Memorandum by the Association of Electricity
Producers
1. The Association of Electricity Producers
(AEP) represents large, medium and small companies accounting
for over 95% of the UK generating capacity, together with a number
of businesses that provide equipment and services to the generating
industry. Between them, the members embrace all of the generating
technologies used commercially in the UK, from coal, gas and nuclear
power, to a wide range of renewable energies.
2. The Association welcomes the opportunity
to respond to the Sub-Committee's inquiry on the Reform Treaty.
EU legislation now has a significant impact on the UK energy sector.
AEP is an active participant in the European policy debate both
via EURELECTRIC (the European association for the electricity
sector) and through direct contacts with the EU institutions.
The comments below relate to the Energy Chapter included in the
new Treaty (Art. 176a).
Are the Changes in the Treaty new or do they represent
Consolidation of previously agreed Directives?
3. The Energy Chapter, which is included
in the Treaty for the first time, sets out four elements of an
EU energy policy:
— ensure the functioning of the energy
market;
— ensure security of supply;
— promote energy efficiency and new/renewable
energies; and
— promote interconnection.
4. These new provisions increase the profile
of energy as an EU activity but it is debatable how far they give
the EU an increased competence in the field of energy. Existing
Treaty articles on the single market (eg Art. 95) and on environment
(Art. 174-5) already cover two of the three "pillars"
of energy policy (competitiveness and environmental protection).
Consequently, the EU has had de facto influence on national
energy policies for some time through single energy market and
environmental legislation. As environmental issues, particularly
climate change, have risen up the policy agenda in recent years,
this influence has become more pronounced.
5. Until now there has not been a specific
legislative base for EU measures on security of supply, and the
reference to security of supply is probably the most significant
element in the new Chapter. Even so, Directives on both gas and
electricity security of supply have been agreed in the last few
years (2004/67 and 2005/89 respectively). The two Directives above
relate primarily to operational (real-time) security of supply
and infrastructure investment and not to the important issue of
primary fuel choice. However, Art. 176a.2 makes clear that Member
States are entitled to determine their own fuel mix, so it is
not certain that the security of supply competence will make a
significant difference.
6. A Directive on renewables was adopted
in 2001 (2001/77) (and will soon be superseded by new proposals.
A whole range of measures has been agreed in the field of energy
efficiency—Directives on the Energy Performance of Buildings
(2002/91), Eco-Design of Equipment (2005/32) and Energy Services
2006/32). Energy interconnection is already covered in the Treaty
by an Article on Trans-European Networks, and measures to promote
new interconnection form an important part of the Third Liberalisation
Package currently being discussed.
7. Consequently, it can be seen that the
Commission has been able to bring forward proposals in all these
areas even without an Energy Chapter, by using other provisions
in the Treaty, particularly the single market and environment
articles.
What is the Impact of the Changes on the UK and
the EU?
8. While Treaty provisions certainly play
a role, the major factor determining the impact of any EU policy
is how far national governments are prepared to work together
and pool their interests. Any proposals put forward under the
Energy Chapter would need to win the support of a qualified majority
of national governments.
9. Although progress towards a single energy
market has been slow, there are now some signs of increased integration
of the European market, particularly in electricity. Energy regulators
and transmission system operators are starting to work together
more closely and the Third Liberalisation Package will require
even greater coordination, particularly in relation to the planning
and construction of new interconnectors. The Commission is proposing
an EU regulatory agency, which will coordinate the work of national
regulators where necessary. As EU Member States become more interdependent
in terms of electricity and gas supplies and as cross-border trade
increases, they may want to collaborate more closely on security
of supply issues, but this will probably be a gradual development.
10. Considerable steps have been taken to
harmonise environmental standards across Europe, and much of the
framework for tackling climate change and other environmental
issues is now set at EU level. Policy initiatives such as the
EU Emission Trading Scheme and Large Combustion Plants Directive
have a significant effect on national energy policies.
