4 step in the short life of EU “energy policy”

Medellin– 5th ELAEE Conference(16 March 2015)Jean-Michel GlachantDirector “Florence School of Regulation”@ European University Institute – Florence (Italy)

4 step in the short life of EU “energy policy”

I. 1986-2009: an EU Internal market within open grids / ~1 EU Internal market / ~2 open EU grids

II. 2007-2009: EU got an “energy policy”: “RES country pillar” /~3 RES push into EU Internal market @ country level

III. 2013-14: Countries ask for “RES cease-fire”: divorce? /~1 EU

Commission / ~2 EU power industry

IV. 2015-2020: And tomorrow? /~1 Internal Market BAU? / ~2 Or renewed EU energy policy in a brand new “Energy Union”?

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1986-2009: only an EU Internal market

and nothing elseMarket

First and foremost (Internal Market) ¤ Not because market logical or astute to support any EU energy policy – only because EU strong & legitimate there: Internal Market “raison d’etre” (Treaty 1957 + Single Act 1986) <Power only>

¤ 1st Package 1996: *“Free Entry in Generation” ** “B2B Consumer eligibility” *** “Free movement of goods at all internal borders”

¤ 2nd Package 2002 : *transparent & market friendly cross-border operation; **regulators supporting market building; cannot get EU market design (wholesale pricing & sequence of markets(Day-Ahead to real time); ***full retail eligibility;

¤ 3d Package 2009 unable to get EU “market design” & EU “grid operation rules” >SO> sets up process to produce that with new Bodies: *EN.TSO-s to “EU” the TSOs; **ACER to “EU” the N.RAs6

1986-2009: an EU Internal market… within open grids…

• Second to Internal Market (EU Grids) ¤ very logical: no power market can work if Grids aren’t market friendly (Opening EU market > Open EU grid)

¤ 1st Package 1996: *“Third Party Access to power Grids ** “Including all internal borders

¤ 2nd Package 2002 : Regulated access to grids; regulators duties for markets and grids; transparent & market friendly cross-border grid operation, congestion mechanisms, grid capacity allocation

¤ 3d Package unable to add full EU harmonization of “market design & grid operation rules” >> but did set up a process to produce it with new Bodies: *ENTSO-E(G): EU GridCodes &EU TYNDP GridPlanning; **ACER : “EU” NRAs

¤ NB: 3dPackage didn’t try to EU harmonize TRSM grid tariffs making; grid investment & data methodology; did miss all Distribution grids issue as Market Operators (wholesale exchange: PXs); Plus NO EU regulator7

2005-2009 EU goes to EU energy policy

What was it about?Previsibility (foreseeability) very low: “EU energy policy” was not at all foreseen in 2004; and…. already “packaged” in 2009!

• Game Changer 1 2005 Hampton Court Council Tony Blair: long life EU internal Security of Supply

• Game Changer 2 2007 (Lisbon treaty) Berlin Council Angela Merkel: long life EU energy sustainability 20-20-20 in 2020

• Game Changer 3 2006&2009 Russia-Ukraine: EXT emergency plans + security reg. 2010 & infrastruc. package 2011-13

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II. 2007-2009: EU got “energy policy”: a “RES country pillar” pushed by MS

• Only third and external to Internal Market and EU grids (EU RES)

¤ external because RES are *subsidy pushed (not market pulled –energy market or carbon price) and **country regulated (no EU wide system of RES push rules in 2007 -except size of countries RES quotas)

¤ EU got a split: # RES split into“green part” (out of market price & trade order, “own special circuit”) &”energy flow” (into EU Market & MS Systems)

* RES energy flows circulate through grids to directly enter the demand (while being variable and not dispatched) >> very strong interactions between RES, power system and grids operation

** NonRES can serve only “residual demand”; only what variable RES cannot feed at each moment > very strong market interactions between RES & nonRES (capacity “adequacy” given by amount of working RES)

¤ Small RES > small interactions; Massive RES>> massive interactions9

2012-14 core assumptions derail: And so what?

(Fukushima 2011); Shale gas; Russia as supplier; Green revolution & EU RESworld leadership; +65Eur GreenCharge MWh

> Questioning and redefinition re-opened in 2012

>> Popped up in November 2013; and has ben confirmed by EU Councils Oct. 2014&March 2015: MS call for RES “EU cease-fire”

• 1- Commission Novelties (Barroso II: Nov. 2013 to Ap. 2014)

• 2- EU Power Industry Novelties (EURELECTRIC 2014)

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III. 2013-14: Countries ask for “RES cease-fire”; Commission reacts

June 2012: make your choice - November 2013: some guide lines – January 2014: Berlin 20-20-20 “game over”. Competitiveness & costs back to top

• June 2012 - Options RES policy post 2020 / S2: Only “Carbon Price” risky &unfavorable to technology innovation / S3: National RES targets risk EU fragmentation &high unit costs; favors decentralization & distributed Gen. /S4 EU RES target&harmonized frame favor costs reduction, X-border investments, large scale innovation ;+grid&system costs

