EU Energy Law – Market Development

Policy Development

The development of EU energy policy has shifted over the last three to four decades – from a high level of public intervention in the energy sector in the 1970s and 1980s to evolution of a common energy policy in the 1990’s and early 2000s

Although the EEC treaty did not provide for the harmonization of energy policies and energy legislation. Under article 191 TFEU, the EU can pursue any environmental policy with a view to achieving those objectives – including protecting health, use of natural resources, and combating climate change.

The Lisbon Treaty, effective in 2009, made climate change a significant priority for the EU. Article 194 TFEU calls for:

  • functioning of the energy market
  • ensure energy security and supply
  • promote energy efficiency and energy saving at the development of new forms of energy
  • promote the interconnection of energy networks

The 2009 Lisbon treaty reinforced the EU commitment to sustainable development. Most energy and climate change regulation is driven by the EU and then transposed into national law.

Third Climate and Energy Package

In 2007, the Commission presented the third climate and energy package. The goals included:

  • Increasing renewable energy use to 20% by 2020
  • Increasing use of biofuels to 10% in the transport sector by 2020
  • Reducing GHG emissions by 20% by 2020 or 30% if based on international agreement

The key measures implemented as part of the package included:

  • Amended EU Emissions Trading
  • Carbon capture and storage communications
  • Revised EU state aid rules
  • Renewables directive (2009)
  • Opening gas and energy markets (2008)

A centerpiece of the framework was establishing a binding target for the EU to reduce domestic GHG emissions by 40% of 1990 levels by 2030 by increasing the share of renewable energy to 27% and the increase of energy efficiency to 30%.

The development of a low-carbon economy roadmap suggested that:

  • 2050 target of 80% reduction of GHG below 1990 levels
  • milestone targets of 40% by 2030 and 60% by 2040
  • All sectors need to contribute
EU Energy Union (2015)

As part of the third package, in 2015 the Commission adopted a framework strategy for an energy union focused on climate change policy. The Union is designed to aid the transition to a low-carbon economy and identify areas for action. The goal is to harmonize energy networks across borders. There are disparate energy systems and grids that would be integrated as part of a comprehensive union. However, the prospect faces political and practical difficulties.

EU Winter Package (2016)

In 2016 the Commission published a package of 8 proposals to facilitate the transition to a clean energy economy and reform the design and operation of the EU electric market. The 8 proposals are:

  1. A revised Directive on the Internal Market for Electricity (IMED)
  2. Revised Electricity Market Regulation
  3. Revised Renewable Energy Directive
  4. Regulation on the Governance of the Energy Union
  5. Regulation on Electricity Sector Risk-Preparedness
  6. Regulation on the Agency for Cooperation of Energy Regulators
  7. Directive amending the Energy Efficiency Directive
  8. Directive amending the existing Energy Performance of Buildings Directive
Governance of the EU Energy Union

Number 4, above, the Regulation for the Governance of the Energy Union were established to:

  • Ensure the 2030 energy and climate targets are met
  • Promote long term certainty and predictability for investors
  • Reduce administrative burdens
  • Incorporate the provisions of existing Climate Monitoring Mechanism Regulation and harmonize with the Paris Accords

EU nations will be required to develop integrated energy and climate plans on how to reach the 2030 goals, report the progress to implementing and meeting the plans on a biennial basis, and the Commission will monitor the progress of the EU as a whole as part of the State of the Energy Union report.

Liberalization of the Energy Markets

There are a number of reasons to move to a more liberal energy sector – including:

  • Promoting investment in expanding network capacity
  • Energy pricing
  • Increasing efficiency and competition

While the Commission as a whole argues that a liberal economy improves the effectiveness and competitiveness of the economy as a whole, EU powerhouses Germany and France tend to not be in favor of liberalization.

1996 Electricity Directive

Included liberalization of energy markets by:

  • Introducing a Single Buyer Model
  • Appointment of a system operator (SO) to draw up technical rules on interconnection
  • Requires the SO to develop an unbundled approach to transmission, generation and distribution
  • Regulate system access – including refusal if there is insufficient capacity or public safety issues arise
1998 Gas Directive

Only about 38% of EU gas needs are met with their own production. Central and Eastern European members are almost 100% reliant on Russian imports. The directive includes a requirement for member states to develop competitive, non-discriminatory markets in gas.

2003 Electric and Gas Directives

A second set of directives were adopted in 2003. This included:

  • Requirement for unbundling transmission and production
  • Liberalizing markets for non-household gas and electric customers by 2004, and households by 2007 – allowing customers power choice

These have proven to be challenging to implement in practice due to high concentration with national or regional monopolies blocking new entrants and controlling imports.

2007 Third Energy Package

The Third Package required foreign companies to comply with unbundling requirements before making any investments or acquisitions in the EU. The 2009 adoption of the package provided for three options for unbundling:

  • Ownership unbundling (preferred) – companies could not own both transmission and generation assets
  • Independent System Operator (ISO) – Legal unbundling, with vertically integrated firms required to hand over management to an ISO
  • Independent Transmission Operator (ITO) – allows integrated companies to retain ownership of their grids, but must give up daily management of the grid to an ITO

The package also harmonizes and strengthens the powers and duties of national regulators, ensuring that national regulators are truly independent of industry interests and mandating that regulators cooperate with each other through the European Agency for the Cooperation of Energy Regulators (ACER), and gas and electricity transmission system operators would be required to cooperate through the establishment of a European Network for Transmission System Operators (ENTSO).

EU Cooperation in the Energy Sector

The reliance on Russian gas creates significant challenges for the EU. Russia does not apply the ECT, and the 2007 Third Energy Package impacted the desire of Gazprom to invest in European projects due to the unbundling requirements. There are a number of NGO’s and IGO’s that the EU participates in to stabilize the European energy sector.

  • South East Europe Energy Community (SEEEC) – 2005 signed between the EU and 8 non-EU South Eurpoean countries.
  • Euro-Mediterranean Partnership (EUROMED) (1995)
  • Permanent Euro-Mediterranean Energy Forum (1997)
  • EU-Russia Energy Dialogue (1997)

EU Trans-European Energy Networks

The TFEU provides for a Trans European Network (TEN) for electricity and gas as well as a development of an internal market for energy. Within this framework is the EU aim at promoting interconnection and interoperability of national networks (Article 170 TFEU). This goal is focused on three sectors (transport, energy and telecommunications)