A New European Collision in the Making?

In late September, during an informal meeting of EU energy ministers in Poland, several prominent ministers dismissed European Commission proposals – published on 7th September – aimed at strengthening the external dimension of EU energy policy. They said it granted Brussels too much power. At November 24th the European Council meeting ministers further criticized the proposals. The Council’s conclusions painfully demonstrate some of the structural flaws in today’s European Union energy landscapeⁱ.

First, the energy ministers agreed that a “fully functioning, interconnected and integrated internal energy market is an essential element for a successful external energy policy.” Recalling recent European Commission proposals for regulated guidelines for trans-European energy infrastructure – published last Octoberⁱⁱ– we are not even close to meeting that first condition. The Commission reconfirmed its earlier assessment that its existing provisions “lack focus, flexibility and a top-down approach.” In a nutshell, the problems are related to permit granting (lengthy and ineffective procedures plus public opposition), regulation (framework not geared towards delivering European infrastructure projects) and financing (limited financing capacities of operators, lack of adapted funding instruments and sufficient support). The proposals for a system of regulations will be discussed next year, but the omens do not seem positive.

A second point that was stressed by the energy ministers in the Council’s November 24 conclusions was that “the adoption of the present conclusions does not affect the distribution of competences or the allocation of powers between the EU and its Member States or between the institutions under the Treaties.” That statement illustrates one of the core friction points, namely who is in charge. Although European Commission officials suggested in September that they now had the exclusive mandate to negotiate with third countries, the reality seems to be that the European Commission joins negotiating discussions with private and public decision makers in order to advise on future contracts and make it easier for the Director General for Competition to decide on projects’ possible exemptions from EU legislation (for instance, regarding third party access). Later on in its conclusions, the Council confirms that in fact the market and its operators have the primary role in the development and financing of infrastructure, and that only in limited and well defined circumstances, for projects that are unable to attract enough market-based finance, will the involvement of EU financial instruments be envisaged.

This brings a third topic to the table that has caused a few sleepless nights throughout Europe recently: money. In June the European Commission estimated total investment needs in energy infrastructures of European importance up to 2020 at about €200 billion. In fact, the recently published Energy Roadmap 2050 estimates cumulative grid investment costs for the next four decades to be between €1.5 and €2.2 trillionⁱⁱⁱ. Currently the most urgent investments, in terms of new pipelines, increased interconnection capacity, storage facilities and reverse flow capacity, are in fact required in the Southeast of the European Union. As we witnessed with the division of funds from the European Economic Recovery Plan in 2008, money from Brussels does not necessarily flow to the places where it is most needed, as each member state wants a piece of the pie. On top of all this, throughout the European Union is it difficult to find member states that have in fact fully implemented the second and third legislative packages aimed at a more integrated internal European energy market. The Northwestern European energy market seems fairly well developed, although regulatory inefficiencies remain and some Transmission System Operators have financial difficulties to overcome.

The above sketches a troublesome cocktail: member states and European institutions agree that the status quo is undesirable, yet transfer of competences is a sensitive topic, to put it mildly. And even if agreement could be reached on a division of competences, the asynchronic development of parts of the European energy landscape can be expected to lead to debates about infrastructure financing, in particular in the Southeast of the European Union. Fortunately, the warm-up for that debate has started already.

ⁱhttp://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/trans/126327.pdf
ⁱⁱhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0658:FIN:EN:PDF ⁱⁱⁱhttp://ec.europa.eu/energy/energy2020/roadmap/doc/com_2011_8852_en.pdf