The “Energy Union” for Europe is a dream that the European Commission will find hard to realise with its existing powers limited to the internal market and competition law, says Jean-Michel Glachant, Robert Schuman Chair, Director of the Florence School of Regulation and Director of the Loyola de Palacio Energy Policy Programme at the European University Institute. In an interview with Energy Post, he applauds the ambition behind this creative renaming of EU energy policy, and discusses three forms he believes an Energy Union could take: “Eurelectric-Eurogas” (the internal market), “Tusk-Oettinger” (security of supply) and “Vinois-Delors” (innovation, consumers and sustainability). But none of the three are very realistic. Without institutional change, Glachant fears, the scope for “Union” is limited.
Professor Jean-Michel Glachant has worked on energy policy since April 1994. He is an economist with a PhD from La Sorbonne University. He is or has been advisor to the European Commission’s transport and energy, competition, research and energy departments and coordinator/science advisor to a whole host of European research projects.
Before the new European Commission was installed and the idea of an Energy Union was launched, he wrote a pamphlet entitled: Manifesto: A new energy policy for the European Commission?
The question mark says it all: in this, the third interview in a special series on the Energy Union, Glachant applauds the European Commission’s ambitions for EU energy policy, but questions how far it can take them without a rebalancing of powers in favour of Brussels. Completing the internal market has been rendered “extremely demanding” because of the renewables revolution; creating an Energy Union around security of supply is questionable – how united is Europe really on this front? – and a Googlisation of the energy sector is “extremely appealing” except that the whole energy industry is against it. Current institutions and policies are unsuited to deliver an energy system transformation, but Glachant expects the Commission to leave no stone unturned when it presents its proposals on 25 February.
Q: What for you is the Energy Union?
A: It’s an empty box, it’s only a word, it has no precise content yet. It is not an institution or an organisation. That’s the key thing to have in mind: the Energy Union does not exist yet.
Q: But we have had some indications from the Commission on what might be in it, notably at the Energy Union conference in Riga on 6 February.
A: The first question to ask is: why is the Commission using a new tag to discuss something we already discuss for 8 to 10 years – in other words, EU energy policy.
In my mind, the first reason is that the 20-20-20 policy [for 20% greenhouse gas emission cuts, 20% renewables in the energy mix and 20% energy savings] did not deliver [on the three energy policy goals of decarbonisation, competitiveness and security of supply]. Perhaps because of the financial and economic crisis. Perhaps because innovation in manufacturing in the US and China was much more robust than we expected [making it harder for Europe to stay competitive]. And do we really have a secure EU energy supply? You can shift to other suppliers [than Russia for gas] but it will take time, efforts and money.
For all these reasons, the former policy is blocked. The [EU] Council [of Ministers] has bluntly said “we are sorry, but for 2030 we will not reproduce the policy of 2020”. So it was astute [of the Commission] to say, let’s restart with something new. It’s called the Energy Union. But it’s not a Union [in a true sense] because we have no new institutions and we have seen with the banking crisis that to get to Union you need new institutions.
Q: What kind of an Energy Union do you think Europe could have?
A: I see three possible types. The first is the “Eurelectric-Eurogas” type [Eurelectric represents the European electricity industry and Eurogas the European gas industry]. We have to finish off the internal market. For example, Eurelectric is totally in favour of a European regulator. This type of Energy Union is about transforming the internal market and competition policy into something more coherent.
We will really know the likely content of the Energy “Union” in spring 2016. Before then we will mainly talk
The second type has two big versions in my mind. Let’s call the first “Tusk-Oettinger” [after former Polish Prime Minister Donald Tusk and former EU Energy Commissioner Günther Oettinger]. The principle is “sorry guys, but external energy security is key”. And while the internal market is good, it cannot deliver this. [Instead] we have to put foreign affairs, trade policy, neighbourhood policy and the sovereign power of Member States into the Energy Union box.
They make one very good point: the [EU] market has borders that are not Europeanised. Each country treats its border with a third country as a national border. When Spain wants to interconnect with Morocco and negotiates tariffs, investments, rules of access etc, they are doing EU external energy policy but they do it on a national basis. It’s the case everywhere in EU. This cannot work anymore.
Third, we have the [Jean-Arnold] Vinois/Delors Institute report. What Vinois adds which is really different is that we need more than the internal market and Europeanisation of our EU borders. This “more” includes stronger innovation, stronger consumer involvement and a fully integrated sustainability policy. We need a fundamental transformation of the whole energy sector. Demand has to become a kind of king, as we see in the telecoms and Internet sectors. To get this, you need R&D, retail [market] opening and system innovation. You also need to care about consumers and data privacy.
