A new EU energy Policy: “Energy Union”

Budapest – ERRA Chairmen Meeting(19 June 2015)Jean-Michel Glachant Director Florence School of RegulationEUI - Florence

2 step in EU energy policy

I. 2004-2014: the two Barroso’s Commissions from “only” internal market… to market + climate change + energy security

II. 2015-2019: Commission Juncker an “Energy Union” Policy: all the internal market & much more than the internal market

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EU energy policy? Not yet in 2004[I.1] Only Internal Marketl Market

First and foremost (Internal Market)¤ because EU Commission strong & legitimate there: Internal Market “raison d’etre” (Single Act 1986 + Maastricht Treaty 1993)

¤ Electricity 1st Package 1996: *“Free Entry in Generation” ** “B2B Consumer eligibility” *** “Free movement of goods at borders”

¤ Second Package 2003 added: full retail eligibility; transparent & market friendly cross-border operation; regulators supporting market building; but cannot get open wholesale pricing & sequence of markets (Day-Ahead to real time)

¤ Third Package 2009 don’t add full EU harmonization of “market design & operation rules” >> but did set up a process to produce it with new Bodies: *ENTSO-E to “EU” the TSOs; **ACER to “EU” the NRAs

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EU energy policy? [I.2] Only market + Grid

• Second to Internal Market (EU Grids)¤ because no power market at all can work if Grids aren’t market friendly

¤ Electricity 1st Package: *“Third Party Access to Grids” ** “Including all borders”

¤ Second Package did add: Regulated access to grids; regulators duties for markets and grids; transparent & market friendly cross-border grid operation, congestion mechanisms, grid capacity allocation

¤ Third Package don’t add full EU harmonization of “market design & grid operation rules” >> but did set up a process to produce it with new Bodies: *ENTSO-E(G): EU GridCodes &EU TYNDP GridPlanning; **ACER : “EU” NRAs¤ NB: Third Package didn’t do EU harmonization of grid tariffs making; of grid country investment & data methodology; didn’t touch Distribution grids issue AND Market Operators (wholesale exchange as PXs);

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2005-09 EU policy beyond the marketWhat was it about?

Great Leap Forward: “EU energy policy” was not foreseen in 2004 & already “packaged” in 2009!• Game Changer 1/ 2005 Hampton Court Council Tony Blair:

long life EU internal Security of Supply > Solidarity Lisbon Treaty 2007 + questioning Infrastructures

• Game Changer 2/ 2007 - Berlin Council Angela Merkel: long life EU GHG & energy sustainability 20-20-20 in 2020)

• Game Changer 3/ 2006 & 2009 Russia-Ukraine: Emergency plans + Gas Security Regulation 2010 + Infrastructure Package 2011-13

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[I.3] EU RES push external to market

• external to Internal Market and EU grids (EU RES)¤ external because RES are *subsidy pushed (not market pulled –energy market or carbon price) and **country regulated (no EU wide system of RES push rules in 2007 -except size of countries RES quotas)

¤ EU got a split: # RES split between “green part” (out of market price & trade order, in “own special circuit”) &”energy flow” (into EU Market & MS Systems)

* RES energy flows circulate through grids to directly enter the demand (while being variable and not dispatched) >> very strong interactions between RES, power system and grids operation

** NonRES can serve only “residual demand”; only what variable RES cannot feed at each moment > very strong market interactions between RES & nonRES (capacity “adequacy” given by amount of working RES)

¤ Small RES > small interactions; Massive RES>> massive interactions6

[I.4] 2012-14 Shift:End RES push & closer market

June 2012: make your choice• June 2012 - Options for RES policy post 2020 / S2: Only “Carbon Price” is

risky and unfavorable to technology innovation / S3: National RES targets risk EU fragmentation and high unit costs but favors decentralization & distributed Gen. /S4 EU RES target and harmonized frame favor costs reduction, cross-border investments, large scale innovation but with +grid & system costs

November 2013: some guide lines• November 2013 - Guide lines for RES support till 2020 / Only small units

& less mature RES (as off-shore & bio-mass) keep FiT / big unit and deployed RES only FiP & Tgy neutral auction (ex: On-Shore or PV 1MW)

January 2014: Berlin 20-20-20 “game over”• January 2014 - Framework post 2020 / *“EU binding”GHGtargets +**“MS

only” for RES & “appropriate “ EU governance for MS action plans

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2nd step in EU energy policy

I. 2004-2014: the two Barroso’s Commissions from “only” internal market… to market + climate change + energy security

II. 2015-2019 Commission Juncker: all the internal market & more than the internal market “packed” in an “Energy Union” Policy

~

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Energy Union is

• Is new policy for EU; Is’nt new institution for EU NO institution created

• ~ political “novelty” Commission Juncker: ‘Vice-President Energy Union’ Sefcovic > Single Commissioner Canete both Climate & Energy

