By Andris Piebalgs (1)
When a market opening takes place, experts focus their analysis on its macroeconomic consequences: new business frameworks, economies of scale, investment opportunities, you name it. However, in the case of energy market liberalization, the main goal of the European Commission has been to guarantee its citizens the right to a secure an affordable energy supply during a time of rising oil and gas prices and acute lack of investment in the energy sector. The legislative measures proposed by the Commission yesterday, the so-called Third Package, had consumers, companies or citizens as its main beneficiaries. It is therefore legitimate to wonder whether an open market is going to benefit citizens, and the aim of this article is to explain how.
The first advantage citizens are going to experience in the new open-market scenario is rooted in the very heart of democracy. I mean freedom. Well-functioning markets, in which newcomers have the opportunity to offer energy services to citizens, will mean a real choice for consumers. Since July 1, 2007, citizens have had the legal right to contract their energy services from the company of their choice. Many European consumers are already enjoying this right, but in other parts of Europe, where markets are not completely open, this right remains legal, but not real. With the current unbundling rules, companies that control energy production and transmission networks make it difficult for new entrants to use their pipes or their high-tension cables to access their markets. It was therefore necessary to strengthen unbundling rules to allow newcomers to enter closed markets and allow consumers to change their suppliers if they so wish. If I can put this more strongly, without effective unbundling, there is no freedom of choice.
I’m convinced that with either of the two options proposed yesterday by the Commission (ownership unbundling or a full-fledged Independent Transmission System Operator) the problem of free access to transmission networks will be solved once and for all. Furthermore, national regulators will have enhanced powers to ensure the competitive and efficient use of the network, and their job will be enforced by a new group of European regulators who will be empowered to make binding decisions on cross-border issues. Last but not least, a set of new transparency rules will provide all market players with the necessary information to take appropriate decisions.
The Commission expects that the outcome of this set of measures will mean that existing companies extend their operation beyond their natural borders, that new companies find their place in the market, and that new services are created to satisfy the expectations of a more demanding sort of consumer. Freedom of choice will indeed dramatically change the role of citizens in the field of energy. Instead of being passive recipients of a service, they will become active players in the market. They will be able to change their supplier if they encounter poor-quality service, if under-investment makes them victims of supply interruptions, or if they consider that the prices offered by their supplier are unacceptably high. Freedom of choice for consumers will also allow them to participate in the fight against climate change, since they will be able to choose suppliers that offer low-carbon or renewable energies.
Less emissions
Providing consumers with the opportunity to change their supplier is only one of the ways in which the new package of measures for the internal energy market will contribute to reducing greenhouse gas emissions. There are two more. First, competition brings energy efficiency, particularly for electricity producers who will no longer be able to afford any loss of energy in its transmission or generation. Secondly, the Emissions Trading Scheme needs a well-functioning market to be effective. In a closed market with captive consumers, energy producers simply pass the price of the carbon emissions that they continue to produce on to the electricity bill of their clients. In an open market, the price of carbon emissions is a great incentive toward efficiency, low-carbon sources and Carbon Capture and Storage (CCS) technologies.
The new package of measures will bring numerous advantages to citizens through freedom of choice in an open market. Our experience with other open energy markets shows that lower prices, more innovative products, and a higher quality of service will follow. As I’ve mentioned before, an open market will also contribute to reducing greenhouse gas emissions and combating climate change. But there is also third way in which citizens will benefit from the open energy markets: security of supply.
Lately European citizens have fallen victim to blackouts and threats of gas supply disruptions. Of course these incidents cannot be put down to a single reason. However, lack of investments was an important factor. Aging generation capacity and transmission networks, and the need for new supply routes to diversify our supply are strongly needed – and the funds are there. The problem is the lack of real market conditions. If the market does not send the right price signals and is not subjected to real competition, few investors are going to risk their capital, despite an obvious growing demand. However, we are confident that an open market will attract investment, making the energy sector not only a vector of growth and jobs by itself, but an important factor in advancing the growth of the European GDP due to more competitive energy prices. This is why I am convinced that the liberalization of the energy market is also good for existing energy companies and for others that may come up in the future. Breaking national borders and creating a single energy market of 480 million people will certainly offer energy companies new business lines, economies of scale and new investment opportunities. The package of measures that the Commission adopted yesterday is by no means targeted against our energy industry, as some have suggested. When the Commission prepared this set of measures it certainly considered the legitimate interests of European companies seriously. But the interests of European citizens come first.
(1) Andris Piebalgs is European Energy Commissioner.