Energy market

Energy market

The Internal Energy Market is Now!

We must create a well-integrated, open, well-regulated and competitive internal energy market to avoid the dilemma of choosing between "energy poverty" and "social poverty". The challenge is more than urgent.

  • Almost all human activity requires energy. The price of whatever we buy, whether it is goods or services, depends on the price of energy. Excessive prices, unstable supply, lack of competition among distributors and various other energy-related challenges not only make our - individual citizens' - lives more difficult and expensive. On a broader, international scale, they seriously endanger our efforts to increase the competitiveness of Europe. And we must be competitive in order to move forward from the crisis!
  • When Jacques Delors and I launched the initiative of the European Energy Community (EEC) in May 2010, we saw the Internal Energy Market as one of its pillars. Today, sixty years after the beginning of the great European project, we can hardly consider the integration to be completed without an integrated market in energy.
  • This was not only my opinion. EU Member States shared this belief and committed themselves to launching the market by 2014. This would be an optimistic deadline - much has been achieved but much more remains to be done. In November 2012 the European Commission issued a document in which it mentions in which areas we are still lagging behind. As a rapporteur whose role is to define the European Parliament's position on the document, I am now responsible for the implementation of the Internal Energy Market on behalf of the Parliament. In late June, my report on "Making the Internal Energy Market Work" will be subject to vote of the Committee on Industry, Research and Energy. All members of the EP will then vote on the report during the plenary session in Strasbourg in September.
     


What benefits will the Internal Energy Market bring?

Individual consumers

  • Triple "C".A user-friendly IEM will offer consumers a "triple C" set of benefits: clarity of information, control and choice. Energy bills will become more transparent. Consumers will better understand the rules of the market and will know which energy supplier they can choose. They will thus be able to make well-informed choices with the help of user-friendly tools to compare prices. This, together with the introduction of smart meters, will give them much better control of the cost of the energy. The resulting consumer savings are expected to reach 13 billion euro annually.
  • Lower prices. Individual consumers should benefit from the integrated market via lower prices enabled by increased competition.
  • Protection of vulnerable consumers. An EU-wide system of protecting consumer rights will be put in place. Vulnerable consumers will be covered by the necessary protective approach, and the IEM will make dispute resolutions easier.

Industry and business

  • For the corporate sector, the creation of a single market in energy with half a billion consumers will mean new investments opportunities, incentives to remain active in the EU, to maintain employment and to create new jobs and, last but not least, opportunities for strengthening the economy with high-end technological innovation.

 

What are the main challenges?

  • Markets are not sufficiently interconnected. National energy grids are not compatible with one another. This brings about challenges and risks such as isolation - so called energy islands, and energy flow distortions. The lack of interconnectors is particularly problematic in Central and Eastern Europe. This poor interconnection makes it impossible to buy external energy at lower prices through economies of scale: to act as one when negotiating energy purchases, we need an integrated and interconnected market first.
  • European companies pay four times more for gas than their American competitors. Electricity prices in the EU are among the highest in the OECD and they are still on the increase. By 2035, they are predicted to be 50% higher than in the USA and 300% higher than in China. At the same time, energy prices are highly diversified throughout the European Union. For example, electricity in Slovakia costs twice as much as in Estonia.

  

  • To cover our demand, we are now importing over 50% of the energy we consume. By 2035 this dependency can grow to as much as 65%. We are particularly dependent on imports of petroleum (90%) and gas (more than 60%). Central and Eastern Europe is less dependent on energy imports than the "old" EU-15 countries (37% compared to 57%) because we still use our own resources, especially in solid fuels. But the importance of solid fuels will decrease, in compliance with the EU's environmental goals, and the imports will have to grow. In contrast, the USA is expected to become fully independent on external imports of gas and oil by 2030.

  

  • Consumers in the EU do not have access to clear information that would enable them to take advantage of affordable energy.  They lack tools to compare the offers of different suppliers, and they do not know whether it is possible to profitably switch between providers. In many Member States switching is not possible at all; in some others this possibility exists but it fails to provide more advantageous prices or increased quality of service. It is estimated that on the whole, consumers in the EU are thus loosing potential savings of 13 billion euro per year.

Which changes are urgently needed?

  • Infrastructure. Our top priority must be ensuring full EU-wide system connectivity and its cost-effectiveness, together with necessary investments in new infrastructure. A huge part of necessary connectivity investments may not be commercially viable, and they require serious consideration for funding from national and EU resources. Building interconnectors, facilitating cross-border trade in energy and ensuring better use of the infrastructure is vital for providing energy security.

  

  • Consumers must come first.The goal is to create an energy market that will allow for a win-win game of all players, from energy producers to the end client. It should be rebalanced, so that consumers are able to play a more active role in stimulating market competition, moving from passive service recipients to active aware consumers and prosumers.
  • Prices. Limiting the excessive price regulation by Member State governments. Price regulation is often necessary, before markets mature towards full competitiveness. But rigidly regulated prices not only disadvantage consumers instead of supporting them - they also limit competition, innovativeness and investments. Excessive prices are, in a part, the result of outdated pricing mechanisms, particularly the oil indexation of gas. Such contracts should be renegotiated and updated.
  • Smart grids.Smart meters will enable consumers to better control their energy consumption, for instance by indicating the periods of cheapest energy availability. If smart meters are combined with better advice and information, they can help consumers almost immediately reduce their consumption by as much as 4%!

  

The good news is that the creation of the IEM requires no new legislation. It is all there, above all in the form of the Energy Packages. Member States must urgently implement all the existing legislation so that we have a fully integrated and competitive energy market as soon as possible. The European Commission should use all available means to motivate EU countries to fulfil this task. Winston Churchill once said that attitude is a small thing that makes a big difference. The Member States are on the horns of a dilemma - whether to demonstrate an attitude of close cooperation for the sake of their citizens or to delay the crucial steps, endangering European competitiveness. Big difference or indifference - it is up to us to decide.

 

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