Mannheim, ZEW Conference, 5 March 2015

1. A new EU energy Policy?
Energy Union: one? None? Or many?
Mannheim– ZEW Conference
(5 March 2015)
Jean-Michel Glachant
Director Florence School of Regulation
EUI - Florence

5. Old & new ways in the short life of
EU energy policy
I. 2004-2009: Totally unexpected (by me) EU got an energy
policy (based on internal market… with a climate change pillar)
~1 Internal market / ~2 EU grid / ~3 EU RES
II. 2013-14: (Unfortunately) policy derailed… and so what? Do
we move or divorce? ~1 EU Commission / ~2 EU power industry
/ ~3 EU power grids
III. 2015-2025: (my) 5 keys for new EU energy policy? Energy
Union(s) or BAU? ~1 & ~2 Internal Market for power & gas / ~3
& ~4 (28 ways) to 2030 / ~5 External energy security
IV. 2015-2020: 3 coming Energy Union(s)?
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6. [I] 2004-2009 EU got an energy policy
What was it about?
Previsibility (foreseeability) very low: “EU energy policy” was not
foreseen in 2004; & already “packaged” in 2009!
• Game Changer 1 (2005 Hampton Court Council Tony Blair:
long life EU internal Security of Supply)
• Game Changer 2 (2007 -Lisbon treaty- Berlin Council Angela
Merkel: long life EU energy sustainability 20-20-20 in 2020)
• Game Changer 3 (2006 & 2009 Russia - Ukraine: Emergency
plans + security reg. 2010 & infrastructure package 2011-13)
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7. EU energy policy? What’s about?
[I.1] Internal Marketl Market
First and foremost (Internal Market)
¤ Not because it is logical or astute to get it to support an EU energy policy –
but because EU Commission strong & legitimate there: Internal Market
“raison d’etre” (Single Act + Treaty)
¤ We got 1st Package: *“Free Entry in Generation” ** “B2B Consumer
eligibility” *** “Free movement of goods at borders”
¤ Second Package added: full retail eligibility; transparent & market friendly
cross-border operation; regulators supporting market building; but cannot
get open wholesale pricing & sequence of markets (Day-Ahead to real time)
¤ Third Package unable to add full EU harmonization of “market design &
operation rules” >> but did set up a process to produce it with new Bodies:
*ENTSO-E to “EU” the TSOs; **ACER to “EU” the NRAs
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8. EU energy policy? What’s about?
[I.2] EU Grid
• Second to Internal Market (EU Grids)
¤ because no power market at all can work if Grids aren’t market friendly
¤ We got 1st Package: *“Third Party Access to Grids” ** “Including all
borders”
¤ Second Package did add: Regulated access to grids; regulators duties for
markets and grids; transparent & market friendly cross-border grid operation,
congestion mechanisms, grid capacity allocation
¤ Third Package unable to add full EU harmonization of “market design & grid
operation rules” >> but did set up a process to produce it with new Bodies:
*ENTSO-E(G): EU GridCodes &EU TYNDP GridPlanning; **ACER : “EU” NRAs
¤ NB: Third Package didn’t try to EU harmonization of grid tariffs making; of
grid country investment & data methodology; did miss all Distribution grids
issue AND Market Operators (wholesale exchange as PXs); NO EU regulator8

9. EU energy policy? What’s about?
[1.3] EU RES
• Only third and external to Internal Market and EU grids (EU RES)
¤ external because RES are *subsidy pushed (not market pulled –energy
market or carbon price) and **country regulated (no EU wide system of RES
push rules in 2007 -except size of countries RES quotas)
¤ EU got a split: # RES split between “green part” (out of market price & trade
order, in “own special circuit”) &”energy flow” (into EU Market & MS Systems)
* RES energy flows circulate through grids to directly enter the
demand (while being variable and not dispatched) >> very strong interactions
between RES, power system and grids operation
** NonRES can serve only “residual demand”; only what variable RES
cannot feed at each moment > very strong market interactions between RES
& nonRES (capacity “adequacy” given by amount of working RES)
¤ Small RES > small interactions; Massive RES>> massive interactions
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10. [II] 2012-2014: core assumptions derail…
5+ core assumptions have proved fragile or false & called for a
reformulation of EU energy policy frame…
• 1 Fossil fuel scarce and pricey / gas & oil “new abundance”
• 2 Fossil fuel pricey but “EU suppliers secure enough” / Russia & M-E
• 2bis Nuclear pricey but CO2 free & “secure enough” / Fukushima & EPR
• 3 Int.market to give EU power price convergence on fuel cost from CCGT
competition /RES pushed by national subsidies &national cost allocation
• 4 Putting a price on carbon everywhere relevant for sustainability /?