11. On the other hand, individual Member
States have very different attitudes to the main energy sources
for power generation, i.e. coal, gas, nuclear and renewables.
It remains to be seen whether these attitudes will converge over
time and whether the aspiration of "speaking with one voice"
to external energy-exporting countries will be realised.
12. One impact of the Chapter could be to
strengthen the relative position of DG Tren within the Commission:
those Directorates which can call on specific Treaty powers are
generally regarded as having more influence than those which cannot.
Greater consideration of energy impacts within the Commission
could be a welcome development, provided that an overly interventionist
approach to energy policy is avoided.
13. The impact of the Chapter on the UK
will depend on what policies are adopted. In recent times, the
EU has promoted market-driven approaches to energy, both through
efforts to liberalise markets and through market mechanisms such
as the EU Emissions Trading Scheme. While implementation of these
policies has sometimes fallen short of expectations, the Association
supports the general approach taken (see for instance AEP's recent
comments on the Third Package).
14. There are, however, some worrying signs
that European policy could become more interventionist and could
try to prescribe outcomes. This is a particular concern in relation
to the binding renewable energy targets which the Commission is
about to propose. While the Association strongly supports the
growth of renewable energy, these targets could be set at such
a high level that they undermine existing policy instruments such
as the EU ETS. This could threaten confusion in public policy
and may lead to investment in plant which is less efficient. AEP
would have major concerns about any attempts to prescribe the
fuel mix centrally or to pick "winning" technologies,
whether at EU or national level. It is important that Europe avoids
a dirigiste approach to energy policy which could call into question
the efficiency gains achieved by competitive energy markets.
What is the Significance of Energy appearing in
the Treaty for the first Time?
15. After a long period when energy was
regarded as a primarily national issue, there has recently been
increased interest in a establishing a more coordinated EU energy
policy. This reflects a number of developments:
— growing EU imports of energy, particularly
gas, leading to some concerns about future supply vulnerability.
— a number of supply disruptions in
the last five years, notably short interruptions of Russian gas
supplies and a major power blackout in Italy.
— increasing integration of the EU's
electricity and gas markets and the emergence of some pan-European
players.
— a tightening of the global energy
supply/demand balance leading to higher energy prices and a higher
political profile. As a result, energy has become more important
in the EU's external relations policies.
In the light of these factors, the European
Council held at Hampton Court in October 2005 called for a new
European energy policy. The Energy Chapter reflects this new policy
environment and is intended to implement the priorities set by
the heads of government.
What is the Impact of Shared Competence?
16. As outlined above, EU legislation already
has an influence over national energy policies, and this may increase
as the EU electricity and gas markets become more integrated.
On the other hand, energy supplies are so crucial to the economy
that national governments will want to retain some significant
energy policy levers. Shared competence for energy is therefore
probably inevitable and the question is where the dividing line
should be drawn between national and EU responsibility.
17. The Chapter contains an important safeguard
for national energy policies in Art. 176a.2. This clause makes
clear that Member States retain sovereignty over national energy
resources and have the right to determine their energy mix and
the structure of their energy supply. The Association regards
this clause as important for maintaining a balance in the respective
roles of the European Union and individual Member States.
What is the Effect of the new "Solidarity"
Clause?
18. The concept of energy "solidarity"
is relatively new and remains to be sketched out. The intention
is that any Member State falling victim to an energy emergency
should be able to call on the assistance of other Members States.
The clause reflects concern, particularly in the new Member States,
about energy dependency on external suppliers.
19. As cross-border trade in electricity
and gas develops, Member States will become more interdependent
and scope for mutual support should increase as further infrastructure
is built. "Solidarity" arrangements could be helpful
in alleviating the impacts of an energy crisis, but the detail
will have to be carefully considered. For instance, where a Member
State has invested heavily in gas storage facilities, it may take
the view that national customers or taxpayers, who have funded
the investment, should be the main beneficiaries, rather than
others who have not borne such costs.
20 December 2007
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