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Andris Piebalgs

Energy Commissioner

Towards a New European Energy Policy

Public Hearing on Green Paper on a European Energy Policy
Brussels, 22 September 2006

Ladies and Gentlemen,

First of all I would like to thank so many of you for attending today. At the end of this year the Commission will put forward the most important and ambitious energy package it has ever presented, reacting to the call of the Heads of State at the Hampton Court Summit for a European Energy Policy. Producing such a package can only be done on the basis of a full and wide public and expert consultation, something that I place enormous importance on.

Thus, at the end of this year it is my intention that the Commission tables:

  • Firstly, a EU Strategic Energy Review, that will endeavour to provide a vision - a central European energy objective - that will underpin a European Energy Policy and give a practical step-by- step road map on how to achieve this vision.
  • Secondly, the Long-term Renewables Road Map;
  • Thirdly, the Internal Energy Market Review and the final results of the Sectoral Competition Energy Enquiry;
  • Fourthly, a Priority Interconnection and Infrastructure Plan;
  • Fifthly, a Communication on Sustainable Coal; and
  • Finally, a "PINC" Communication on nuclear energy in the EU as required by the Euratom Treaty.

In addition to these documents the Action Plan on Energy Efficiency will also be tabled by the Commission, and it is our intention to put forward a Strategic Energy Technology Plan in 2007.

I would like to focus my comments today on just some of the key issues that will be considered in this package, with the aim of stimulating debate today. In essence this concerns two key questions:

  • What should Europe's essential energy vision be in the coming decades in order to achieve our three core energy objectives of sustainability, competitiveness and security of supply, and what do we need to do to achieve it, and
  • What needs to be done to ensure that the internal electricity and gas markets rapidly develop to guarantee that they work to benefit EU citizens to their fullest potential, as consumers and as employees of energy consuming companies?

Firstly, therefore, the question of what should be Europe's key energy goal or vision, that should underpin the Strategic Energy Review. The starting points for this are, at least for me, rather obvious: (i) global warming, and (ii) the fact that Europe's indigenous energy production is declining and, unless we take decisive action, we will be increasingly dependent on volatile global energy markets. These two challenges need to be dealt with in a manner that contributes to improving the EU's competitiveness.

I firmly believe that climate change will become - or already is - the most important and pressing global challenge facing the world. The science behind global warming is clear and its consequences are becoming ever more apparent. The real issue regarding global warming is that we can act today to bring it under control. If we do not, its disastrous effects will not be felt by us, but by our children and grandchildren. And if we do not act, it really will be too late for future generations to do anything whatsoever about it no matter what measures they might then take. This is not a legacy for which I wish to be responsible, even in part.

In order to properly react to climate change, by 2050 the EU will need to source the clear majority of its energy use from carbon free sources, as will other countries. This has to be the backbone of Europe's energy policy. The starting point for any European Energy Policy therefore, is how to plot a course that meets such an objective whilst making sure that the objectives of competitiveness and security of supply are equally attained.

This, therefore, has to be the starting point - the baseline - for a European Energy Policy. This has the added advantage of positively and progressively addressing the issue of Europe's security of energy supply because, almost by definition, much of the low or zero carbon energy on which we will need to increasingly rely will be local. An over-reliance on imported hydrocarbons makes no sense. Europe needs to manage the risk to its economy posed by high and fluctuating oil and gas prices both now and in particular in the future. Diversifying our energy portfolio meets this need.

The EU has already taken the lead in providing solutions to this challenge: something of which I think that we can all be proud as European citizens. We have introduced ambitious targets for renewals and introduced the carbon trading scheme, starting the process of putting a price on carbon. Although this does provide major challenges, I am sure that it is the correct course: I do not believe that it is sufficient to simply devote funds to low carbon research without taking action now to actually reduce our emissions on a day-by-day and year-by-year basis.

We need to build on this. Thus, in my opinion, is the starting point for developing a shared vision of how Europe's energy policy and its energy mix needs to be shaped in the coming decades.

We therefore need to agree, through the Strategic Energy Review, clear and precise medium and long term goals, in terms of progressively increasing the proportion of local, low carbon energy in our overall energy mix and then plot a path in order to reach it.

This is a journey that will take the duration of about 10 Commissions. It is a long time, but each year that we succeed in meeting the goals we set ourselves is a success of which Europe can be proud. We need to use each year carefully.

In order to achieve this objective we will need to set out a series of milestones and then decide on a step-by-step programme to reach them.

