Opening up the Energy Market and Securing Energy Supply in Europe
Loyola de Palacio Vice President of the European Commission
Sanderstølen Conference 2002
Friday, 8 February 2002
EMBARGO 8 FEBRUARY 2002 16.50
is a great pleasure and honour for me to join you this afternoon in this
am delighted to have this opportunity to elaborate two themes which are, in my
opinion, at the heart of energy policy – market
opening and security of supply.
These questions are closely
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?
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.
Importance of market opening
let me declare from the start my commitment to
opening up energy markets for the benefit of consumers and sustainable economic
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.
this reason, I am pleased that the Norwegian Government has decided to implement
the gas directive, and I particularly welcome their
Gas Negotiations Committee.
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,
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
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.
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 provides about one quarter of our gas imports and one fifth of our oil
ten years, this proportion could rise to almost one third of total oil and gas
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.
proposals for market opening
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
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
first steps in this process were taken in 1996
with the adoption of the electricity Directive, followed by the gas Directive in
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
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.
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.
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.
factors constrain the full opening of
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.
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.
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.
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.
in international markets
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).
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
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.
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
Market opening as a tool of energy supply security
me now pass to the second major theme in
today’s title, security of supply. In particular, ensuring security of supply in liberalised
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?
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
However, two sectors risk being overlooked in the drive towards pushing
down costs – renewables and nuclear.
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.
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
is clear that special measures are needed. The Commission is therefore taking a
lead to boost the role of renewables in Europe.
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.
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
therefore seems wise, in my view, to keep
the options open.
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.
energy supplies also depend on an adequate
lack of sufficient energy generation and
transportation infrastructure can have catastrophic implications with
respect to the quality and security of supply.
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
underlines the need to combine sound open
market rules with appropriate administrative procedures within a stable
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.
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.
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.
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.
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
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.
must continue to encourage investment in new technologies in the newly liberalised
markets by creating the right financial framework and sending out the right
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.
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
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.
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
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.
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.
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.
Future prospects for Europe’s energy supply
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.
is no doubt in my mind that we must
enhance Europe’s energy supply prospects and favour sustainable economic
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.
it is why I shall continue to emphasise sustainable and secure energy supply in
Community policies in the energy and related areas.
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.
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.
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.
you, Mr President, Ladies and Gentlemen, for your attention.