Shortly before the new Commission will take office, the outgoing Commissioner Günther Oettinger presented a comprehensive report on progress towards the completion of the Internal Energy Market.
In February 2011, the EU Heads of State had declared that the Internal Energy Market shall be achieved by 2014. Substantial progress had been achieved to date but in order to reap full benefits more investment was needed in strategic cross-border infrastructure, and developing smart grids for electricity, the Commission summed up findings, adding that common and transparent rules on how the energy grids are used needed to be put in place. The package adopted by the Commission yesterday also reports on the trends and developments of the developing EU Energy Markets and provides separate reports on investments, unbundling and enforcement as well as 28 country-specific reports containing individual assessments of the state of the energy markets in the Member States.
“The integration of the EU’s energy markets is delivering tangible results mainly on the wholesale markets”, the Commission says, naming in particular
- The decline of wholesale electricity prices by one-third between 2008 and 2012 and stability of wholesale gas prices;
- Greater choice for consumers among energy suppliers competing through lower prices and better services;
- Completion of many missing links between countries and projects under construction;
- The increase of cross-border trade between most European countries. For gas, cross-border pipelines are being used more efficiently thanks to common rules on the use of gas networks;
- The legal framework that makes sure that energy companies cannot exclude competitors from access to pipelines or withhold the construction of important infrastructure. Other rules that help guarantee that trading on wholesale markets is fair and prices cannot be manipulated.
2. What Still Needs to Be Done
Regarding the open issues that Commission says that further steps are required to enable the proper functioning of the internal market which allows companies to compete on an equal footing, facilitates the integration of intermittent renewable energy and through correct price signals ensures that energy is produced where it is cheapest and that the most cost-effective investment decisions are taken. For this it is crucial that:
- More investments in infrastructure, including in smart grids, are made urgently. In gas, investments should focus on ending the isolation of the Baltic States and the diversification of supply in many Central-Eastern and South-Eastern Member States. In electricity, linking the grids of the Iberian Peninsula, the Baltic region, Ireland and the United Kingdom better with the EU should be tackled as a priority. By 2020 three-quarters of the EU’s Projects of Common Interest should be completed;
- Electricity infrastructure is used more efficiently and its operation is based on the same set of simple, harmonized rules across Europe. The Commission is preparing to adopt these rules in the coming months;
- Governments intervene only when secure energy flows cannot be guaranteed by the market. Otherwise they may undermine investments in infrastructure and energy efficiency and have a negative effect on consumer bills. The Commission has addressed this issue with its guidelines from November 2013;
- The regional approach is strengthened, which will be essential for completing the internal market as it can bring results faster and is better suited to address local issues.
- Consumers become active players in the energy markets. Also, retail and wholesale markets need to be better linked to allow the benefits to become visible also on retail level.
3. Country Reports – Recommendations for Germany
28 individual country reports inform about the state of the energy market in the Member States.
For Germany the Commission has the following advice:
a. Electricity Market
The report says that the electricity market was relatively well developed, but serious issues existed as regards infrastructure bottlenecks (for more information on progress and delays of grid expansion in Germany, please see here) within the country that also affected neighbouring countries. Problems have been reinforced by the sharp increase in power generation from renewable source (According to Section 1 para. 2 EEG 2014, renewable energy shall account for a share of for 80% in the gross electricity consumption by 2050; currently the share amounts to roughly 28.5%).
The reports recommends:
“In particular, congestion management and transparency provisions for access to the network for the cross-border exchange
of electricity should be introduced and national transmission capacity in the north-south direction reinforced, particularly
in the light of offshore expansion plans and the integration of onshore renewables from wind and solar. Germany should
also finalise its implementation of the European target model for electricity markets by 2014 on all of its borders.”
b. Gas Market
With regard to gas, the Commission advises and criticises that
“Germany should assess the correlation between gas and electricity demand, notably during cold
weather periods (regarding critical situations in the electricity and gas grids in winter 2011/2012, please see here). Infrastructure improvements are needed, as recommended by the Council, to address internal bottlenecks
in the south, limiting north-south gas flows, and constraints in the network preventing gas from underground storage being
fed into the transmission system. Major border points remain congested, preventing cross-border trade.”
4. Interim Report on Energy Costs and Subsidies in the EU Across Power Generation Technologies
Part of the package adopted are also the interim results of the external study commissioned by the Commision on “subsidies and costs of EU energy” that aims at helping to close the knowledge gap by quantifying the extent of public interventions in energy markets in all 28 Member States.
The Commission sums up the interim results as follows:
“The results show that in 2012, the total value of public interventions in energy (excluding transport) in the EU28 were between €120-140 billion. Unsurprisingly, and given the efforts to expand the share of renewable energy in the EU’s overall energy consumption, the largest amounts of current public support in 2012 went to renewables, in particular to solar (€14.7bn) and onshore wind (€10.1bn), followed by biomass (€8.3bn) and hydropower (€5.2bn). Among conventional power generation technologies, coal received the largest amount in current subsidies in 2012 with €10.1bn, followed by nuclear (€7 bn) and natural gas (about € 5.2 bn). The figures specifying support across technologies do however not reflect the free allocation of emission certificates nor tax support for energy consumption. Including these factors would reduce the gap between support for renewables and other power generation technologies. The study also discusses the order of magnitude of historical interventions, which are considerable for coal and nuclear. Further work is however needed to arrive at more solid estimates of historical subsidies.
The interim report also presents figures on the cost competitiveness of the different power generation technologies. The estimated ranges reflect costs of new power generation without public intervention (levelised costs). Costs for producing one MWh of electricity from coal are in a range around €75. Electricity from onshore wind is generated at only somewhat higher costs. Costs for power from nuclear and natural gas are in comparable ranges around €100/MWh. Solar power costs have fallen considerably since 2008 to about €100-115/MWh depending on the size of installations.
The interim report also presents estimates on external costs across power generation technologies. These are costs that are not reflected in market prices, such as costs of environmental and health impacts and the impact of climate change. The methods for quantifying external costs come with a high degree of uncertainty, and the report only aims to identify orders of magnitude for external costs. It puts the figure of external costs of the EU’s energy mix in 2012 at between €150 and 310 billion.”
Source: European Commission webpage, press release Internal Energy Report, press release “subsidies and costs of EU energy”
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