• November 2013 - Guide lines for RES support till 2020 / Only small units & less mature RES (as off-shore & bio-mass) keep FiT / big units and deployed RES only FiP & Tgy neutral auction (ex: On-Shore or PV 1MW)

• January 2014 - Framework post 2020 / *“EU bindingGHGtargets +**MS only RES target & “appropriate “ EU governance for MS action plans

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III. 2013-14: Countries ask for “RES cease-fire” Eurelectric reacts

3 differences from Commission (Eurelectric Manifesto February 2014)

• Single target being GHG emission (– 40%) as carbon market (“carbon pricing”) is most cost-effective instrument for whole decarbonisation

• All state aid on RD&D + increase spending on technology demonstration (means: no money for technology deployment as FiT or FiP)

• Create new market for “Long Term Capacity remuneration mechanism” coordinated at Regional Level (implicit: carbon market won’t make it; LT entry in power generation cannot come from Carbon Pricing)

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1- 25 February 2015: Commission COM. ‘’Towards an Energy Union’’ NB: ‘Energy Union’ has NO predefined content; is only ‘catch word’. It is NOT a new institution (like an EU Treaty or pro-Treaty (Schengen-like Agreement) or even an EU body (say ‘ACER’ or ‘ENTSO’). SO many alternative EnergyUnion(s) are conceivable2- Energy Union <mini> to boost Internal Market >> Eurelectric, Eurogas(EU) put new tag on (existing institutions + BAU) = let’s call it Ener.Un: BUT to end ‘Internal Market’ extended to RES & Capacity Mechanism being fully‘market based’. However such EU-BAU ends undefined: ¤ MS have strong power to takeinitiatives (Germany: Off-shore + Energy Efficiency push) (UK: SoS beingCapacity mechanism + LT contrat with UK Nuclear or tidal + off-shore + ISO Grid +?) (France: own Capacity mechanism + Off-shore too? + Will put EDF as shareholder of Areva + to strangle ‘EPR’? and create new ‘small’ nukereactors 600MW’;etc ¤ At what speeed Commission could follow MS?

IV. 2015-2020: And tomorrow?

~1 / Internal Market BAU?

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IV. 2015-2020: Commission’s proposals 25 Feb.?/~1 Internal Market BAU?

1- EU 4th Big Package Internal Market*Legislation 2016; retail & wholesale; integrating RES; phasing out non market based support; coordinating Capacity Mechanisms .

**Legislation 2018 Electricity security of supply

***Review framework from 3d Package notably for ACER (to ++power of Europeanizing regulation) & ENTSOs (to ++ as regional operational entitiesto create)

****Propose guidance for ‘regional cooperation for market integration’ and to act at regional level wih regu. Bodies, MS and stakeholders

*****Create ‘Energy Infrastructure Forum’ with MS, Regional coop. Groups, and EU institutions (ACER? Banks?) by late 2015

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IV. 2015-2020: Commission’s proposals 25 Feb.? /~2 Security of Supply?

2- EU actions for Security of Supply

*Legislation: Revision Gas Regulation by 2015-2016

**Legislation: Revision Decision International Agreement for Commission to intervene ex ante before signature of agreements with 1/3 countries

***Coordination Commission / HR-VP / MS to create international diplomacy for energy & climate issues; for international treaties (as TTIP) or within WTO, and launch new initiatives (as agreement with India, withChina ;etc) in field RES, Ener.eff, etc.

** **implementation of existing PCIs with adequate financing

** ***Strategy for LNG an its storage

** ** ** Council 19-20 March : explore feasibility of gas joint-buyingmechanism

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IV. 2015-2020: Commission’s proposals 25 Feb.? /~3 Beyond Internal Market & SoS?

3- Other fields of EU actions beyond Internal market & SoS :

*Legislation to revise EnerEff directive &make proposals to meet 2030target

**RES package by 2016-17 incl.sustainable &cost-effective biomass, biofuels

*** Legislation to achieve Oct2014GHG target in ETS & non-ETS sectors

** **Legislation ‘Full Road Transport Package’ covering efficient pricing of infrastructures; rool-out of intelligent transport; enhancing ener.eff

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** ***Strategy to facilitate Investment in efficient ‘Heating & Cooling’

** ** **Create Smart financing for smart buildings fund

** ** ***To push MS & regions to use more the funds to renovate housings

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**** **** Strategy for transport research & innovation agenda

**** **** *Revision ‘Strategic Energy Technology Plan’

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How to conclude?Too many EU energy policy future(s): which EnergyUnion(s) will EU get? ?? To be seen in 2015-17…

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Thank you for your attention

Email contact: jean-michel.glachant@eui.eu

Follow me on Twitter: @JMGlachant already 6 389 tweets

My web site: http://www.florence-school.eu