So what might the practical steps be? I would be grateful for your views on the following:

  • Firstly, we need to make a step change on energy efficiency. If I had to identify one policy as my priority, it would be this one. Already much has been achieved, but we have not yet succeeded in making the step change necessary to harness the 20% cost-effective energy savings potential that exists. We need to close this gap, and we need to start now. The Commission is at an advanced stage in preparing an Energy Efficiency Action Plan and I would welcome any further suggestions of key actions that, as Europe, we should take in this field.
  • Secondly, should we agree a medium-term (by which I mean 2030) and long term (2050) target for low carbon energy in the EU's overall mix, with an emphasis on this being locally produced? Subject to minimum agreed common action to support renewable energy, should the choice of how Member States meet their resulting minimum local low carbon energy objectives in terms of their own energy mix be left to subsidiarity?
  • Thirdly, do we need to agree, already in 2007, a new, longer term perspective for the emissions trading scheme, providing stability and transparency to investors towards these medium and long term perspectives?
  • Fourthly, it is self-evident that to achieve these objectives Europe will need more renewable energy. Thus, should the Long-term Renewables Road Map that will be put forward at the end of this year provide for longer term, more ambitious targets? If so, how high should these targets be and what form should they take?
  • Fifthly, it is often said that Europe, by actively addressing global warming before its main competitors, is creating a threat to its competitiveness. So the question is, how do we turn this around and to make it to the EU's advantage?

In addition to the fact that increasing the level of carbon-free and local energy boosts Europe's energy security, for me it is self evident that it is only a question of time before the remainder of the world also takes real and decisive steps to reduce carbon emissions. Low carbon technologies; wind, biofuels, carbon sequestration and nuclear but to name a few will expand exponentially in terms of global trade. The world regions with technological leadership in these areas will be well placed indeed.

At present, we are being outpaced in terms of low carbon research, in particular by the US. This needs to be redressed; we are the only area in the world putting a price on carbon and we let other regions take the lead in developing the technologies that will exploit the resulting economic opportunities. We need to reverse this, making sure that Europe is the global centre of low carbon research and development. Do, therefore, we need a new European Energy Technology Initiative that ensures better, more targeted, result-orientated and co-ordinated spending of the existing research money presently spent at both Community and national levels and, where necessary, to increase it? Do, for example, we need to commit to building 10 industrial size zero-carbon coal plants and 10 second generation bio-fuel plants in Europe over the next decade?

Finally, in order to achieve the very ambitious renewable goals I mentioned, will large scale off-shore wind be necessary? At the same time, will this require an off-shore European Electricity Supergrid and the completion of the Mediterranean electricity ring? This would require us to also rethink how to finance such projects in terms of Energy Trans-European Network funding and in terms of renewable energy support schemes.

I look forward to hearing your views.

The second major issue that I would like to discuss concerns the Internal Energy Market.

The starting point for any such discussion must be competitiveness. Europe has relatively high labour costs; this will not change. We cannot allow our overall cost of capital to exceed that of our competitors. Energy costs are an important - sometimes decisive - factor in the overall cost of capital and we simply cannot permit ourselves the luxury of unnecessarily high energy prices.

An integral element of energy prices in the EU is, now that the full EU energy market opening will take place by mid-2007, to ensure that the gas and electricity markets are truly competitive and indeed European-wide market in nature. Today, regrettably, we have to concede that this is not the case. This was shown in the last Internal Market Report and the Interim Report of the Competition Sectoral Enquiry.

I have a clear objective, and one that I am absolutely determined to achieve: that, by the end of the mandate of the present Commission, we have to be able to state, unequivocally, that all the structures and instruments are in place that will guarantee a competitive, secure and sustainable Internal Energy Market for the benefit of every EU citizen.

This means that the Commission must first and foremost pursue the full and effective implementation of existing measures by Member States, accelerating wherever necessary infringement procedures.

However, in addition, at the end of this year it will be necessary to reach conclusions on exactly which additional measures are necessary.

At the end of this year I will therefore present to the College an Internal Energy Market Communication, reviewing progress. At the same time, Neelie Kroes will present the final results of the competition Sectoral Enquiry into energy markets, an essential additional input into providing an integrated package that must respond to this challenge.

I have not yet reached any final conclusions which new measures will be needed. That is the very important point of the public consultation However, I would like to outline five principal areas where I consider that further action may need to be considered, and on which I would value your views:

1. Protecting EU citizens

Opening markets to competition brings new challenges in terms of consumer protection, or, in EU legal terminology, "public service obligations". We should use the opportunity of this Review and the development of a European Energy Policy to make it clear that the citizen is at the forefront of the EU's concerns. For example, in a number of Member States, effective action has been taken to fight the negative impact of recent energy price increases on the most vulnerable members of our society through "fuel poverty" schemes. In addition, some countries have taken measures to protect against unfair selling practices. These are just examples of measures that should become standard practice across the EU.

