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 has fundamentally changed since 2009 when the latest legislation was introduced. The share of electricity produced by renewables is expected to grow from 25% today to 50% in 2030. But when the sun doesn not shine and the wind does not blow, electricity must still be produced in sufficient quantities to deliver energy to consumers.
Markets need to be improved to meet the needs of renewable energies and attract investment in the resources, like energy storage, that can compensate for variable energy production.
The market must also provide the right incentives for consumers to become more active and to contribute to keeping the electricity system stable.
On 30 November 2016, the Commission proposed a package of measures including new rules on EU energy market design in order to help energy markets include more renewables, empower consumers and better manage energy flows across the EU.
They also contain measures that ensure that state interventions designed to make sure there is sufficient energy available are only used when really needed, and in a way that does not distort the internal electricity market.
Integrated markets and systems also require EU countries to cooperate more closely when preventing and managing crisis situations. Today, crisis measures are often taken at the national level , taking account of the national context only, and this can undermine market function, entail risks for others and drive up the energy bill.
The Commission proposed a new set of rules for EU countries when preparing for and managing crisis situations. It will require EU countries to cooperate with each other to ensure that the remaining electricity goes where it is most needed.
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. The EU has issued guidance on government intervention designed to support the availability of adequate electricity in the system known as capacity mechanisms. On 30 November 2016 the Commission also proposed new rules on state support designed to ensure adequate energy supplies as part of a larger legislative package.
Market-based energy prices lead to more competition, more innovative services for consumers and more opportunities for savings, so the Commission is working towards achieving retail electricity prices set by markets and free from government intervention.
Under the legislation proposed in November 2016, targeted price regulation such as social tariffs will be permitted for a transition period to help vulnerable consumers until their situation can be helped by appropriate energy efficiency and social policy measures.
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.