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Opening up the Energy Market and Securing Energy Supply in Europe

Mrs Loyola de Palacio Vice President of the European Commission

The Sanderstølen Conference 2002

Friday, 8 February 2002



Mr Chairman , Ladies and Gentlemen

It is a great pleasure and honour for me to join you this afternoon in this beautiful setting.


I am delighted to have this opportunity to elaborate two themes which are, in my opinion, at the heart of energy policymarket opening and security of supply.  These questions are closely interrelated.  We cannot have one without the other.  And they are both fundamental to sound economic and social development.  After all, how could the industrial revolution have taken place without secure and marketable energy supplies?    Indeed, would European integration have been possible without the first agreements on energy in the 1950’s?

These are rhetorical questions, but they set the wider context for my speech today. 

      I would like to begin by outlining the importance which I attach to open markets and the approach the Commission is taking to securing more open and transparent energy markets.

      I shall then consider how these steps contribute to our wider aims for Europe’s energy supply security. 

      I shall conclude with an assessment of the future prospects for energy supply in Europe.

1/            Importance of market opening

First, let me declare from the start my commitment to opening up energy markets for the benefit of consumers and sustainable economic development.  Within Europe, we need to use the opportunities which greater market transparency and openness bring to develop a more sustainable approach to energy supply and use.

For this reason, I am pleased that the Norwegian Government has decided to implement the gas directive, and I particularly welcome their   decision   to   abandon   the   Gas Negotiations Committee. 

I also commend the establishment of Gasco as a single operator of offshore pipelines.  Indeed, the Norwegian Government has adopted an extremely constructive and effective approach to opening up the energy sector to competition.  I would like to encourage them to continue on their current course. Although earlier joint gas selling arrangements have given rise to issues which still need to be resolved, I am sure that this can be done in an amicable, negotiated way.

We are of course already well on the way to the creation of a single, liberalised European energy market, of which Norway will soon be a fully integral part.  New proposals currently on the Council of Ministers’ table are designed to bring forward the schedule of the internal energy market and to reinforce the conditions for real and fair competition for the benefit of consumers.  I will expound on these in a moment, as I am confident that they will offer new opportunities, including for Norwegian gas producers.

This is an important consideration for the EU’s energy market, not least when one considers the growing share of the EU’s oil and gas supply which comes from Norway.  Today, Norway provides about one quarter of our gas imports and one fifth of our oil imports.  Within ten years, this proportion could rise to almost one third of total oil and gas imports.  This creates a special and unique relationship between Norway and the European Union and one which I am sure will grow in importance in the future.

Commission proposals for market opening

Permit at this point briefly to present the Commission’s proposals for full market opening. I also want to explain why I consider that it is so important that the package is agreed quickly, for the benefit of the energy sector, consumers and the European economy as a whole.

European’s energy markets are going through a process of fundamental change at present. We are currently in a process of gradually creating a functioning internal market where there is competition in the production and supply of electricity and gas and where customers will be able to exercise a right of choice.

The first steps in this process were taken in 1996 with the adoption of the electricity Directive, followed by the gas Directive in 1998.  These opened a certain proportion of the market allowing a choice to be made by large users above a certain threshold of consumptions. Much progress has been made since then and many Member States have already gone much faster and further than the minimum requirements of these Directives. Already two thirds of electricity demand and nearly 80 % of gas demand is - at least in principle - open to EU-wide competition, and electricity prices have been reduced, often significantly.

It is now time to take the next, and logical, steps, to extend these benefits more widely.  Small companies and households must benefit from the fruits of competition as well as large companies. Energy users to share the advantages brought to energy suppliers.

In response to the call of the Lisbon European Council for a speeding-up of gas and electricity liberalisation, the Commission presented in March 2001 concrete proposals for an acceleration of the market opening.  These envisaged the completion of the internal market, with full market opening to all customers by 2005. Full market opening is already decided by a significant number of Member States.  It is also considered as the only way to avoid inequalities and achieve a real level playing field.

However, it is clear that important differences exist in the manner in which market opening has been implemented in Member States. This relates not only to the quantitative thresholds, but also to the framework used for governing third party access to the network. In some cases it would appear that the terms offered for network access are not allowing new entrants to compete on equal terms. For example, network access tariffs may be too high, tariff structures may be inappropriate or offer insufficient flexibility, or services such as balancing or storage may be offered at excessive prices.

These factors constrain the full opening of markets.  Electricity and gas customers and many industry players tell us that they are as important as simple market opening numbers. This is particularly relevant to Member States where network owners remain integrated with companies in the competitive parts of the industry.

