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Speech - The future of TSOs – electricity and gas highways

European Commission - SPEECH/13/748   24/09/2013

Other available languages: none

European Commission

Günther OETTINGER

EU Commissioner for Energy

The future of TSOs – electricity and gas highways

PWC client Round Table/Brussels

24 September 2013

Ladies and Gentlemen

The questions facing TSO's today are more complex, more uncertain than ever before.

"Should we look at the big picture or the small picture? Do we have a European, national or a local perspective? Are we cooperating or competing? Will we get state support or private sector funding? Do we rely on French nuclear energy or on Azeri gas? Is the future in smart grids or "more or the same"?"

When today's grids were built, governments took responsibility. When yesterday's consumers joined the grid, they were assigned a single supplier - the only one available – and had no idea where their electricity came from. When fuel prices shot up, the government subsidised the price so they didn't feel anything. National networks operated in a world separate from the universe of their neighbours.

Today, integration of national markets is not just a European phenomenon. It is happening globally. More and more, prices for fuels, technologies and infrastructure raw materials are being shaped by international developments. Global policies, on trade, on climate change, on development, are changing the way we look at energy, and changing the way we produce and use energy.

The impact on transmission system operators of these changes is often overlooked. Today's round table give us a chance to put this right!

Changes affecting TSO's

Let me start by giving some examples of where the impact of on-going changes on TSO's has often been overlooked. Starting with the internal energy market.

We know that progress with the internal energy market is good for consumers and that it helps suppliers manage the security of supply. It makes investments easier, provides larger markets, greater certainty, and more transparency. This is central to Europe's answer to the rising global competition for energy supplies, to the low-carbon shift, and to rising energy prices.

How can TSOs play the fundamental role that is expected from them?

How can you take advantage of the new opportunities, while fulfilling the very urgent demands and expectations of both consumers and suppliers? How can TSOs cooperate in a market where, in practice, they are also competing?

Or another example. Energy efficiency.

I do not need to list the benefits of energy efficiency here. But when we talk of energy efficiency, we mean more than switching the light off, or switching down the thermostat. We mean a complete change in consumers' approach to electricity use. In a recent issue of "Der Spiegel" the cover story was entitled "Luxury good electricity". In some way, this was quite apt. Do consumers have to get used to power only when the market is able to supply it? Will consumers have to cut back on electricity to such an extent that switching on the kettle is considered a special treat? No, of course not! But we energy users want to think more carefully about our consumption habits, if we want to control expenses and take some of the strain off our systems.

To do that, we need smart grids and smart networks, as well as some consumer education.

Finally, investment. In today's system, consumers need gas and electricity to be available, on tap, as soon as they put their switch on. No matter how popular renewables may be, people want power to be there right when they need it. They want the machines in the factory to work. Even if there is no wind. If they are on holiday, using no power, and the sun is shining, they want their income from their solar power. No matter how many solar panels they have on their roof, if the film finishes after dark, they don't want to miss the end of it. This can only happen with investments in a new kind of power network. A network which can integrate intermittent power. A smart network. And a network that can accommodate reserves and storage to back up increasing shares of renewables.

The same is true of gas networks. Our economy is increasingly dependent on gas, while we are producing less and less. We need billions of euros of investments in new pipelines, such as the OPAL project, import routes, such as the Southern Corridor, pipeline maintenance, reverse flow projects, links for LNG terminals, such as in Poland, or possible future shale gas production sites. Tomorrow's security of gas supply is today's infrastructure project.

Easily said, but in practice, who will pay for these new networks? Governments? Consumers? Suppliers? TSOs? We need a clear answer to this question.

In these and so many other ways, what TSOs do is crucial to the security of supply, to competition, to sustainability and ultimately to our whole economy.

Ladies and Gentlemen,

In my experience, TSOs have adapted very well to the challenges that have come their way. TSOs are and have to be the true market facilitators. With their fundamental role, they have the power to make or break the functioning of a market. And it is my conviction that the attitude and position of the TSO determines to a much larger extent than we commonly think the success of a market.

Setting up the ENTSOs with the Third Energy Package has been an excellent idea that is proving its value every day.

First and foremost in the extremely technical work of drafting network codes. This is very much work in progress, but it is very simple: without the TSOs no network codes and without network codes no functioning wholesale markets.

Secondly, also the ten year network development plan is a stepping stone towards more TSO cooperation and better management of network investments.

ENTSO-G's work on the Winter Outlook and ENTSO-E's work on generation adequacy give policy makers valuable insights on the security of supply situation in gas and electricity.

Not to mention the secondary effects of the closer cooperation among TSOs, getting to know each other and sharing best practices. I have said it more often: a new 'transmission-only' branch has entered the sector and it is what was needed to make the market work across borders.

TSOs have also helped us pass another important milestone. New investments in interconnections and cross-border trade rules mean that supplies can sell beyond their home markets and ever fewer Member States will be completely dependent on a single gas supplier.

Ladies and Gentlemen,

Looking to the future, we will need TSOs to dig deep, to show creativity, innovation. You will benefit from a European perspective, a long-term vision, and an ability to work with other sectors, such as telecoms and cyber security specialists, transport or urban planners, in scenario building and network planning. International cooperation will become more important, with other countries, in technology platforms, international negotiations. Managing the network is just the start! The future role of TSO's will be, frankly, far more interesting!

