Speak Up Energy

The song that is being sung by the stakeholders in the debate about the third package needs to be tuned. The lyrics of the song should not be about the legal structure and governance of the physical networks of the industry, but about which steps should be taken to truly achieve integrated EU markets, first of all in electricity.

The song should also include words on the Union’s external supply security, notably in gas and should include a refrain on the merits of certain energy market design. Such a song should ring out loud and clear, and lure the member states into supporting a better model of the market than they are defending now. The window of opportunity to change the lyrics of the song is however closing rapidly. This year, 2008, is crucial, because next year a new European Commission with the accompanying portfolio-jostling could throw the decision-making off track. Bets are therefore already out about the closure time of this window, before or after the summer break, under the present Slovenian presidency or maybe in the early days of the forthcoming French presidency.

Although all the economic arguments on full ownership unbundling may be there, there is a risk that the debate will take more political energy than we will gain. In the heated Dutch debate over the last 3 years about full distribution network ownership unbundling for instance, there was almost a complete stand-still on discussing any other policy issue in energy. But more importantly, there is a distinct possibility that the rational discussion on the industry structure will be totally sidestepped by the emotional discussion on ownership, whether public or private, national or foreign.

The golden triangle of “market integration, network cooperation and Europeanizing regulations” requires a balance, and this balance-seeking should govern the electricity discussion much more than today, including the ideas to look at the regional model for ISO-type of arrangements. Market integration based on ongoing developments in regional markets could, if combined with new concepts for regional ISOs, bring interesting political momentum to the EU debate on the third package. This would especially be the case if support for these ideas are further discussed in the NW-European Pentalateral Forum (Belgium, France, Germany, Luxembourg, the Netherlands), which could act as a testing ground. Learning from cross-Atlantic experiences on regional ISO-models would be worthwhile as well. On this basis a wider EU-discussion on electricity market designs would be a logical next step and pave the way for a real an effective competitive electricity market in the EU.

The discussion and the arguments on ownership unbundling tend to focus on electricity alone, and although in theory there are arguments that there is no reason to treat gas differently, in the EU-reality there is. With declining domestic supplies in the EU, gas supplies will reach the EU market increasingly through long-haul pipeline-based infrastructures. New pipelines need to be constructed and filled with gas, which requires a complicated coordination mechanism throughout the whole value-chain in order to manage and share the risks and benefits involved. It is very unclear if and how the exemptions to the unbundling proposals and to the new infrastructures can be considered appropriate answers. There is a need for more creativity in the discussion, managing the right balance on the “Madrid-Moscow axis”, seeking an effective EU gas market design in harmony with a reliable gas supply security system.

We therefore making a plea to continue the discussion along the lines that were suggested here. We would like to challenge, politicians, policy makers and industry stakeholders to think “the golden power triangle” and to think “Madrid/Moscow” in gas. Singing these songs would really contribute to securing competitive EU markets with reliable external supply security, with a neat refrain about competition law and policies, completing the song..

From Energy Policy Blog

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