In a keynote speech at the Financial Times Global Energy Leaders Summit 2012 held in London the chairman of Iberdrola, Ignacio Galan, called for the creation of a single regulator for the European energy sector.
The speech rightly highlighted the barriers to a single European energy market. He noted a range of diverging energy policies, and underlined the damage to investment and inter-European competition from unstable regulatory frameworks and barriers to entry respectively. Datamonitor sees two sets of issues in creating a single EU energy market, the structural or physical infrastructure, and the virtual or policy/regulatory infrastructure needed to integrate the national markets and allow energy companies to compete outside their home market. Both require the regulatory powers of a single regulator that transcends national borders.
Recent analysis by Datamonitor largely supports Mr Galan’s comments. Many European utilities have identified the problem of insufficient investment in grids and interconnectors and barriers to entry to other markets, all of which prevent the creation of a single EU energy market. The barriers are such that Datamonitor considers a single regulator to be the most expedient way to accelerate progress in harmonising the markets.
Where cross border projects are concerned a super regulator is clearly required. A common strategy, network codes, and oversight of those codes are needed, which is best implemented at an EU level. In particular, a regulator could ensure that utilities can access cross border capacity and ensure transparency in interconnection trading. In the absence of transparent and fair cross border regulation, it is likely that investment in interconnection capacity will remain insufficient.
For an efficient EU energy market, the physical infrastructure – interconnection capacity and effective grids - is integral. Yet such infrastructure is highly capital intensive, complex, and in particular, long term, and which therefore calls for planning to ensure the infrastructure is fit for purpose in the future. At present there are bottlenecks in interconnection capacity in Continental markets making it difficult for companies to sell power to end users in neighbouring countries, as many national wholesale markets remain illiquid.
Once the structural barriers are tackled, the second step for a central regulator is then to create the conditions to harmonise the virtual structure, including a myriad of tax laws, subsidies, renewable energy support mechanisms and market reform packages. The regulatory and policy landscape in Europe is sufficiently complex and diverse that it requires a central regulator to gain sufficient strategic perspective and enforce compliance. A central regulator could hope to create the conditions for efficient inter European trade, ensure stability to encourage investment, and allow prices that reflect supply and demand. It would therefore be a decisive step towards a common European energy market.
Written by Yasmin Valji
Analyst within Datamonitor's Energy & Utilities team.
Follow Yasmin on Twitter: @YasminV_DMEN
No comments:
Post a Comment