On 10 November 2010, the European Commission adopted its strategic energy Communication entitled "Energy 2020, a strategy for competitive, sustainable and secure energy" (the Communication), setting out five priorities for the next 10 years and the measures to achieve these priorities.

In the Communication, the Commission highlights the slow progress made by the Member States against the backdrop of the increasing challenge posed by forthcoming accessions; as more countries with energy sectors which are not yet competitive join the European Union, the challenge to meet European energy objectives will become increasingly difficult.

In this e-bulletin, we give an overview of the Commission's priorities and the likely next steps.

Priority 1: Achieving an energy efficient Europe

"Achieving an energy-efficient Europe" is the first priority set by the Commission whilst stating that Europe is a long way from reaching its 20% energy savings target. The Commission sets out four measures for achieving this priority.

The first measure addresses the energy-saving potential of buildings and the transport sector. The Commission emphasises the need for a new strategy enabling Member States to disassociate their energy use from economic growth by focusing on sectors that present the greatest potential to achieving energy efficiency gains. Such sectors include the existing building and transport sector, the industrial sector and the public sector. Considering the upfront costs involved in energy efficient investments and the current difficulties in accessing debt finance, the Commission will seek to incentivise both home owners and local entities to investments in energy efficiency investments. The Commission hopes to provide incentives by increasing the role of EU funding and by introducing innovative financial instruments by mid 2011. Likely measures may include a requirement to take energy efficiency into account in public procurement procedures.

The second measure aims to "reinforce industrial competitiveness by making European industries more efficient". The Commission suggests broadening the ecological design requirements for energy and resource-intensive products and proposes the introduction of energy labels for products to assist consumers in comparing products. It is hoped that this initiative will incentivise companies to invest in more energy efficient technologies.

The third measure intends to "reinforce efficiency in energy production and distribution". It proposes requiring distribution and supply companies to ensure energy savings for customers by using methods such as 'smart meters', 'white certificates' or 'public benefit charges'.

The fourth measure recommends introducing an annual review mechanism to ensure that National Energy Efficiency Measures, containing objectives and indicators, are used as benchmarks against which Member States can measure any progress made.

Priority 2: Ensuring the free movement of energy

The Commission's second priority is to build a pan-European integrated energy market by 2015. According to the Communication, electricity and gas markets continue to contain numerous barriers to open and fair competition. If a single market is to be achieved, the legislative framework to realise the 20% target for renewable energy in 2020 must be complemented by pro-active competition enforcement at national level. The Commission also believes that proper enforcement of the existing legal framework will increase investor confidence in the renewables sector. "The timely and accurate implementation of the internal market legislation" is therefore the first action under this priority heading.

The Commission's second measure consists of "establishing a blueprint of European infrastructure for 2020-2030". The blueprint is to be developed by the Agency for the Cooperation of Energy Regulators (ACER) and the European Networks of Transmission System Operators for Electricity and Gas introduced by the Third Energy Package in 2009. The Commission expects the blueprint to identify strategic infrastructure priorities and propose policy tools to implement such priorities over the next two decades.

Thirdly, the Commission intends to "streamline permit procedures and market rules for infrastructure developments". It proposes to identify projects of European strategic interest and introduce a permitting scheme, the purpose of which will be to simplify existing procedures. At this stage, it is not entirely clear how the intended measures will sit with existing national permitting regimes.

"Providing the right financing framework" is the fourth measure under this priority heading. For projects that are commercially viable, the Commission intends to define a methodology that will enable it to strike an optimum balance between private and public financing. For those projects that are not commercially viable, the Commission intends to propose innovative funding mechanisms.

According to the Commission, support schemes will also be necessary to ensure the development of renewable energy and a co-ordinated approach in respect of national support schemes across the European Union is thought to increase investor confidence in the renewable energy sector.

Priority 3: Secure, safe and affordable energy for citizens and businesses

The Commission's third priority is to "empower consumers and achieve the highest level of safety and security". In order to meet this priority the Commission has laid down two objectives: "making energy policy more consumer-friendly" and the "continuous improvement in safety and security".

To achieve the former, the Commission will attempt to introduce affordable prices for consumers by actively enforcing competition policy at European and national level. The Commission also intends to put forward measures, pursuant to the Third Energy Package, to improve consumers' participation in the energy market. Such measures will inter alia include guidance on switching supplier, clear and transparent billing and complaint-handling procedures. The Commission also seeks to make the energy market more consumer-friendly by requiring all suppliers to disclose information on their prices and by establishing a price comparison tool to be made available to consumers. In addition the Commission will enhance the legal framework for nuclear safety and security.

Priority 4: Making a technological shift

The Commission's fourth priority is to "extend Europe's leadership in energy technology and innovation". In order to do so, the Commission proposes three measures.

First, "implementing the Strategic Energy Technology Plan without delay" and more importantly the Joint Programmes of the European Energy Research Alliance and the six European Industrial Initiatives namely, wind, solar, bio energy, smart grids, nuclear fission and carbon capture and storage (CCS).

Secondly, the Commission is to initiate four new large-scale European projects to:

  1. implement smart grids to unify the entire electricity grid by linking solar plants, wind farms, hydroelectric dams and households located across Europe;
  2. achieve large-scale electricity storage by increasing hydro capacity, compressed air storage, battery storage etc;
  3. reach large-scale sustainable biofuel production and launch the €9 billion European Industrial Bioenergy Initiative to ensure consumption of sustainable second-generation biofuels; and
  4. support the 'Smart Cities' innovation partnership, to provide urban areas with the means to make increased energy savings.

Thirdly, the Commission intends to launch a €1 billion research initiative to develop science related to low-carbon energy.

Priority 5: Strong international partnership, notably with our neighbours

The Commission's fifth priority is to strengthen the external dimension of the EU energy market. To achieve this priority the Commission suggests a measure to integrate the EU energy markets and regulatory frameworks with those of the EU neighbouring countries by implementing the Energy Community Treaty in those neighbouring countries which are favourable towards the adoption of the EU market model.

As a second measure, the Commission has suggested "establishing privileged partnerships with key partners" that will uphold key principles such as transparency, safety and compliance with international law set out in the Energy Charter Treaty.

The third measure under this priority concerns the "promotion of the global role for a future of low-carbon energy" by promoting energy efficiency, clean technologies and safe and sustainable low-carbon energy in all EU co-operation activities, including an energy driven co-operation with Africa.

As a fourth measure under this priority heading, the Commission intends to promote legally binding nuclear-safety, security and proliferation standards across the globe. The Commission intends to achieve this through its co-operation with the International Atomic Energy Agency and by concluding Euratom agreements with major nuclear suppliers and user countries.

What next?

The Communication shows that energy policy remains high on the EU agenda and is a further attempt by the Commission to harmonise energy policy across the EU to aid the low-carbon transition anticipated for 2020, securing energy supplies, and establishing a competitive single energy market.

It also signals that the energy sector is likely to be the subject of further regulation: The Commission is set to propose specific legislative initiatives in relation to each of the five priorities within the next 18 months, and in preparation of these expected to publish:

  • an Energy Efficiency Action Plan in February 2011;
  • a Roadmap towards a low-carbon energy system by 2050 in May 2011; and
  • a Communication on external energy policy in June 2011.

The Commission's Communication on the development of energy infrastructure published on 17 November 2010 also forms part of this initiative.

At the same time, the emphasis on the role of the competition regime is likely to signal a continuation of the strict enforcement of competition law in the energy sector; a process which started with the Sector Enquiry in 2005.