• ~ unveiled only 25th Feb. 2015 EnerUnion = about 25 proposals of action

• ~ in touch with EU Council March 2015 EU Council (Heads of State & Gov.) agreed EC go ahead with EnerUnion

• ~ nevertheless a challenge No institution created: Council of ministers &Parliament have to agree any legislative proposal

• > therefore 25 Ener.Union proposals won’t all succeed: Commission & Council will adapt having seen what blocks / what goes ahead 9

The concept of “Energy Union”: EU Policy with 5 pillars

2015-2019 Commission Juncker: All the internal market & more than the internal market packed in an “Energy Union” Policy made of 5 pillars

~1/ Energy security, solidarity & trust

~2 Fully integrated European energy market

~3 Energy efficiency to moderate energy demand

~4 Decarbonizing the economy

~5 Research, innovation and Competitiveness

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~1/ Energy security, solidarity & trust

1/ Diversification of supply (energy sources, suppliers & routes)

2/ All Member States working together on security of supply

3/ Stronger European role in global energy markets (energy & climate diplomacy)

4/ More transparency on gas supply (agreements with 3d countries)

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~2 Fully integrated European energy market

1/ Hardware: connecting markets through interconnections (PCIs)

2/ Software: implementing 3d Package & upgrading for capacity mechanisms & RES

3/ Enhanced regional cooperation within a common EU framework (Pentalateral, Baltic EMIP, Central & South-East; etc.)

4/ New deal for consumers empowerment (smart technologies; market pricing)

5/ Protecting vulnerable consumers & tackling energy poverty

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~3 Energy efficiency to moderate energy demand

1/ Increasing energy efficiency in the buildings sector

2/ Towards energy efficient & decarbonised transport sector (stricter emission norms; alternative fuels; electric cars)

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~4 Decarbonizing the economy

1/ Ambitious EU Climate Policy (2030 à -40%; ; EU ETS market stability reserve; targeting non ETS sectors)

2/ Becoming N°1 in RES (smart technologies; entering RES into market-based schemes; facilitating cross-border; alternative fuels)

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~ 5 Research, innovation and Competitiveness

1/ R&D next generation RES

2/ smart technologies (grids, homes, appliances, cities)

3/ towards energy neutral buildings

4/ sustainable transport systems

5/ CCS

6/ Highest nuclear safety + R&D ITER

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Commission 25 Feb. proposals?

big Upgrade for Internal Market & Governance

#Market Legislation 2016; retail & wholesale; integrating RES; phasing out non market based support; coordinating Capacity Mechanisms .Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)

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Commission 25 Feb. proposals?

big Upgrade for Internal Market & Governance

#GovernanceReview framework from 3d Package notably for ACER (to ++power of Europeanizing regulation) & ENTSOs (to ++ as regional operational entities to create)Propose guidance for ‘regional cooperation for market integration’ and to act at regional level wih regu. Bodies, MS and stakeholdersCreate ‘Energy Infrastructure Forum’ with MS, Regional coop. Groups, and EU institutions (ACER? Banks?) by late 2015

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2- EU actions for Security of Supply#Internal SoS Revision Gas Regulation by 2015-2016Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)Implementation of existing PCIs with adequate financingStrategy for LNG an its storageCouncil 19-20 March : feasibility of gas joint-buying mechanism

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Commission 25 Feb. proposals?

2- EU actions for Security of Supply

#Ext. Energy Governance Legislation: Revision Decision International Agreement for Commission to intervene ex ante before signature of agreements with 1/3 countriesCoordination Commission / HR-VP / MS to create international diplomacy for energy & climate issues; for international treaties (as TTIP) or within WTO, and launch new initiatives (as agreement with India, with China ;etc) in field RES, Ener.eff, etc.

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Commission 25 Feb. proposals?

Fields of EU actions for sustainability: revise EnerEff directive &make proposals to meet 2030targetRES package by 2016-17 incl.sustainable &cost-effective biomass, biofuelsLegislation to achieve Oct2014GHG target in ETS & non-ETS sectorsLegislation ‘Full Road Transport Package’ covering efficient pricing of infrastructures; rool-out of intelligent transport; enhancing ener.eff

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Commission 25 Feb. proposals?

Fields of EU actions for sustainability: Strategy to facilitate Investment in efficient ‘Heating & Cooling’Create Smart financing for smart buildings fundTo push MS & regions to use more the funds to renovate housings-------------------------------------------------------------------------------------------------------Strategy for transport research & innovation agendaRevision ‘Strategic Energy Technology Plan’

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Commission 25 Feb. proposals?

How to conclude? # Ambitious Energy Union policies drafted 25th Feb.

#Which to work? To fail? #I don’t know! # To be seen in 2015-17…

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Thank you for your attention

Email contact: jean-michel.glachant@eui.eu

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