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Andris Piebalgs

Energy Commissioner

EU-China electricity: Developing secure and reliable energy supplies

Eurelectric-China Electricity Council Workshop
Shanghai, 21 February 2006

Ladies and Gentlemen,

It gives me great pleasure to be here today in Shanghai and to say a few words at this joint workshop on electricity which has been organised by Eurelectic and the China Electricity Council.

A secure and reliable supply of energy is fundamental to our modern economy and a key driver of economic performance, especially in an environment where global energy prices are increasing. And a secure and reliable supply of electricity in particular underpins our modern way of life and our standards of living. Indeed we have almost come to view a regular supply of electricity at reasonable prices as a fundamental right.

Within Europe, in order to improve economic growth and competitiveness, the EU decided to introduce competition into the electricity and gas sectors to bring them into line with the remaining parts of the economy. On the basis of the second electricity and gas directives, which were adopted in 2003, the EU now has a unique opportunity to create the biggest integrated competitive electricity and gas market in the world.

And this market will not be limited to the borders of the EU: the objective is the creation of a pan-European energy market. The recent signing of the Treaty creating an Energy Community involving the EU and the countries of South East Europe is a first, very concrete step in this respect. Discussions with other countries, such as Russia, the Ukraine, Switzerland and the Maghreb countries are also ongoing to bring their national markets closer to the EU market. Such a widening of the EU electricity market beyond the countries which are Members of the EU will offer increased security of supplies, increased competition and permit an increased level of environmental protection over a wider area.

This process of market opening of the electricity and gas sectors has been progressing in the EU since the implementation of the first electricity and gas directives in 1998 and respectively 2000.

The 2nd Internal Electricity Market Directive from 2003 has set up the necessary legal and regulatory framework to be implemented by Member States. In July 2007 electricity and gas markets in the EU will be completely open to competition.

Full independence of transmission system operators and an adequate level of separation of distribution system operators is necessary for the development of a competitive structure. Energy regulators are needed to oversee network access. Measures to safeguard a high level of services for customers must accompany measures of market opening. These are the key cornerstones of the new directives.

Market opening is having a positive impact. Significant productivity gains have been achieved by the sector and, despite recent price increases, electricity prices have fallen in real terms by 10-15% compared with 1995 figures.

However, the objectives of a real integrated market have not yet been achieved. The most important deficit of the EU wide internal market is a lack of integration of the national markets. Key indicators in this respect are the absence of price convergence across the EU and the low level of cross-border trade. In addition, most Member States have been late in implementing the new rules of the second electricity and gas directives.

In electricity, the lack of market integration is largely due to the fact that the interconnection capacity made available to the market between many Member States is still insufficient to allow a genuine integration of national markets and competitive pressure from imports.

Congestion occurs frequently at many borders within the EU. A sufficiently developed network is key for a functioning competitive market. It is in this area that there is still a lot to do in the EU.

Despite the fact that the creation of the EU internal market is still unfinished business, I am convinced that we will finally succeed. The European model and some of its main elements may prove useful for China when it comes to opening the market, integrating regional energy networks and introducing competition with a view to rendering electricity supply as efficient as possible.

A further consideration is the fact that the supply chain is still largely dominated by the central generation of electricity in large power plants. It is also clear that many of these plants, in Europe as well as China, do not use the most state-of-the-art technologies. Extensive energy efficiency gains could be made by encouraging the market penetration of the more modern technologies. In addition, centralised generation also often involves costly transportation of the electricity to the final consumers via cables which also generate further losses. So whilst centralised generation does have advantages in terms of economies of scale, there is also a waste of energy.

I would also like to mention briefly the new Directive in the EU on Energy End-Use Efficiency and Energy Services which is expected to enter into force this later this spring. The objective is to promote cost-effective energy efficiency through a national energy savings target during a nine-year period, through mandatory national Energy Efficiency Action Plans and by the use of a public sector obligation to publish procurement guidelines and, following these, to purchase energy-efficient equipment, vehicles and buildings. Public bodies may also choose to use energy audits or to apply energy performance contracting. In addition, an obligation is placed on the energy distribution and retail sales companies to make available energy services, energy audits and energy efficiency measures to their customers or alternatively to contribute to an energy efficiency fund.

Energy consumers will also benefit from improved individual metering of their energy consumption and from more informative energy bills. These bills will:

  • Firstly, have to be based on actual energy consumption and be presented in a clear and understandable fashion;
  • Secondly, be presented frequently enough to enable customers to regulate their own energy consumption. Moreover, information on current actual energy prices and new technologies and previous consumption will be included whenever possible.

This information will empower consumers and make them aware of the importance and possibilities of saving energy and money.

By activating national governments, public authorities, energy suppliers, as well as energy service companies and energy consumers, we believe that much of the large savings potential –around 20%--that is available today can be realised cost-effectively and equitably.

Thank you for your attention and I would like to wish you all a very successful workshop.

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