viable, clean solution to Europes security objectives 31
LNG has been mooted as a solution to security concerns and hence Third Party Access rules have been slackened 32
The EU has tried to stabilize supply security by promoting gas storage through lax TPA regimes, arguably with perverse results 33
Although the commission will remain in favor of liberalization as a solution to security threats, regionalism is a more likely outcome 34
The EU will continue to make incremental changes but must make compromises in each field 35
There are key milestones in the future which will affect EU energy policy 35
Liberalization will develop on a regional, rather than pan-EU basis 35
Liberalization is unlikely to develop on an EU-wide basis 36
Environmental policies will be watered-down but not abandoned 37
Environmental policies will be weakened in most scenarios 38
There is little the EU can do to affect external security of supply and would be better served by focusing on internal issues 39
TPA derogation will continue to form a central tenet of internal security policy 40
Conclusions: Legislation can only come about through compromise but even when passed, there is no guarantee this will affect states policies 41
Ask the Analyst 42
List of Figures
Figure 1: EU Energy policy drivers 2
Figure 2: EU bodies and institutional relationships 4
Figure 3: Timeline of Market Liberalization in the EU 8
Figure 4: Market competitiveness in European gas markets 10
Figure 5: As markets liberalize, utilities separate their assets 11
Figure 6: Average gas tariffs for European markets 2005 & 2008 14
Figure 7: EU targets for renewables share of electricity production 16
Figure 8: Factors creating a tight renewables market in Europe 18
Figure 9: Carbon price (Euros per ton of carbon) for Phase I and II of the ETS 19
Figure 10: Since the introduction of a feed-in tariff, German renewable generation has increased at a faster rate than in the UK 21
Figure 11: Intended and unintended results of EU sustainability policies 23
Figure 12: European gas production 1995 - 2007 24
Figure 13: Increased gas-fired generation will account for a majority of overall capacity growth 25
Figure 14: European gas demand by sector, 2005 - 2030 26
Figure 15: EU gas supply and demand projections 2005 - 2030 27
Figure 16: Pipelines to Europe 28
Figure 17: Gazproms exports will not decline significantly, but will not grow sufficiently to keep pace with EU demand growth 29
Figure 18: Timeline of future EU energy policy drivers 35
Figure 19: Future scenarios for the EU liberalization agenda 36
Figure 20: Future scenarios for the EU sustainable energy agenda 38
Figure 21: Future scenarios for EU security of supply 40