European Commission proposes dramatic energy market reforms

Long-term goal is to secure, sustainable, competitive, affordable energy for all of Europe’s citizens while transitioning to a low-carbon, climate-friendly economy.

The European Commission today set out its strategy to achieve what it terms a “resilient Energy Union with a forward-looking climate change policy.”

The proposal sets out — in five interrelated policy dimensions — the goals of an energy union. The initiative also entails the detailed steps the Juncker Commission will take to achieve it, including: new legislation to redesign and overhaul the electricity market; ensuring more transparency in gas contracts; substantially developing regional cooperation as an important step towards an integrated market, with a stronger regulated framework; new legislation to ensure the supply for electricity and gas; increased EU funding for energy efficiency or a new renewables energy package; focusing European R&I energy strategy; and reporting annually on the ‘State of the Energy Union,’ among other objectives.

euractiveThe Energy Union means in particular:

Reducing the dependence on single suppliers and fully relying on their neighbours, especially when confronted with energy supply disruptions. With more transparency when EU countries make deals to buy energy or gas from countries outside the EU;

Energy flows, as if it were a ‘Fifth’ freedom. That of free flow of energy across borders – strictly enforcing the current rules in areas such as energy unbundling and the independence of regulators – taking legal action if needed. Redesigning the electricity market to be more interconnected, more renewable and more responsive. Seriously overhauling state interventions in the internal market, and phasing out environmentally harmful subsidies.

Energy efficiency first. Fundamentally rethinking energy efficiency and treating it as an energy source in its own right so that it can compete on equal terms with generation capacity;

Transition to a low-carbon society that is built to last. Ensuring that locally produced energy – including from renewables – can be absorbed easily and efficiently into the grid, as well as promoting EU technological leadership through the development of next-generation renewables technology and becoming a leader in electromobility. All this while still allowing European companies to expand exports and compete globally.

These and other commitments sit alongside an action plan to meet these ambitious goals in the European Commission’s energy and climate policy.

“For too long, energy has been exempt from the fundamental freedoms of our Union,” said Jean-Claude Juncker, president of the European Commission. “Current events show the stakes – as many Europeans fear they may not have the energy needed to heat their homes. This is about Europe acting together, for the long term. I want the energy that underpins our economy to be resilient, reliable, secure and growingly renewable and sustainable.”

Maroš Šefcovic, the Energy’ Union vice president, called the effort the “most ambitious European energy project since the Coal and Steel Community.” It is a massive initiative that, according to Šefcovic, will integrate 28 European energy markets into one Energy Union, make Europe less energy dependent and give the predictability that investors so badly need to create jobs and growth. “Today, we set in motion a fundamental transition towards a low-carbon and climate-friendly economy, towards an Energy Union that puts citizens first by offering them more affordable, secure and sustainable energy. Together with all other commissioners who have worked closely on the project team, and with the support of the entire European Commission, I am determined to now turn this Energy Union into reality.”

Industry responds

News of the EU’s proposal drew responses from across the European energy supply chain. Rémi Gruet, CEO of Ocean Energy Europe, said the proposal reaffirms the EU’s commitment to being the world leader in renewable energy and “the global hub for developing the next generation of technically advanced and competitive renewable energies. This, he said, will be achieved through more efficient and coordinated research, demonstration and innovation programmes and an industrial strategy to benefit from the EU’s first mover advantage in renewables.

“The Energy Union communication presents actions to speed up the transformation of the energy landscape through industries where Europe enjoys a competitive edge,” Gruet explained. “It correctly highlights how the transition can create great opportunities for jobs and growth.”

Ocean energy, according to Gruet, will be of strategic importance for creating a long-lasting and meaningful Energy Union. To that end, he said the EU must continue to support and develop renewable energy technologies of strategic importance, such as ocean energy, if it is serious about creating a long-lasting industrial base for the Energy Union.

“The opportunities for the first-movers in ocean energy are huge,” Gruet added. “With the correct research, development and innovation support, ocean energy will be instrumental in helping Europe move away from a fossil fuel driven economy, securing and optimising its energy supply, while creating significant job and export opportunities.”

Other industry observers suggest the proposal would have far-reaching implications. Frederik Dahlmann, assistant professor of global energy at the Warwick Business School, believes the Energy Union plan would improve coordination between national policymakers, increase technical and market integration, drive competition, and strengthen security and resilience — this despite member states’ traditional reluctance to cede power on energy issues.

