European Union: The Internal Energy Market Progress Report – The View For The CEE Member States

As part of the process of assessing the status of finalising the Internal Energy Market (IEM), the European Commission at the end of 2012 presented a Communication on the state of play in EU-27. This material is valuable for the investors in the energy sector in Europe, as it provides a comprehensive analysis of the progress reached so far under the IEM policy, as well as a road map of the priorities for the energy markets in each member state. The CEE markets share common features such as high market concentration, regulated prices for the final customers, and the need to develop and/or improve their interconnection infrastructure.

This newsletter looks briefly at the key findings of the analysis across the EU and then focuses on the priorities that the CEE markets need to address, as well as a snapshot of regulated electricity and gas prices and the pending infringement procedures for the member states in the CEE region.

As part of the process of assessing the status of finalising the Internal Energy Market (IEM), the European Commission at the end of 2012 presented a Communication on the state of play in EU-271. The Commission envisages the completion of the Internal Energy Market by 2014.

The Staff Working Document reports in detail on: facts and figures for energy consumption and supply for conventional and renewable energy in the EU, the developments of the wholesale and retail markets, unbundling and market structure, country reports, and the status of the infringement procedures under the 2nd and 3rd Energy Packages.

This material is valuable for the investors in the energy sector in Europe, as it provides a comprehensive analysis of the progress reached so far under the IEM policy, as well as a road map of those energy market priorities that from the Commission's perspective are crucial to ensuring that the jigsaw of 27 electricity and gas markets come together under one functional system.

Key Findings for the EU-27

  • Currently the EU is not on track to meet the 2014 deadline for the completion of the IEM;
  • Increased share of renewable energy: renewable energy represents 12.5% of EU energy consumption, up 4% in the last five years; there is some evidence of energy savings, especially by the industrial customers;
  • Production of crude oil declined;
  • Production of natural gas and nuclear energy – slight increase;
  • Slight fall in import dependency: 52.7% from the peak of 54.6% in 2008;
  • Fall in LNG imports;
  • Continued increase of the oil-indexed prices in long-term gas supply agreements; this marks a reversal from the trend in 2010, when the gap between oil-indexed prices and gas-to-gas prices was narrowing;
  • Hub-traded gas increased (up to 37% in 2010 from 27% in 2009);
  • