The Internal Energy Market: key to decarbonising Europe

22 February 2013

The European Union is committed to fighting climate change and reducing the carbon footprint of the European economy to almost zero, as indicated by Heads of State when they agreed back in 2011 to 80-95% greenhouse gas emissions reduction target by 2050. In order for the EU to ensure a timely decarbonisation of its economy, as indicated in the European Commission's roadmap Towards a low carbon economy in 2050, our current energy system has to go through a radical transformation.

Today, February 22nd, Energy Ministries are meeting to discuss the internal energy market, a key issue that will determine whether or not the EU can transform its energy system accordingly and thus reach its decarbonisation goals.

Within the next decade, about 40-50% of the total power generation infrastructure has to be replaced. The decisions we take today will have a long-term impact, as large infrastructure projects have a lifetime of 20 to 40 years. We need to ensure that investment decisions today are choosing winning technologies – i.e. renewables.

Some member states' governments feel that there is under-investment in energy generation infrastructure so in a few years we will not have security of supply. That's why they are introducing national mechanisms such as "capacity payments" to reward energy capacity. However, there is not yet sufficient evidence to show that this under-investment will happen. In the near term, we have 2020 renewables targets, which continue to drive investments.

There are many problems inherent in these types of national mechanisms. They can distort the positive effects of competition in the internal EU energy market. Capacity payments may be unlawful with regard to state aid, according to the European Commission's communication on the internal energy market [1]. They only address generation, neglecting the huge potential from demand‐side management, energy savings and storage solutions and do not provide fair conditions for participation by all market players. In some cases, they do not even differentiate between flexible supply (e.g. gas) and inflexible supply (e.g. nuclear). Such mechanisms favour mature generation capacity (i.e., fossil fuel- based) over demand‐side and flexible renewable energy, thereby undermining the basic goal of a single market and decarbonisation.

CAN Europe believes that for these reasons, capacity mechanisms will slow down further progress toward the completion of the internal energy market. They will very likely delay or prevent the needed investments in grid interconnections, as well as in demand side measures and storage, which are the cornerstones of tomorrow's flexible and decarbonized EU energy market.

The European Commission had a public consultation on the need for capacity mechanisms and on how to properly assess the need to ensure security of supply. CAN Europe's response can be downloaded here.

Further Reading

CAN Europe's press release response to the  European Commission's Communication on the Internal Energy Market (Sep 2012)
CAN Europe joint letter to the Commission on Internal Energy Markets (7 Nov 2012)

Notes

[1] http://ec.europa.eu/energy/gas_electricity/internal_market_en.htm (November 14, 2012)

Photo Credit: NASA Earth Observatory