EU's current energy system is ineffective and expensive

Written by András Gyürk on 25 October 2016 in Opinion
Opinion

Out of the Commission's five focuses on the path to the energy union, three are of utmost importance, says András Gyürk.

András Gyürk | Photo credit: European Parliament audiovisual


It's important to remember that the idea of the energy union came into existence within the context of our energy market. For historical reasons, European countries designed their energy systems to be self-sufficient and independent from other countries, in the hope of ensuring security of supply. 

With the creation of the European Economic Community, and later of the Union itself, the chances of European countries taking up arms against each other became very slim. This in turn demonstrated the shortcomings of such an energy system. 

This self-sufficient model, based around planning at national level, did not just turn out to be ineffective and expensive - it also failed to provide security of supply, as was the case during the gas crises of 2006 and 2009.


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Having learned from these experiences, the EU decided to integrated these separate systems and harmonise the rules, extending cooperation to the field of energy.

The establishment of the energy union would serve three goals: promote competition for affordable prices and efficient markets, provide security through the diversification of supplies and ensure sustainability for future generations.

In order to accomplish these goals, the European Commission has highlighted five main focuses: the completion of the internal energy market, security of supply, energy efficiency, decarbonisation and research and innovation. Through these dimensions Europe will be able to consolidate its fragmented energy system and move to a higher level of efficiency.

Many policies must be implemented in order to accomplish these goals, however in my view, three of them are more important than others. 

These are: the elimination of infrastructural bottlenecks, the enhancement of existing markets and the diversification of supply sources. These policies mutually promote each other, laying out the path for future harmonisation.

There is no point mentioning an energy union within the old fashioned, fragmented market structure. Cross-border transactions and deliveries are essential for an integrated market, therefore as long as the infrastructural bottlenecks separating the different regions of the Union remain, harmonisation cannot even begin. 

The adequate level of interconnectors is of utmost importance, therefore a list of assets of the projects of common interest (PCI) must be established.

These crucial investments are most efficient when carried out privately. As such, we should incentivise the involvement of the private sector. Intentions for better harmonisation look very good on paper, but every asset must be utilised and operated by market players. 

Therefore, Europe should adopt a bottom-up, market-based approach. European decision-makers are responsible for providing a legal framework, but at the end of the day, market forces cannot be disregarded.

The second extremely important policy is making better use of existing assets. Some might think that creating new infrastructure would damage what is already there, but actually, it's the opposite. By extending the range of markets, we could boost liquidity. 

Unfavourable tariff regimes and differing national standards mount obstacles that are hard to overcome. By implementing the third energy package, we could tackle the most imminent challenges. We should also support the coordination of stakeholders at European level by strengthening ENTSO-E, ENTSO-G and ACER.

Finally, we should emphasise the importance of the diversification of supply sources. When discussing this topic, people usually forget about indigenous natural gas production.

Although, on average European production is declining, with careful management and new investments, it can remain a substantial supply option.

It is important to state, that our drive for diversification is not to discriminate against any supplier, but rather to ensure our security and promote competition.

The presence of different suppliers in the same market encourages this, while fostering efficiency and the optimal allocation of resources. 

Taking the current market trends into account, I believe, that for Europe, liquefied natural gas (LNG) shipments can become just as important source as the Russian and Norwegian pipeline gas stands now.

 

About the author

András Gyürk (HU) is Parliament's EPP group shadow rapporteur on the towards a European energy union

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