• 5 Green revolution, green jobs, world green manufacturing leadership /?
Uncertainties are high & Certainty very little
> Time for well-deserved EU policy break?
>>Or EU new start? But any new one?
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11. [II Cted] 2012-14 core assumptions
derail: And so what?
2014 year of questioning and redefinition by excellence.
It started in November 2013 and might end (or not) between
entry of new Commission (end of 2014) and World Paris Summit
(end of 2015)
• 1- Commission Novelties (Barroso II: Nov. 2013 to Ap. 2014)
• 2- EU Power Industry Novelties (EURELECTRIC 2014)
• 3- EU Power TSOs Vision ( TYNDP 2014)
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12. [II.1] Derailed? Commission novelties
June 2012: make your choice - November 2013: some guide lines – January
2014: Berlin 20-20-20 “game over”. Competitiveness & costs back to top
• June 2012 - Options for RES policy post 2020 / S2: Only “Carbon Price” is
risky and unfavorable to technology innovation / S3: National RES targets
risk EU fragmentation and high unit costs but favors decentralization &
distributed Gen. /S4 EU RES target and harmonized frame favor costs
reduction, cross-border investments, large scale innovation but with +grid
& system costs
• November 2013 - Guide lines for RES support till 2020 / Only small units
& less mature RES (as off-shore & bio-mass) keep FiT / big unit and
deployed RES only FiP & Tgy neutral auction (ex: On-Shore or PV 1MW)
• January 2014 - Framework post 2020 / *“EU binding”GHGtargets +**“MS
only” RES target & “appropriate “ EU governance for MS action plans
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13. [II.2] Derailed? Eurelectric own novelties
At least 3 noticeable differences (Eurelectric Manifesto February 2014)
• Single target being GHG emission (– 40%); carbon market (“carbon
pricing”) as most cost-effective instrument for decarbonisation
• Concentrate all state aid on RD&D and increase spending on technology
demonstration
• Build long term generation investment adequacy on market based
“Capacity remuneration mechanism” coordinated at Regional Level
(implicit: carbon market won’t make it)
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14. [II.3] Derailed?
ENTSO-E: power TSOs’ novelties
At least 2 visible differences (ENTSO-E TYNDP2014 & Florence Forum May 14)
• 1/ Vis-à-vis Eurelectric:
NO to that type of “Capacity Mechanism” <TSOs do not have to collect
money to finance generators (in distress or not)> Only sound mechanism is
for “flexibility services” delivery measured to TSOs
• 2/ Vis-à-vis Commission:
OK OK Commission has “Top Down” vision(s) being
*“Green Revolution” (still ambitious Commission: EU binding RES target); or
**“The Money –still- rules” (you won’t find the money to be EU ambitious)
But TSOs also have “Bottom Up” vision(s) being
*“Slow Progress” (Members States do not follow Commission at all); or
**“Green Transition” (Member States do it BUT only at country level)
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[III] 2015-2025: (my) 5 keys for new EU energy policy?
5 not 8: Grids, R&D, C02 not detailed…
• 1- The internal electricity market: currently European crisis… with any
European remedy? But #Wholesale; #Retail…
• 2- The internal gas market: a last mile needed, or one thousand miles
more?
• 3- EU @28 national ways from 20-20-20 to 2030: could “2030@28” lead
us (as EU) somewhere vis-à-vis 2050?
• 4- The “2030@28” policy governance: any EU frame for this “2030@28”
energy policy to work with “internal market”?
