Communication from the European Commission on the progress towards completing the internal energy market
The European Commission (the “Commission”) issued a report package on 13 October 2014 regarding progress on the development of the internal energy market, consisting of the following documents: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the progress towards completing the Internal Energy Market (the “Progress Communication”); Commission Staff Working Documents on various subjects, including in particular: Investment Projects in Energy Infrastructure, Enforcement of the Third Internal Energy Market Package and Report on the ITO Model; and An interim report on subsidies and costs of energy in the European Union (“EU”). In this issue of the Kinstellar Energy Law Update we briefly highlight some of the progress report package statements we believe are of importance from a legal point of view to energy market stakeholders operating in Europe.
Context of the Progress Report Package The original target date of end of 2014 to realise the EU internal energy market comes from the European Council’s Conclusions of 4 February 2011. This date has since been repeated in other non-legislative acts. However, the Commission had already stated in its November 2012 Communication that the completion of the internal energy market by 2014 may no longer be realistic. In the Progress Communication, the Commission expressly acknowledges that the internal energy market will not be completed by the end of this year. Nevertheless, the Commission makes it clear that completion of the internal energy market is necessary for the European economy and customers. Therefore, in addition to mentioning progress that has been made in the last few years, the Commission provides its view on further steps needed for the timely completion of the cross-border energy market. The timing of the Progress Communication is noteworthy: the European Council will hold its decisive meeting on 23/24 October 2014, at which time it is expected to form its final position on the new EU climate and energy policy framework for the 2020 – 2030 period.
Hardware – Gaps between demand and supply The Commission has carried out a cross-sector analysis in order to identify gaps between investment needs and planned investments in energy infrastructure in four core sectors: electricity, natural gas, oil and biofuels. According to the Commission’s findings, most investments are carried out in the electricity sector and improvements will be necessary to build further cross-border infrastructure. The focus of gas infrastructure development should be on connecting isolated areas to promote security of supply and diversification, as well as preparing gas infrastructure for power generation as a means of complementing renewables. Due to decreasing demand in refined products and overcapacities, no significant investment should be expected in the coming future in the oil sector. Investments in biofuel production infrastructure are foreseen until 2025 to comply with the 10% increase in bioethanol and biodiesel use in the transport sector provided for in the Renewable Energy Directive.
Software Although the deadline to implement the Third Energy Package setting out the legal framework for the creation of the internal energy market was 3 March 2011, most Member States only implemented it after the Commission had initiated infringement procedures. Though some of these procedures are still pending, the Commission will focus on reviewing the proper implementation of the Third Energy Package by Member States, in particular the provisions relating to: Unbundling; Independence, powers and duties of national regulatory authorities; and Consumer protection. According to the Commission, the ITO model generally seems to be an adequate instrument to achieve its goal, i.e. separating operation of infrastructure from generation and supply activities. Nevertheless, learning from previous experience in the application of the ITO rules across Europe may result in further refinements in certain areas: changes in independence requirements of supervisory body members so that not only a minority of members are subject to them; improving the effectiveness of compliance programmes by specifying their scope in more detail; developing a common guidance and establishing a network of compliance officers for a better and more unified application of the law; harmonising timeframes for network development plans at national and European levels. The Commission will continue monitoring the application of the ITO rules and their compliance with EU competition rules.
Public intervention – Capacity mechanisms As provided for in previous guidelines of the Commission, national measures will be compatible with the internal energy market only in exceptional circumstances. With respect to capacity mechanisms, national measures may be justified as compatible with the internal energy market if: they are not limited to national borders, i.e. capacity mechanisms are available to other Member States; and demand side solutions are taken into account to the same extent as generation solutions. The Commission is carrying out studies on the development of a European generation and system adequacy assessment, which will provide adequacy standards for the effective functioning of the internal energy market.