The potential for an integrated EU energy market has been a key priority for the European Union and an important topic for the Lithuanian EU Council Presidency. In order to accomplish a fully connected energy market, efforts have been made to put in place the right regulatory and infrastructure conditions.
A common energy policy for the EU
Although energy has been a core policy area since the beginning of the European construction process, the Central and Eastern Europe countries’ adhesion to the EU was responsible for the increasing importance given to a common energy policy. In 2009, the European Commission and the representatives of the Baltic Sea region signed the Baltic Energy Market Interconnection Plan as an attempt to overcome their regional energy vulnerability and isolation from European gas and electricity energy networks.
In a broader EU perspective, the lack of investment in the energy sector, together with the high and volatile energy prices and the aging energy infrastructures raise concerns over the inability to respond to an increasing energy demand for consumption at the European level. According to current projections, it is also considered that the EU will continue to rely on energy imports in the future, over 90% of total EU oil consumption and 70% of total EU gas consumption.
Facing energy supply challenges in the future, it has been recognized the need for more investment in energy infrastructure for electricity, gas and oil at the EU level. On 4 February 2011, the European Council agreed to complete the creation of an EU-wide internal energy market by 2014. In early 2013, the same institution adopted the regulation on guidelines for trans-European energy infrastructure in order to create the required conditions to meet EU’s climate and energy policy objectives by 2020: competitiveness, sustainability and security of supply.
The new regulatory framework sets a long-term EU strategic vision and aims to qualitatively and quantitatively improve energy infrastructures to optimise Europe’s energy network development. To do so, twelve priority strategic trans-European energy corridors and areas were identified, at the same time that it provides for the identification of Projects of Common Interest (PCIs).
Based on this new regulation, significant steps have been taken in the past few weeks towards a European integrated energy market.
Setting a list of key energy infrastructure projects
On 14 October 2013, the European Commission adopted an EU-wide list of 248 key energy infrastructure projects to ensure future energy supply. The PCIs on energy were selected according to the priorities and criteria set in the regulation mentioned above. To be included on this list, the energy infrastructure project must have significant benefits for at least two Member States, contribute for market integration and competitiveness, enhance security of supply and contribute to climate policy objectives, such as to reduce CO2 emissions.
As projects of major regional interest and cross-border impact, the construction of such infrastructures is of significant importance to reach the EU goal of creating an integrated energy market and to ensure that no Member State remains isolated from the EU energy networks. The majority of the PCIs on the list are electricity and gas transmission lines. But there are also some projects on electricity storages, underground gas storages, LNG terminals and smart grids.
The listed projects will benefit from faster and more efficient permit granting procedures and improved regulatory treatment, as well as more transparency and public participation. Due to more efficient environmental assessment procedures, project promoters and authorities will also benefit from less administrative costs.
EU funding may be provided through the Connecting Europe Facility (CEF) instrument under which a €5.85 billion budget has been allocated to trans-European energy infrastructure, as negotiated within the next multi-annual financial framework (2014-2020). There are two possibilities to get financial support under the CEF instrument: grants or financial instruments made available in cooperation with financial institutions (i.e. loans, project bonds, equity instruments).
As key infrastructure projects, PCIs will help Member States towards energy market integration, enable them to diversify their energy sources and to reduce energy isolation faced by some of them. Besides the competitiveness and economic benefits on a global level, it is expected that those key investment projects will contribute to increase cross-border flows and security or supply. In that sense, some projects to be financed have more strategic added value than economic payback.
Additionally, EU’s external energy policy is not disregarded in that document either. The first list of PCIs includes also some non-EU countries and, in the future, the interconnection with third countries may be considered towards the possibility of a pan-European energy market.
This list will be updated every two years in order to integrate new relevant projects and remove obsolete ones. The document was transmitted to the European Parliament and Council for decision.
EU energy market: more transparency, more security
Nearly a week after the European Commission adopted the list of PCIs, the Lithuanian EU Council Presidency and the European Parliament reached an agreement aiming to improve transparency on notification of energy deals at the European level, including with third countries such as Russia. This agreement aims to generate more and better data through biennial reporting by Member States, strengthening goals of energy security and market integration. National governments will have to give more details of planned and existing energy infrastructure to the European Commission in order to increase coordination on energy matters. By doing so, it becomes easier to identify infrastructure gaps and to coordinate deals with energy companies.
“Due to significantly changing energy landscape within and outside the EU in recent years, investment in energy infrastructure becomes a crucial issue for securing the Union’s energy supply,” said the Minister of Energy of Lithuania, Jaroslav Neverovič following the agreement. Neverovič added that the new energy context requires investment in new and all types of energy infrastructure, as well as in new technology.
More transparency and better coordination towards energy market integration will have outreaching benefits at the EU level. Connecting energy infrastructure, together with supporting regulatory and political conditions, will contribute to reduce market dependency on a limited number of sources and to improve market’s energy and security of supply at the lowest possible prices. Finally, the recent policy developments in the energy sector will also have a significant impact on the welfare of the EU citizens and competitiveness of the business sector.
The High-Level Conference on Energy, “Completing the Internal Energy Market: Building an Integrated European Energy Network”, took place on the 4-5th November 2013 in Vilnius, Lithuania. The list of infrastructure projects adopted by the Commission was officially presented at this Conference, being reiterated their importance to achieve an internal energy market goal.