Another issue concerns regulated prices. Protecting EU citizens does not mean using more regulated pricing measures. Public Service obligations mean supporting the most vulnerable members of society. However, when regulated electricity and gas prices are generally used in a market economy, it is only a question of time before they result in under investment, a lack of system reliability and a real threat to energy security of supply. At the end of the day, it is real open and competitive markets that brings the best results for customers.

2. The level of effective and equivalent regulation.

At present, the legal competences of national energy Regulators, and their level of independence, differs very widely. Without effective regulation competitive markets will not be completed. In addition, experience has shown that it does not represent an optimal solution to harmonising a wide range of issues that, whilst technical in nature, are essential if we are to get effective cross-border trade.

The questions therefore obviously arise (i) whether a greater degree of harmonisation of the powers and responsibilities of national energy regulators is necessary and (ii) whether a new Community mechanism to ensure the more rapid and effective harmonisation of technical issues that are necessary to facilitate cross-border trade is required?

3. The effectiveness of the independence of network operators from their commercial business activities.

Competition in electricity and gas markets can only work where every single company gets equal and fair access to the transmission and distribution grids. Most electricity and gas networks in the EU belong to "vertically integrated" companies, which sell energy in competition with those companies that are seeking access to their grids. In these circumstances, ensuring really fair and non-discriminatory access to the network will always be an uphill battle. This leads to two imperatives (i) effective regulation as I already mentioned and (ii) as much "unbundling" of the network operation from competitive activities as possible, based on cost/benefit criteria.

At present, EU legislation requires gas and electricity transmission and large distribution grids to be operated at minimum within a separate subsidiary. For small and medium-sized distributors, only separate accounts need to be drawn up and "Chinese walls" put into place. Notwithstanding this, previous Communications and Reports have shown that competitors and customers are far from convinced that fair and equal access is universally being granted.

4. The need for additional infrastructure in order to make the internal energy market work.

This includes electricity interconnectors, new liquefied gas terminals, gas storage and, possibly, new gas connections with alternative gas suppliers.

Of these priorities, possibly the most important issue concerns electricity interconnectors. The EU electricity grid was designed as 25 separate markets, with limited and controlled imports and exports. Capacity is presently congested on many EU borders, placing a major constraint on the development of effective cross-border competition. This in turn means that, from an economic viewpoint, markets still remain almost universally national in scope. This leads to a lack of effective competition, and dominant positions. By way of example, the Baltic countries and the island of Ireland are, in energy terms, physically isolated from the rest of the Community. And this is not the goal that the EU has set itself.

However, building new interconnectors is proving enormously problematic, largely because of the difficulty of getting planning permission to construct overhead lines. The alternative - underground lines - cost up to 10 times their traditional overhead equivalent.

Thus, attention needs to be given to both resolving planning bottlenecks where it is reasonable to construct overhead lines and, where economically justified, to ensure that the financing of underground lines takes place. We will be proposing a new Priority Inteconnection Plan as part of the package and I would welcome your views on how it should address these challenges. In addition, we need to decide whether financial support at the Community level is necessary to catalyse these projects. At present, we only devote about 20 million Euros per annum to energy Trans European Networks.

5. Transparency

In successive annual Commission reports on the development of the Internal Energy Market it has been identified that one specific problem is the lack of transparency in many Member States on both electricity and gas markets. Even the suspicion that the large companies can engineer, for example, unexpected movements in wholesale prices, can act as a disincentive to new investors. In addition, the failure to give access to key data can make it difficult for new entrants to penetrate markets in the first place. We need to consider how best to address this concern so that companies can more quickly understand why price movements are occurring and can take appropriate action more quickly.

Ladies and gentlemen,

Finally, I would like, very briefly, to consider the international aspects of developing a European Energy Policy - essentially that Europe has to learn to identify its key energy objectives and priorities from an international standpoint and then to pursue these in a coordinated manner, thus "speaking with one voice".

All of the issues that I have mentioned today have a major international aspect. We cannot deal with climate change alone. Ensuring security of supply requires really effective cooperation with our energy partners, whether they are suppliers or major consumers. The Internal Energy Market needs to be progressively expanded to include our neighbours. These questions will be further considered in detail at a conference in November that I will be co-hosting with Commissioner Ferrero-Waldner, but any views on the priorities to be pursued in this area would be welcome today.

Ceating a real European Energy Policy will not be achieved overnight. It will require a sustained and determined effort. The first step, and probably the most important will be the energy package for the end of this year and in particular the Strategic Energy Review. It is a unique chance to put Europe on the path to a sustainable, secure and competitive energy future and, once again, show world leadership on how to coherently and courageously tackle what might seem to be almost impossible challenges. I look forward to your help and constructive comments and suggestions today to get this right.

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