One thing will not change: We will continue to depend on TSOs to keep the lights on, to keep our homes and offices warm. But tackling the challenges of increasingly variable low-carbon generation while maintaining a high standard of security of supply is not going to get easier.

And it will come at a cost, in terms of the need for new infrastructure. It will be far cheaper if done at European level through integrated markets. Adequate, efficient, and reliable cross-border infrastructure must become the norm.

We are moving in the right direction. The work of the ENTSO's in electricity and gas in enabling more cooperation deserves full recognition.

But the role of TSO's will be not just administrative. It will also be very political.

Cooperation and "Europeanisation" must intensify at all levels of energy policy, and this includes network management. Whether we look at maintaining networks or maintaining security of supply, the issues are increasingly cross-regional. We need a change in mentality in Member States away from the traditional focus on internal networks, towards a more European perspective.

Here, the Infrastructure Regulation will provide important support.

It effectively gives the EU an energy infrastructure policy. It addresses policy objectives as well as going into specific details on projects.

Tackling the challenges of increasingly variable low-carbon generation while maintaining high standards of security of supply is far cheaper if done at European level through integrated markets, for which adequate infrastructures are a prerequisite.

For the first time, Member States have agreed on the importance of discussing the infrastructural needs on their territories with their neighbours. They have a common multi-lateral und multi-national approach on the infrastructural needs inside and beyond their borders.

National borders are still the reference for actions, but they will not be the "natural bottleneck" anymore. For TSOs, this means a decisive shift towards more cooperation and integrated actions when it comes to network planning and development.

An important step towards the better integration of Member States' networks is the first EU-wide list of Projects of Common Interest. I hope that this list will be adopted by mid-October. The list will be reviewed every two years to cater for new emerging projects and geared towards fulfilling future needs.

This first list of Projects of Common interest is just the first step within a longer-term infrastructure vision. In addition to the policy framework, we also need to increase the role of TSOs in investment planning and decision making.

If we look at investments, around 200 billion euros are needed to upgrade Europe's gas and electricity grids by 2020. The economic situation is not on our side. So we have to make sure our policies make up for this as far as possible.

The Connecting Europe Facility (CEF) will help deliver this. The energy part of it provides 5.12 billion € for the period 2014-2020. Projects of common interest are eligible for grants, studies, and financial instruments from the CEF. Grants are also available for work on the most promising projects of common interest that are not commercially viable.

The financial instruments will be designed in a way to best support long-term infrastructure projects inter alia by making direct market financing and risk sharing easier.

Changes in the planning laws which the Infrastructure Regulation create a new opportunity for TSO's to become more involved in local community decision making, speeding up planning authorisations, getting more public acceptance. This is an opportunity not to be lost.

Another thing is certain. TSO's will need to be more innovative.

We are investing, not in a replication of the 20th century energy network, but in a network for the 21st century. Everyone will need to adapt, and this includes TSOs. The days of one large coal power station using local coal and serving one specific city are well and truly over!!

In the longer term, high-voltage, long-distance, and new electricity storage technologies must be developed to accommodate ever-increasing shares of renewable energy, from the Union and from its neighbourhood.

Offshore wind and decentralised solar energy call for a new type of network, not just in terms of supply balancing, but also in terms of physical security – linking up offshore wind farms safely to the mainland grids, for example.

TSOs will need to work even more closely with technology developers to resolve the grid issues around these changes.

The implementation of smart grids, smart networks, intelligent cities and communities all have practical implications for TSOs. TSOs will need to build up a new dialogue, not just with energy experts, but with innovators in many different fields – information technology, electric transportation, agriculturalists, economic modellers, and many more besides.

For TSOs in the gas sector, a major challenge will be diversification of sources and routes.

No Member State should be dependent on one single supply source. In the medium term, the gas system must become much more flexible and resilient. We could need more gas to support gas' role as a back-up fuel for variable electricity generation. New LNG resources, biogas and unconventional resources also call for a response from TSO's. And as we know from experience, a well-integrated gas network is also the best guarantee to compensate for a possible failure in gas supplies.

Increasing gas imports means more international partnerships. So TSO's will need to develop not just a more European perspective, but a more international one as well.

Finally, all these changes call for a new relationship between TSO's and DSO's. This relationship is the vital link in the chain between suppliers and consumers. Consumers are no longer the 'end of the line'. In fact, the energy system needs them to become active. To help the system when it is stretched. If this link is weak, our whole system is weak.

Ladies and Gentlemen,

Energy infrastructure has been, and will continue to be, the backbone of our economy. What is changing is the way energy infrastructure is planned, paid for and managed. From now on Europe's infrastructure will be designed, implemented and managed by looking at the European map.

All players in the energy market have to adapt as we tackle the challenges to our energy system, find new ways to enhance security of supply and build up a competitive and fully interconnected energy market. In this new world, TSOs face unprecedented challenges.

The responsibilities of TSOs are massive. The expectations that suppliers and consumers have of TSOs are phenomenal. The influence of TSOs in our energy changes is vital. We need adaptation. We need a more strategic approach. We need a more international outlook, beginning with full cooperation within the ENTSOs.

But, as I said before, in the future you can expect your lives to become more interesting! I wish you good luck in facing these challenges, and thank you for your attention.


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