6 Creation of internal energy market:
progress report
| (30498)
7555/09
+ ADD 1
COM(09) 115
| Commission Communication: Report on progress in creating the internal gas and electricity market
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| Legal base | — |
| Document originated | 11 March 2009
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| Deposited in Parliament | 17 March 2009
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| Department | Energy and Climate Change
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| Basis of consideration | EM of 6 April 2009
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
6.1 In recent years, the Community
has adopted a number of measures to liberalise its internal markets
for electricity and gas, which it says have enabled the sectors
in question to adapt better to economic and environmental developments,
not least those arising from climate change. At the same time,
it says that the full potential of liberalisation has yet to be
realised, either because Member States have not properly implemented
existing legislation, or because the need for new legislation
has become apparent. It has therefore sought in this progress
report to identify the current shortcomings, and to indicate the
areas in which further action is needed.
The current document
6.2 In its progress report, the Commission highlights
the following issues:
Implementation of legislation
The Commission notes that, more than four years after
the 1 July 2004 deadline, implementation of Directives 2003/54
and 2003/55[38] is still
not entirely complete, and that a number of Member States (including
the UK) have only brought their national laws into line with Community
legislation after the receipt of a reasoned opinion. Despite this,
it says that shortcomings still exist in particular on the powers
of national regulatory authorities to impose penalties and to
enforce transparency.
Market integration
The Commission observes that a key prerequisite for
integrated European
markets is the need for proper interconnections, and for those
be used efficiently. It suggests that the magnitude of congestion
rents on the electricity markets points to the need for greater
investment in cross-border capacity if full market integration
is to be achieved, but that it is encouraging to note a clear
trend towards increased volumes being traded on the power exchange
spot market, even if traded volumes still account for only a modest
share of overall consumption In the case of gas, it notes that,
following a 44% increase in 2006, the volumes traded at the gas
hubs rose by 33% in 2007, though again the volumes concerned are
relatively low compared with the overall market.
The Commission notes that several projects are seeking
to boost market integration by providing new infrastructure, and
that some major new infrastructure projects have received exemptions
from regulated third party access under the relevant legislation
governing cross-border exchanges in electricity and gas. In addition,
it says that concrete progress has been made as a result of regional
initiatives: in the gas sector, these include a new LNG terminal
in the UK, whilst, in the case of electricity, it cites a cross-border
balancing system on the French-English inter-connector, as well
as inter-connectors between the UK and the Netherlands and Ireland.
Concentration and consolidation
The Commission says that there is a high level of
concentration in the electricity wholesale market, with the three
largest concerns still controlling more than 70% of generating
capacity in 15 Member States, and that the level of concentration
in the gas sector is even larger, with the three largest wholesalers
having a market share of 90% or more in 12 Member States. It adds
that further improvements are also needed in order to have a properly
functioning retail market.
Price trends
The Commission notes that, as the oil price acts
as a reference price for long-term energy supply agreements, gas
prices have been strongly influenced by recent international price
movements (which it points out rose by 36% in the first half of
2008, before decreasing by 64% in the second half). It suggests
that this link is likely to become weaker with a better functioning
gas market, a more diversified supply portfolio, and more favourable
import conditions, adding that, as a result of the time lag in
price review clauses, there should be lower gas and electricity
prices in 2009.
At the same time, it notes wide differences between
Member States in electricity prices for household consumers, which
it suggests is a sign of insufficient market integration, and
in particular differing costs of electricity generation (notably
the fuel mix), the availability of generating capacity, and the
role of competition in the wholesale and retail markets. It also
believes that regulated prices have resulted in differences between
Member States.
Independence of network operators
The Commission observes that there has been some
progress in the unbundling of network operators, but that, although
functional unbundling at the distribution level became compulsory
in all Member States on 1 July 2007, implementation has been slow,
with Member States also continuing to make extensive use of the
derogations permitted. On the other hand, it says that some Member
States have gone beyond current legal and functional requirements
in the case of transmission.
Effectiveness of regulators
The Commission notes that, despite the continuing
efforts of the European Regulators Group for Electricity sand
Gas (ERGEG) and the involvement of a range of stakeholders in
a number of regional initiatives, common standards and approaches
for cross-border trade have not been developed, leading it to
propose[39] in September
2007 that an Agency for the Cooperation of Energy Regulators should
be established, and that the powers of national regulatory authorities
should be strengthened to reinforce their independence.
Consumer dimension
The Commission says that, in order to inform consumers
of their rights, it has organised a Community-wide
campaign and developed a European
Energy Consumer Checklist, as well as a Citizens' Energy Forum
to provide clear straightforward information on the choices available
when purchasing electricity and gas. It also refers briefly to
switching by consumers, pointing out that levels vary considerably
between Member States, with some mature markets —
such as the UK — experiencing
relatively high rates, whilst a number of others showed little
or no activity. Finally, it notes that the co-existence of open
energy markets and regulated energy prices is still quite common
among the Member States, with more than half having regulated
prices: it adds that the adverse effects of this continue to be
a major concern in view of the potential distortion of competition,
and stresses that carefully targeted price regulation providing
protection for vulnerable consumers should not be confused with
maintaining regulated prices for all consumers.
Security of supply
The Commission says that, as indicated in its Second
Strategic Energy Review,[40]
major investments are needed over the next two decades if the
Community is to continue to have a secure energy supply. It notes
that Member States were due to transpose into national legislation
by 24 February 2008 Directive No 2005/89/EC safeguarding electricity
supply and infrastructure investment, with 19 having now done
so: however, it says that the current Community mechanism in Directive
No 2004/67/EC for safeguarding the security of natural gas supply
needs amending as it is not sufficient to ensure a timely response
to any crisis which goes beyond a level with which national measures
can cope.
The Government's view
6.3 In his Explanatory Memorandum of 6 April 2009,
the Minister of state for Energy and Climate Change (Mr Mike
O'Brien) simply points out that, since the document is not a proposal
for legislation or action, it has no policy implications.
Conclusion
6.4 As the Minister has noted, this is an essentially
factual document, and we are therefore clearing it. However, since
it deals with an area of wider interest, we think it right to
draw it to the attention of the House.
38 These set respectively common rules for the internal
markets in electricity and gas. Back
39
(28934) 13046/07: see HC 16-iv (2007-08), chapter 2 (28 November
2007). Back
40
(30198) 15944/08: see HC 19-iii (2008-09), chapter 2 (14 January
2009). Back
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