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European Energy Market Integration


Achieving the Internal Energy Market by 2014 remains a key goal of the EU. But integration needs to be speeded up to create greater flexibility in a system that is increasingly being dominated by intermittent generation against a backdrop of a stagnating Eurozone.


THE COMMISSION SHOULD tolerate no delays in completing the internal energy market by 2014 and should strongly push for further progress, according to industry body EURELECTRIC, the association of the electricity industry in Europe. They represent just one of the many bodies and associations active in the European energy space who have become increasingly vocal in trying to steer policy and influence Brussels to take stronger action on European energy market integration. Moreover, they have increased calls for a system


approach to renewables and for stronger coordination of national market design changes. For example, the intended integration of power markets could be thwarted by national barriers to trade by changes to power market designs that reward utilities for guaranteeing back-up plants when renewable power falls short (known as ‘capacity markets’) which are under consideration in Germany and the UK. “The importance of rapid market integration


remains undiminished ... with an integrated European energy market key to shifting to a low-carbon economy at the lowest possible cost,” EURELECTRIC insist. However, as the latest European Energy Market


Observatory (EEMO) study from Capgemini confirms, in a period of economic uncertainty, governments and regulators are putting extra pressure on utilities, jeopardizing not only future profitability but also much-needed investment in energy infrastructure. The economic crisis has resulted in price volatility


and a stagnation in European energy consumption, causing downward pressure on utilities’ earnings and stock performance. “Plans by several countries to revisit their energy policy in the wake of the Fukushima accident, new taxes and an EU compromise text in place from 2014 penalizing utilities whose customers do not achieve certain energy savings have placed an even greater burden on them,” according to EEMO. Faced with a required €1 trillion investment in energy infrastructure over the next decade, utilities must plan for the long-term in increasingly difficult short- term conditions. Colette Lewiner, Energy and Utilities Advisor at Capgemini says: “Governments should be careful not


to kill the goose that lays the golden egg, especially as large utilities are currently divesting from Europe. Undermining utilities attempts to make much- needed investment in energy infrastructure could be costly once the economy rebounds and demand for electricity and gas increases again.” The economic crisis has also revealed the lack of


clear and effective European governance and political unity in the energy sector – particularly in the areas of energy security of supply, energy imports, climate change and energy efficiency. At the same time, different parts of the region are taking increasingly divergent decisions on the structure and mix of their energy intentions. Although oil prices have remained high owing to


geopolitical issues, the economic crisis in Europe and the US – and weaker growth in China and Brazil – has caused stagnation in the consumption of gas and electricity. In the US, producers are exploiting shale gas at very


competitive rates, driving US gas prices down, and by 2015 the US will overtake Russia as the world’s largest gas producer, according to the latest World Energy Outlook from the International Energy Agency (IEA). However the situation is different in Europe as gas


is not an ‘international market’ and as long-term gas contracts are oil price indexation based, resulting in much higher gas prices, with continental Europe long- term gas prices approximately 300% higher than the US, according to Capgemini analysis.


“Governments should be careful not to kill the


goose that lays the golden egg, especially as large utilities are currently divesting from Europe”


Low gas prices in the US have resulted in a coal


surplus – driving the cost of coal down in Europe – prompting the closure of several gas plants and a potential loss of 10,000 MW between now and 2014. However, these European gas plants are badly needed to back up renewable energy generation and help the grid cope with spikes in demand. Thus launching capacity markets to allow those plants to remain viable is a priority measure for the industry, EEMO confirms.


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