In my mind, both “Oettinger-Tusk” and “Vinois-Delors” are asking for new content for EU energy policy, but how will they get that with existing institutions? How could it work? The Commission is powerful on the internal market and competition policy, but for the rest, it’s more a kind of European International Energy Agency (IEA) – it can say something relevant or really smart but it has no effective power. This is already very visible in the area of National Renewable Energy Action Plans. Countries have [had] to do these plans for 2020. The Commission can say a plan is not good, but the country does it how it wants.
This [approach] will be generalised to totally new areas – efficiency and demand response, for example. We will have a European IEA with weak power, except if there is a coalition of the willing. Could Germany, the UK, the Netherlands and say Belgium push for a certain policy compatible with the European frame that after a while becomes more or less Europeanised? Market coupling was born that way. It was born in the Benelux with France and later became the model for Europe. This is possible. But there are no guarantees.
So I understand very well that [former German Chancellor Helmut] Kohl said a few months ago: you are dreaming, you want to address challenges as big as Europe [had] in the 1950s but with the Commission’s existing market tools. It will not work. [Former Commission President Jacques] Delors said the same thing five years ago. But today Delors does not say this anymore because it seems he thinks that the existing institutional frame won’t change anyway.
The Commission will do its best to open a debate, to make proposals, and it will take us one year or more to know what is feasible and what is not. So we will really know the likely content of the Energy “Union” in spring 2016. Before then we will mainly talk.
Q: So the Energy Union is nothing new while we don’t change the power balance?
A: Yes. It’s astute to rename things [though] because sometimes by renaming we open new doors. I congratulate the Commission for this: trying to re-open the EU energy policy box. It’s a trick to say you’re not more ambitious. Will this trick work? The Commission unveiled five topics for new legislation in Riga: energy efficiency, gas security of supply, power security of supply, market design and the EU Emission Trading Scheme (ETS). If you forget the EU ETS, the other four are at the core of the energy market and are very demanding stuff in reality.
If you want to revamp the market to fully swallow the renewables revolution, it’s an enormous piece of work
Take energy efficiency. It’s a target which has been refused [as binding] by the Council but it will come back because we have a coalition of the willing – half the Member States are said to be in the coalition. The other three topics are all the core of the internal market and competition policy. They’re put on the table as “we do not change anything at the core of our institutions”. But remember that in itself new legislation is a powerful tool for the Commission. Although of course some of these legislative proposals might be entirely blocked, while others will be totally restructured.
Q: What is the best that can be done with the current institutional set up?
A: That’s a very good question. I do not believe in perfectly ending [completing] the internal market. It’s extremely demanding because renewables destroy the former “energy only” market equilibrium. They enter with a long-term contract for their fixed costs but then they deliver for free so the market is flooded. It’s impossible to run our power market the way it was conceived in the 1990s. And if you want to revamp the market to fully swallow the renewables revolution, it’s an enormous piece of work.
You then need to give a long-term direction to the change of the system towards full economic sustainability. We do not have it yet. The EU ETS [alone] will not do it. The idea that we will do it on the basis of the internal market and DG competition is therefore very questionable.
With regard to the second type of Energy Union, security of supply has political momentum but given the divisions we Europeans have vis-a-vis Russia, is it realistic? I’m not sure. Maybe we [only] have a coalition [of the willing] inside the EU. Publicly, an analyst of the UK government said in a workshop a few weeks ago that of course the UK government is not consulting its [energy] regulator on energy security of supply because it’s a purely political duty. Each government can say it’s purely political, it’s sovereignty and sovereignty means me.
Can you bring about enormous change in the energy system if most generators and the grid operators are against?
Vinois’s approach opens up the Googlisation of the energy system. Or its Hawaii-nisation – in Hawaii the local government is looking to transform utilities into a neutral market platform so new companies and services can take the lead. It’s extremely appealing, but the whole [energy] industry is against. Can you bring about enormous change in the energy system if most generators and the grid operators are against?
The grid operators do not say they are against but they are not facilitators of what we call the Google, Uber, Airbnb, Apple, Pay etc revolution. They look to a much calmer transition. This puts them on the “Sony path”. Sony was good. They invented the portable CD player. But when digitalisation entered the competition with for example Apple, Sony was so installed in other devices, other services and other business models, it couldn’t move in the same direction as Apple.
If you think of EDF, Endesa, ENTSO-E and ENTSO-G as Sony, they offer new things and invent add-ons but they can only really prefer to block a “data-based revolution” because they have too much to lose. I do not see how Vinois will make it. I hope that I am wrong. I would like Europe to be in the vanguard of the 2030 energy transformation, but I see it as very, very hard to get at European level.
Q: So we cannot expect existing internal market and competition policy to give us even a functioning market?