• 5- External energy (security and policy): at least some Ext.Energy Union…
or only continuing existing @28 Ext.Energy Disunion?
+ another key simplification… I only contrast a “mini” & a “maxi” option for
each of these five key issues
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[III.1](sl.1) The internal electricity market:
European wholesale crisis with any European remedy?
• Prices too low for generators… thermal &RES…> no entry @current price
And so what? It is a market “full stop”.
Is this sustainable? No market-base entry?
• 1.1/1 EU Wholesale market “mini”:
Only a few fixes added to existing EU Power Target Model …
*core of fixes: “really reflexive market for flexibility”
At intra-day and real time horizons
*AND core of remedy: end of life for redundant plants (CCGT euthanasia)
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[III.1](sl.2) The internal electricity market:
European wholesale crisis with any European remedy?
• 1.1/2 EU Wholesale market “maxi”:
New EU “Market Target Model” needed to reach sustainable “technology
choice / investment decisions / operation of power system” …
> “policy pushed amount of RES” hurts market signals
>> energy markets cannot work “normally” when generation technology &
capacity choice are not market-base
>>> at least 3 ways of change:
/ For entry into supply:
*LT power price guarantee;
**LT grid access guarantee
/ For system operation:
***Sht.T flexibility & responsiveness
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[III.1](sl.3) The internal electricity market:
A “smart retail” boom coming?
• First: “populist retail explosion” (Bulgaria; Sp & Fr deficits; UK bill
politics)? I do not know how EU might deal with populist explosion.
• Then Second: I will address only “smart retail explosion”… (from DR to
Google, Uber, etc)
• 1.2/1 EU Retail market “mini”:
Let market forces do / sufficient to get a “No regret” EU platform … as:
*EU minimal common standard of operation
(as: def. new retail services / def. ITC protocol)
**+ cyber security frame
***++ mini unbundling distribution
(only data ownership? Some new services?)
>> CEER options to come to EC
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[III.1](sl.4) The internal electricity market:
A “smart retail” boom coming?
• 1.2/2 EU Retail market “maxi”:
Really need full “smart retail EU 3d Package” as …
*EU retail market “Target Model”,
**full distrib. grid unbundling,
***EU level grid codes and ITC codes,
** **EU level methodology for distribution grid planning and regulation,
** ***an ENDSO-E twinning & mirroring ENTSO-E
But the US do not need all this cumbersome arsenal…
Yes : Us in the EU are really like the US – we did notice it since a while…
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[III.2] (sl.1) The internal gas market: a last mile
needed, or one thousand miles more?
• Yes EU faces two types of shocks *US & Saudi Arabia for price – **Russia?
for volume?
• And so what? Could we really do anything to prepare or respond?
• 2.1 EU Gas wholesale “mini”:
¤ No market is built only for addressing too specific types of shocks
¤ Let market work (Sh.T / LT) : that’s it
¤ Only to consolidate existing EU Target Model we need very few …
*few connections West-East;
**some capacity allocation & balancing regimes here;
***market coupling there
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[III.2] (sl.2) The internal gas market: a last mile
needed, or one thousand miles more?
• 2.2 EU Gas wholesale “maxi”:
Of course no “purely” market base remedy to earthquake…
hence public intervention as:
*checking National Security Plans consistency;
**linking National Plans & TYNDP
***creating EU stocks/ flows monitoring;
** **new investment vehicles for TSOs undertaking “non commercially
viable” investments as LNG T. or External interco.
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[III.3] (sl.1) EU @28 MS “target sets” from 20-20-20 to
2030: could it lead us (EU) somewhere?
• End of Berlin-2007 demanding triple targets:
• Hence “deep renationalization” of 2030 EU energy targets?
• Frankly: why to worry about? Willingness to act is political & national
• And why not to worry?
• 3.1 – 2030@28 Target “mini”:
Exiting RES priority …
and scaling back to CO2 only target (GHG Cap)
+ some R&D and International Green funding.
¤ > See Stern& Calderon report for UN. Sept 2014
¤ >> NB they also call for:
*full fossil subsidy phasing out
** progressive coal ban…
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[III.3] (sl.2) EU @28 MS “target sets” :
could it lead us (EU) somewhere?
