European Scrutiny Committee Contents


13 Working of the internal energy market

(34415)

16202/12

COM(12) 663

Commission Communication: Making the internal energy market work

Legal base
Document originated15 November 2012
Deposited in Parliament20 November 2012
DepartmentEnergy and Climate Change
Basis of considerationEM of 6 December 2012
Previous Committee ReportNone
Discussion in CouncilMay 2013
Committee's assessmentPolitically important
Committee's decisionCleared

Background

13.1 According to the Commission, the EU must ensure that the internal energy market operates efficiently and flexibly, and it says that, despite the advances made in recent years, more must be done to integrate markets, improve competition, and respond to new challenges. It also notes that its Energy Roadmap 2050[47] said that these steps are essential in order to make the transition to a low-carbon economy and to maintain secure supplies at the lowest possible cost, and it points out that the necessary improvements in generation, transmission and distribution infrastructure will require investment of around €1 trillion.

13.2 The Commission also observes that the European Council has set a clear deadline of 2014 for the completion of the internal energy market, involving the putting in place of essential technical rules at EU level, providing regulators with the necessary tools and resources to enforce legislation effectively, and the further development of cross-border markets for both gas and electricity. However, it notes that the EU is currently not on track to meet this deadline, with a growing tendency to adopt inward-looking and nationally inspired policies, and it has therefore sought in this Communication to reiterate the benefits of an integrated European energy market and to ensure that this fulfils its potential as soon as possible. It also notes that this initiative is one of the twelve priority actions it identified recently in its Communication "Single Market Act II".[48]

The current document

13.3 The Commission suggests that the benefits of open, integrated and flexible energy markets which have been achieved so far include:

  • greater choice and flexibility for customers;
  • more competitive pricing;
  • more liquid and transparent wholesale markets;
  • more secure supplies; and
  • greater coordination and transparency in relations with third countries.

13.4 In addition, it says that there are a number of areas where on-going work is likely to bear fruit soon, namely:

  • the potential for more consumers to control their energy costs by switching suppliers;
  • better control of consumption through smart technologies, including home appliance automation;
  • more competition through better access to transmission grids; and
  • more efficient use and development of grids.

13.5 However, the Commission also points out that there are challenges which need to be tackled urgently in order to complete the internal energy market by 2014, and it sets out proposals for dealing with these under the following headings:

Enforcement

The Commission says that this includes implementing the Third Energy Package[49] effectively, thereby ensuring a level playing field for all companies in the market and that the current divergence in energy market development between Member States is eliminated.

The consumer interest

The Commission says that there is a need to help consumers take advantage of opportunities, including the delivery of diverse and innovative services to customers (for example by removing price regulation to allow new market entrants), and providing targeted assistance to give vulnerable customers better protection.

Transition

The Commission says that there is a need to make energy systems fit for the future by replacing the EU's ageing systems, decarbonising them, and making them energy efficient, and increasing security of supply. It believes that this can be achieved by letting the market work to encourage the appropriate investments; by optimising State intervention to steer the energy mix to low carbon and ensure security of supply in electricity; and by more integration, faster modernisation and better use of grids, particularly to accommodate distributed generation and demand-side participation.

13.6 In the latter case, the Commission addresses the issue of capacity mechanisms to deliver sufficient investment in generation to ensure security of supply, and cautions that these can be counterproductive if they are not well-designed, and/or are introduced prematurely or without proper coordination at EU level. It is therefore launching a public consultation on security of supply in electricity, generation adequacy and the internal energy market, with a deadline of 7 February 2013 for responses.

13.7 The Communication concludes with a proposal for an Action Plan (Annex) to ensure the success of the internal energy market, which summarises the areas in the Communication where more work needs to be done. The Communication is also accompanied by a number of Staff Working Documents, reporting on investment projects in energy infrastructure; on energy markets in the EU in 2011; and on infringement procedures on the Second and Third Energy Packages.

The Government's view

13.8 In his Explanatory Memorandum of 6 December 2012, the Minister of State at the Department for Energy and Climate Change (Mr John Hayes) says that the Government welcomes this Communication as the UK has been the driving force behind the liberalisation of EU energy markets since the early 1990s, and is strongly supportive of integrated and well functioning energy markets since they are essential if the transition to a low-carbon economy and a secure energy supply is to be accomplished at least cost to consumers. It therefore considers it important that the Commission should monitor progress, and that it continues both to take infraction proceedings against Member States which have not fully transposed the Third Energy Package and to enforce antitrust and State Aid rules in the energy sector.

13.9 However, the Minister also observes that the single energy market is still under development, and that consequently some measures to address security of supply risks still need to be taken. He welcomes the Commission's recognition of the high levels of switching in the UK, as part of the measures to get a better deal for consumers, and notes that many Member States already have or are in the process of developing capacity mechanisms to address supply risks at national level. He adds that, as set out in its Electricity Market Reform package published on 29 November 2012, the Government is legislating for the introduction of a Capacity Market, which is similar to the type of mechanism planned in France, and it agrees with the Commission on the need to consider together how such measures fit with the development of the internal energy market (where it is working with the Commission and other Member States to ensure that the Capacity Market works efficiently with the single market). He therefore welcomes the Commission's initiative in publishing a consultation paper, and says that the Government is planning to respond.

Conclusion

13.10 This document provides an interesting resumé of the steps taken so far to develop an integrated European energy market, and of the measures which are still needed if the 2014 deadline set by the European Council is to be met, and we are therefore drawing it to the attention of the House. However, we do not think it raises any issues which require any further consideration, and we are therefore clearing it.


47   (33563) 18597/11 + ADDs 1-6: see HC 428-xlix (2010-12), chapter 14 (1 February 2012). Back

48   (34297) 14536/12: see HC 86-xviii (2012-13), chapter 1 (31 October 2012). Back

49   As set out in Directives 2009/72/EC and 2009/73/EC, and in Regulations (EC) No.s 713/2009, 714/2009 and 715/2009. Back


 
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Prepared 2 January 2013