I take these issues very seriously. Ultimately, what I would like to see is a common standard throughout the EU on this issue, ensuring that network tariffs are fixed and published and that they are verified by an independent Regulator. It is also important that transmission and distribution companies should be run separately from generation and sales, even if the ownership remains within a single group holding.

Our proposals regarding the new Directive are vitally important for the energy companies themselves. Major EU electricity and gas companies are endeavouring to transform themselves from national single product companies to pan-European, multi-product companies.

The course has been set towards more open and well regulated energy markets in Europe.  I hope that the European Summit in Barcelona next month will provide the necessary impetus so that all industry and all businesses – at least - will be able to take advantage of greater competition within the next couple of years.

Transparency in international markets

Ladies and Gentlemen

We have explored the concept of open and transparent markets and what this means for the EU and the internal energy market. I would now like to elaborate a moment on the significance of these principles outside the EU and outside the EEA (European Economic Area).

It is generally agreed that further developments of the hydrocarbon resources from Russia and the Caspian basin are especially promising, but will require massive investment in infrastructure. This will only be possible if the right political, legal and administrative framework exists. 

The Community can help to create the right conditions by building on international agreements, such as the Energy Charter and the draft transit protocol.  We can also collaborate in initiatives such as the Commission’s INOGATE programme, which aims to facilitate the transportation of oil and gas, both within the CIS region and towards the export markets of Europe.   The Energy partnership the EU is building with Russia is another key initiative in this context.

Substantial progress has been made in developing a strategic energy partnership with Russia.  It is clear that both sides will benefit from the development of such a new partnership. It will serve both to enhance the security of energy supplies across our continent as well as helping to develop, in practical terms, the concept of a Common European Economic Area.

2/            Market opening as a tool of energy supply security

Let me now pass to the second major theme in today’s title, security of supply. In particular, ensuring security of supply in liberalised markets.   Liberal markets can work and must work to maintain clean, varied, affordable and reliable supplies. But this cannot be taken for granted, as experience around the world has shown.  What can we do to make them work?


First, Europe’s energy supply depends on creating and maintaining adequate diversity in supply – and a diverse market of demand. Competition is already leading to greater competition in technologies for more efficient or de-centralised energy production.  However, two sectors risk being overlooked in the drive towards pushing down costs – renewables and nuclear.

With regard to renewables, Europe has a massive potential for using such indigenous energy resources. In Norway you have managed to harness your potential for hydro electricity.  But elsewhere the under-exploitation of indigenous and renewable energy across the European Union is a significant barrier to achieving a more sustainable energy supply.

The Commission has an objective to increase the share of renewables in the EU’s energy supply to 12% by 2010.  At the moment we are stagnating at an average of around 6%, half of this figure.  It is clear that special measures are needed. The Commission is therefore taking a lead to boost the role of renewables in Europe. 

Member States have recently signed up to the new Renewables Directive which commits them to respect national targets in the share of electricity generated from renewable energy.  Our new biofuels package is also a step towards the target substituting 20% of traditional fuels by alternative fuels in the road transport sector by 2020.

Moving to the nuclear sector, I fully respect the reasons why some Member States have not adopted or would prefer to withdraw from this option.  However, in some parts of Europe, renouncing the nuclear option could leave a dangerous gap in our power capacity. It could also drive utilities towards forms of electricity generation which produce far more greenhouse gas emissions.  It therefore seems wise, in my view, to keep the options open.

But I do not underestimate the challenges that this implies: improved transparency and public confidence, high level of security and efficient long-term waste management. The European Union is already contributing to address these problems and will keep on in the future.


Secure energy supplies also depend on an adequate infrastructure.

The lack of sufficient energy generation and transportation infrastructure can have catastrophic implications with respect to the quality and security of supply.

The California crisis provides a number of lessons for Europe.  It teaches us the importance of ensuring proper incentives to develop generation capacity and build new lines.  It underlines the need to combine sound open market rules with appropriate administrative procedures within a stable regulatory framework.

This is one of the reasons why the Commission recently presented a Communication on European Energy Infrastructure. The purpose was to identify existing bottlenecks and examine measures that could be used to encourage new developments.

Interconnection capacities between Member States are often a limiting factor for cross-border exchanges. Some Member States remain isolated with no or only very limited interconnection capacities with neighbouring countries. As well as compromising security of supply, this also hampers market integration and limits the scope for consumer benefits from competition.