• 3.2 - 2030@28 Target “maxi”:
OK (Fall 2013 to Oct 2014) We won’t see EuCouncil changing its mind soon
BUT:
Energy efficiency target for “coalition of the willing MS”? (1/2 MS or so?)…
1- doesn’t touch national energy mix
(from RES to coal, nuclear & shale gas);
2- has “growth support” flavor : buildings
(+ “circular” & “sharing” economy)
3- time come to discuss National Action Plans
(see Germany / new EU “California industry paradox”?)
+ questions business models… (national only?)
+ … also market & regulation principles (EU open or MS trench)
+… org. financing & bankability (within Juncker’s fund plan? EIB?)
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[III.4](sl.1) The “2030@28” governance:
any appropriate EU frame for this new policy?
• 28 country ways to go to 2030: we know
• Could Commission cope with it within existing <Internal Market +
Competition> tool box?
• We wonder: Why not? How?
• 4.1 - 2030 Governance “mini”: Do not worry…
¤ Be EU market happy…
¤ EC has all needed weaponry in Internal Market & Competition Policy:
no need to do more than:
*all RES in an open market;
**all capacity mechanisms being DG Comp compliant;
***all retail market and demand response rules being Internal Market & DG
Comp compliant
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[III.4](sl.2) The “2030@28” governance:
any appropriate EU frame for this new policy?
.2 - 2030 Governance “maxi”: Do not dream…
You cannot frame demanding non-market issue GHG sustainability only with
market-related tools (even Carbon Price doesn’t act) …
Time to discuss new governance & new ad-hoc powers: {“Energy Union”}?
*market &grid regulatory powers at EU level;
**carbon tax &fossil subsidies; powers at EU level
***plant & car emission caps powers at EU level;
** **neighboring NAP consistency approval powers at EU level; etc…
Whom?
*Commission itself?
** what about Euro-bodies ”Expertise” as Acer? Entso? Endso? EnMOs?
***Much more Bottom Up? Regional MS, NRAs, Mos & TSOs? >> time for
regional “blossoming”?
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[III.5] (sl.1) External energy (security &policy): some
Ext.Energy Union… or only @28 Ext.Energy Disunion?
• External energy security @28? Why? What would you like to achieve?
• See EU “Border Security” as dirty war in Ukraine (Donald Tusk Pdt
EuCouncil yesterday: how weak we are; how well it is known worldwide)
• 5.1 External energy “mini”: best friends? BAU!
Our best friends to get the max from external energy CONSTRAINTS are our
twin internal markets / gas & power… …
# The more flows will flow &arbitrage work: the best possible we will get…
# Because our markets pool all resources @EU level
# We cannot get ideal resources only the ones available : we then only need
to let them freely flowing inside the EU > as in the US > hence EU Internal
Market
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[III.5] (sl.2) some Ext.Energy Union…
or only @28 Ext.Energy Disunion?
• 5.2 External energy “mini+”:
(Oettinger + Tusk) Market? Yes BUT++ because EU internal markets give
their best only IF all their external borders are put INSIDE our internal EU
frame … as:
*interconnections planning & unbundling (ex. Morocco – Spa – Por- Fra);
**interconnections access & tariffs;
***energy supply bilateral “agreements” & “contracts” compliant with
Trade, Internal Mark & Competition EU policies;
+ Why not some case by case “Joint Venture” or “Single Buyer”?
One could add:
** ** “real” integration between EU Internal markets-grids &EFTA (CH – NR)
+ Energy Community markets & grids (UKR or Serbia)
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[III.5] (sl.3) some Ext.Energy Union…
or only @28 Ext.Energy Disunion?