A: You have seen the saga of nuclear support in the UK. The UK government did everything possible on earth to get the investment. The Commission did everything to please the UK even if it is difficult to swallow that such state aid is acceptable and in line with competition policy. I do not believe in it one minute, but let’s accept it. Even this does not tell us that the investment will be done. EDF does not yet have its consortium of companies really ready and has not yet signed an agreement with the UK government. Maybe it will be unable to sign before the election and depending on what the election says, the agreement may never be signed at all. The transformation of the energy system we are talking about is enormous and with the baggage of the existing rules and decisions, it’s not obvious to make it work, not at all.
The first option of “finishing our internal market” also has a big deficiency – it’s not very appealing politically. You are saying “that old programme we started in 1986, the single market, let’s finish it”.
Q: Is there any appetite at all in Europe to go for a more European energy policy?
A: Yes, everywhere you will find a real appetite for this or for that. I think you will find a lot of Member States signing up to energy efficiency, internal and external security of supply, and the retail revolution – several governments would like to see Europe doing something in this area but I do not know how this heterogeneous landscape can be transformed into a consistent European policy, it’s still so fragmented.
Q: So to go forward, do we have to rely on coalitions of the willing and a more regional approach?
A: I am sure that the Commission in its forthcoming communication will open all possible doors. One is to create an interlocuteur unique [single supervisor for energy policy] but it’s sort of what Juncker did by naming Vice Presidents [including one for the Energy Union]. Another trend is to give more space for action to existing bodies of expertise – ACER [Agency for the Cooperation of Regulators], ENTSO-E [electricity TSOs] and ENTSO-G [gas TSOs]. The problem is that these bodies are either a bit conservative or a bit weak.
The Commission alone it won’t deliver that much because where it’s really powerful is on the internal market and competition policy, while we’re talking about security of supply, innovation, demand response and energy efficiency
After that I agree you can also have regional approaches. In the US many state initiatives become regional because federal energy policy is weak. But [in Europe] we are waiting for results. What are the Member States of the North Sea delivering? What about the Pentalateral Foum? The Visegrad alliance?
Q: The issue at the heart of the Energy Union is governance.
A: Yes, for several reasons. One, we are in a new world. We have strong powers being decentralised. Coordination among them is key. And this is a typical governance issue. The Commission has weapons to be a powerful coordinator but alone it won’t deliver that much because where it’s really powerful is on the internal market and competition policy, while we’re talking about security of supply, innovation, demand response and energy efficiency.
Nevertheless we use in the EU since decades tools conceived for one target to reach others.
Internally, the Commission could become more coherent. [EU Vice President for the Energy Union Maroš] Šefčovič has identified 14 EC silos [that affect energy policy]. If those 14 were already working together, that would be an enormous change of governance. We also have ACER, ENTSO-E and ENTSO-G, but we don’t have a body for DSOs [Distribution System Operators] or market operators. Maybe if they do not arrive the Commission could take action. We have seen with the 3rd [energy market liberalisation] package that something the Commission cannot get as rules in a directive, it can get in other ways. Let’s see how the Commission will use the existing European bodies of expertise.
And then there are regional initiatives. Market coupling was a TSO initiative, later backed by regulators and after that by governments. On security of supply, ENTSO-E is today voluntarily creating binding regional security of supply initiatives.
Q: What kind of institutional change do we ideally need to see?
A: I will give you only one example. ACER has little power compared to the national energy regulators. But imagine that the ACER Board was able to take decisions for all the European regulators. It would be incredible. Imagine too that the Secretary General of ENTSO-E was given control of the ENTSO-E agenda. It would be fantastic. DSOs today are in a fragmented, chaotic landscape but maybe tomorrow a sub-section will start being progressive enough to become an ally of the Commission to make things move.
I personally dream of it but don’t think we will get it. If you look at financial markets, they’ve said the Commission is going to propose a European financial regulator and already France, Germany and the UK have said they’ll block it.
Q: Does institutional change imply a change to the EU Treaty [which currently lets Member States choose their fuel mix for example]?
A: We might have unforeseen big changes coming out of the Treaty. For example Šefčovič has said once or twice that every Member State will have the right to comment on its neighbour’s energy transition policies. This would have no strong immediate consequences, but in the long run it could end up pushing most EU countries to think in a more European way.
This is the fourth article (and third interview) in a series on the Energy Union published by Energy Post in the run-up to the Communication on the Energy Union from the European Commission which will be published on 25 February. See also:
Karel Beckman, The Energy Union: It’s Now or Never for a European Energy Policy (18 February)
Sonja van Renssen, A “J’Accuse” from an ex-EU official: only a real Energy Union can save the EU energy market (Interview with Jean-Arnold Vinois, 3 February)
Sonja van Renssen, interview Georg Zachmann, Bruegel Institute: “The EU must go for an Energy Union – or renationalise energy markets” (20 February)