The situation is particularly critical in the electricity sector, where physical cross-border trade of electricity in the EU only represented 7% of total electricity consumption in 2000.  This leaves us far from a real, competitive internal market.

These issues need addressing urgently, and the Commission will take steps over the coming months to stimulate improvements in the present and future infrastructure available to European energy suppliers and consumers.  In this context, I shall be interested to follow progress on plans to better link Norway’s electricity infrastructure up to the rest of Europe.


Ladies and Gentlemen,

Sustainable energy supplies in the internal energy market will rely not only on investment in infrastructure, but also on investment in technology. I know that this is keenly recognised here:  Norwegian industry is at the cutting edge of new hydrocarbon technologies. It is an important partner in Community research and development programmes.

Technologies developed in collaboration with Norwegian companies are contributing to some very important advances. There are many success stories in this field, too many to cite here.  But I would like to pay tribute to the contribution of Norwegian research to Europe’s energy security. 

Governments must continue to encourage investment in new technologies in the newly liberalised markets by creating the right financial framework and sending out the right messages.

Energy projects, whether in infrastructure or in technology, are highly capital intensive and have a long pay-back period.  There is evidence, including in Norway, that recent market changes have lead to a reduction in energy investments.  This is a situation of some concern, and calls for monitoring. Our future energy supply depends on investment decisions taken today.


Finally, we need to address a key dimension of energy security: the oil price. The volatility of the oil market is of major concern for the Commission. During the oil price crisis of 2000-2001, the European Commission had one clear message :  the oil price target of OPEC is not sustainable as it does not coincide with a medium-term equilibrium price, taking into account the impact of such price level both on non-OPEC production and oil consumption. I think that the validity of this message has been clearly demonstrated by recent market developments.

It is in the interests of suppliers and consumers that oil and gas prices benefit of a prolonged period of stability. I would like to pursue this objective in our relations with supplying countries, including Norway.  This is why both the European Commission and the Member states have called for a reinforcement of the dialogue between producing and consuming countries. I believe this dialogue is essential whether the oil prices are decreasing or increasing.

As to the key point of assessing what is a sustainable price for oil, the Commission had made a very clear-cut assessment: a price around 20 $ a barrel would permit the necessary investments in OPEC and non-OPEC areas to meet increasing demand.

Speaking about price stability, we have also to take into account that oil is often entangled in the political issues of this area. At this time of growing geopolitical uncertainties, it is more important than ever that oil-consuming countries are ready to face threats to their external oil supplies. Strategic oil stocks are critically important in this respect. 

In the European Union, we have also to think about improving our stocks, in order to reinforce their credibility and visibility. I also think we need to revise the definition of the circumstances that might justify releases of stocks.

CONCLUSION:   Future prospects for Europe’s energy supply

Ladies and Gentlemen,

I promised earlier to offer an assessment of the future prospects for Europe’s energy supply.  As we try to look towards the future, two things stand out.  First, that there are inherent weaknesses in today’s energy supply system which render it unsustainable.

I am thinking for example of growing demand for fossil fuels.  This is not only contributing to environmental damage precisely at a time when we commited ourselves under the Kyoto Protocol.  It also threatens to make Europe, in the longer term, increasingly dependent on supplies from distant regions. The second point is that I am not convinced that the European Community currently has at its disposal the necessary policy capacities and competences to manage the risks which our energy situation faces.

There is no doubt in my mind that we must enhance Europe’s energy supply prospects and favour sustainable economic development.  That is why I have introduced public service provisions in the internal market proposals to monitor trends in supply and demand. This is why we need to continue to tackle market barriers to cleaner and renewable energy technology.

And it is why I shall continue to emphasise sustainable and secure energy supply in Community policies in the energy and related areas. 

At the same time, I believe Europe needs a more pro-active, co-ordinated and, above all, long-term strategy for energy.  We must aim for a common European approach for sustainable and secure energy supplies. An approach which respects social needs, fulfils environmental demands and sustains economic growth, international competitiveness and global stability.

This is an ambitious objective.  It will require resolve from policy makers, investment from industry and initiative from consumers. It will also require a clear strengthening of the EU energy policy foundations. Our Green Paper on energy supply puts the signposts in place.  The internal energy market sets the direction in which we would like to go.   And the Community’s strategy for sustainable development and growth gives us a clear common goal.

Ladies and Gentlemen

This has been a very rich day of discussions. Let us all help to contribute, each in our own way, to the safe, secure and sustainable future of Europe.

Thank you, Mr President, Ladies and Gentlemen, for your attention.