An integrated EU energy market is the most cost-effective way to ensure secure and affordable supplies to EU citizens. Through common energy market rules and cross-border infrastructure, energy can be produced in one EU country and delivered to consumers in another. This keeps prices in check by creating competition and giving consumers choices when it comes to their energy supplier.
New electricity market design
Today's electricity market differs fundamentally from the market five years ago. Firstly, the share of electricity produced by renewables is expected to grow from 25% today to 50% in 2030. But when the sun is not shining and the wind is not blowing, electricity must still be produced in sufficient quantities to deliver energy to consumers.
Electricity prices have to send the right signals to investors in order to make sure that necessary long-term investments will take place and are done as cost-effectively as possible. Finally, the market has to provide the right framework and incentives for consumers to become more active and to reap the full benefits of market integration and to actively contribute to keep the electricity system stable. To achieve all this, the Commission is proposing to redesign of the electricity market. As a first step the Commission is launching a public consultation with legislative proposals expected in the second half of 2016.
Market legislation – third energy package
The third energy package contains the latest legislation for completing the internal energy market. It includes rules on the separation of energy supply and generation from the operation of transmission networks (unbundling), the independence of national energy regulators, and retail markets. It further establishes the Agency for the Cooperation of Energy Regulators (ACER) to help national regulators work together.
The third package and other EU legislation also guarantee that energy consumers enjoy high standards of consumer protection. All EU citizens have the right to have their homes connected to energy networks and to freely choose any supplier of gas or electricity offering services in their area. They also have the right to access accurate information on their electricity and gas use that can help them reduce their consumption.
Wholesale markets for gas and electricity
Energy is often bought and sold on wholesale markets before reaching the final consumer. To ensure the smooth functioning of these markets and prevent price manipulation, the EU has enacted regulations which prohibit the use of insider information or the spreading of incorrect information concerning supply, demand, and prices.
The EU also passes rules on the use of cross-border energy networks. Known as network codes for gas and network codes for electricity, these rules regulate who can use cross-border infrastructure and under what conditions.
While access to infrastructure must generally be granted to energy companies on a non-discriminatory basis, in certain circumstances new infrastructure may be exempt from this rule. This may be necessary to implement particularly risky investments which could not be made otherwise. These exemptions are always linked to strict conditions from the European Commission.
The EU has also established the Madrid Forum which meets once or twice a year to discuss the creation of the internal gas market. Currently the Forum addresses the cross-border trade of gas, in particular the tarification of cross-border gas exchanges, the allocation and management of scarce interconnection capacity and other technical and commercial barriers to the creation of a fully operational internal gas market.
Sometimes government intervention in the energy market may be necessary to realise specific policy objectives such as integrating renewable energy. The EU issues guidance to ensure that support schemes for renewable energy and back-up generation capacity are designed in a way that does not distort the internal energy market.
Single market progress
Every year, the European Commission publishes a report on the internal energy market. The report looks at what has been achieved so far and makes recommendations for the future. The report for 2014 found many positive results from energy market integration. Specifically:
- wholesale electricity prices declined by one-third and wholesale gas prices remained stable between 2008 and 2012
- consumers have more choices when it comes to picking an energy supplier
- many missing infrastructure links between EU countries have been built or are under construction
- cross-border trade in gas and electricity between EU countries has increased. Gas pipelines are also being used more efficiently thanks to common rules on the use of gas networks
EU legislation makes sure that energy companies cannot exclude competitors from access to pipelines or withhold the construction of important infrastructure. EU rules also guarantee fair trading on wholesale markets and prevent price manipulation.