• 5.3 External energy “maxi”: (J. Delors in 2010; H. Kohl; etc.)
only an Energy Union with substantial powers could put EU on track for
external energy security EU external energy security too close from “hard
security affairs” being key MS sovereign powers (as: immigration, terrorism
or cyber attacks)…. Challenges faced today by EU for energy security as big as
“European Defense Community “&“European Coal &Steel Community” in the
50’ + US not anymore our “World Cop” >> EU answers needed as big as in 50’
• Content: ALL option“mini+” [*interconnections planning&unbundling,
**access&tariffs; ***supply bilateral agreements&contracts compliant with
Trade, IntMark & Comp. Policies; +** ** integration between EU Internal
markets-grids and neighboring markets-grids]
+ any other “external energy policy matter” (from EFTA, Energy Community
to Energy Charter & Neighboring Policy)
>> put in a new Treaty bidding EU MS with new rules & new laws…
>> or voluntary “Pro-Treaty”: a Schengen-like alliance of the willing MS…
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[IV] (sl.1) 3 coming Energy Union(s)
EnerUn 1- Reforming Market Design
Draft 25 Feb. 2015 European Commission :Towards an Energy Union
1- 4th step Internal Market (1996 – 2002 – 2009 – 2016 > 2021)
*Legislation in 2016; retail & wholesale; integrating RES; phasing out non
market based support; coordinating Capacity Mechanisms .
**Legislation Electricty security of supply in 2018 (> 2023? If Regulation
2021?)
-------------------------------------------------------------- Governance issues------------
***Review framework 3d Package notably for ACER (to get the power of
Europeanizing regulation) & ENTSOs (as regional operation entities to create)
****Propose guidance for « regional cooperation for market integration »
and to cat at regional level wih Regu. Bodies, MS and Stakeholders
*****Create « Energy Infrastructure Forum » with MS, Regional coop.
Groups, and EU institutions (ACER? Banks?) by late 2015
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[IV] (sl.2) Energy Union(s) Draft 25 Feb. 2015
Security of Supply
2- Security of Supply (mainly External SoS; from inside EU or from outside )
*Legislation: Revision Gas SoS Regulation by 2015-2016
**implementation of existing PCIs with adequate financing
***Strategy for LNG and its storage
---------------------------------------------From outside---------------------------
** Next Eu. Concil 19-20 March : explore feasibility of gas joint-buying
mechanism
***Legislation: Revision « Decision International Agreement » for Commission
to intervene ex ante before signature of agreements with 1/3 countries
****Coordination (Commission / HR-VP / MS) to create international
diplomacy for energy & climate issues; to seak for international treaties (as
TTIP) or within WTO to give a frame to international access to ressources and
to invest abroad; and launch new bilateral initiatives (as agreement with
India, with China ;etc) in field RES, Ener.efff, etc.
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[IV] (sl.2+1) Energy Union(s) Draft 25 Feb. 2015
Security of Supply
2- Security of supply (additional) ---------------from internal SoS----------
**(Legislation Electricty security of supply 2018)
***(Review framework 3d Package notably for ACER (to get power of
Europeanizing regulation) & ENTSOs (as regional operation entities to create
having SoS tasks))
****Propose guidance for « regional cooperation for market integration »
and to cat at regional level wih regu. Bodies, MS and stakeholders
*****Create « Energy Infrastructure Forum » with MS, Regional coop.
Groups, and EU institutions (ACER? Banks?) by late 2015
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[IV] (sl.3) Energy Union(s) Draft 25 Feb. 2015
2020 - 2030 etc Targets
3- Other fields of action larger than internal market :
*Legislation to revise Energy Efficiency directive & make proposals to meet
2030 targets
**RES package by 2016-2017 (with sustainable & cost-effective biomass,
biofuels
***Strategy to facilitate invetment in efficient « Heating & Cooling »
****create Smart financing for smart buildings fund + to push MS and regions
to use more the funds to renovate housings
*** **Legislation to achieve GHG reduction target set in oct 2014 both in Ets
& non-ETS sectors
*** ***Legislation comprehensive Road Transport Package covering
efficient infratructures pricing; rool-out of intelligent transport; enhancing
energy efficiency + Strategy for transport Research & Innovation agenda
**** *** *Revision Plan (Strategic Energy Technology) as EU R&I priorities
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How to conclude?
EU energy policy future: many possible Energy
Union(s)? Nothing written yet: open policy game

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Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
Follow me on Twitter: @JMGlachant already 6 193 tweets
My web site: http://www.florence-school.eu