“In times of economic and political volatility along Europe’s borders, transforming and integrating individual power and gas markets across the 29 member states and beyond is an important measure to address high prices, inefficiencies, and environmental concerns,” Dr. Dahlmann said. “Energy has historically played a central role in the European project. Today’s announcement by the European Commission on the promotion of an Energy Union strategy is a welcome step towards refocusing the efforts on a policy area where significant progress and impact can be achieved that benefits all European consumers.”

Dr. Dahlmann — who closely follows competition in the European energy market — believes the process of further market integration will inevitably challenge established companies and their business strategies, while at the same time open up the possibilities for innovation and new competitors. These, he said, are sorely needed to translate the high-level policy efforts into tangible benefits for European consumers, economies and the environment.

Feedback from the renewable energy investment community was particularly encouraging. The Institutional Investors Group on Climate Change,2 which represents more than 100 European investors worth a combined €10 trillion, says strong policies which drive investment will be crucial to realising the EU’s vision of the Energy Union as a low carbon economy designed to last.

“The EU has created a compelling vision for an economy driven by clean energy supported by a forward-looking climate policy,” said Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change. “What investors need now is for this vision to be underpinned by policies that give them the confidence to invest in low-carbon energy projects. In particular, this means strong and early ETS reform, more progress on energy efficiency, and changing signals to favour low carbon over high carbon investment.”

Pfeifer believes the EU has also demonstrated real leadership by setting out its plans for the Paris Protocol and calling for a long-term goal of a 60 per cent cut in global emissions by 2050. This should encourage leading nations to set out their emissions reduction plans ahead of the Q1 deadline.

“Investors are willing and able to play a significant role in financing the EU’s climate and energy vision,” Pfeifer noted. “The policies underpinning this vision will determine how significant a role investors can play.”

Some legal experts applaud the plan, but caution that more is needed to realize the goal. “The vote to have the MSR operating by 31 December 2018 is a clear step in the ambitions of EU Parliament to make way for a well-functioning EU ETS market that puts Europe on the road to decarbonisation,” said Munir Hassan, head of clean energy at CMS, a prominent European law firm. “While this shows the support of many EU member states, the challenge remains of needing agreement at the member state level. It is here that it will be important that a pragmatic and focused dialogue takes the aims of yesterday’s vote and re-balances the supply-demand on the EU ETS market by way implementing the necessary changes.”

Next steps

By and large, those who offered feedback looked favorably on the EU’s proposal for dramatic energy market reform. Now, observers say, it comes down to getting all the relevant parties and agencies on board to ensure proper execution.

“The UK has been at the forefront of work to secure a coherent EU energy and climate policy, and this strategy will benefit British consumers by bringing bills down, boosting energy security and providing a more cost effective route to a low-carbon economy,” said Ed Davey, UK Energy and Climate Change Secretary. “But to meet all our goals, the EU must do more to support all low-carbon technologies — including nuclear power and carbon capture and storage, alongside renewables and energy efficiency.”

Davey vowed that his government would “continue to make the case for the ambitious but flexible energy union Europe needs to prosper and reduce the dependency on Russian supplies.”

Miguel Arias Cañete, Commissioner for Climate Action and Energy, said his focus will be on building our common energy market, saving more energy, expanding renewables and diversifying our energy supply. After all, he noted, “the path to real energy security and climate protection begins here at home. After decades of delay, we will not miss another opportunity to build an energy union. Today we have set the course for a connected, integrated and secure energy market in Europe. Now, let’s make it happen.”

According to Gruet, EU vice president, the Commission’s proposal will now be discussed in the European Parliament and by the Council. “The proposal is far-reaching and will shake-up energy thinking in the national capitals,” he noted. “We are confident that national governments will understand the need to work in a coordinated way to bring sustainable, cheap and clean energy to their citizens. This is in every country’s national interest.”


Ocean Energy Europe represents the renewable ocean energy sector in Europe. It is based in Brussels and has nearly 100 members, including some of the world’s leading power producers, engineering companies, device developers and research institutes.

The Institutional Investors Group on Climate Change is a forum for collaboration on climate change for European investors. It provides investors with a voice on climate change and platform from which they can engage with policymakers, investors, sectors and other stakeholders on addressing long-term risks and opportunities associated with climate change. The group currently has 101 members, representing assets of around €10 trillion.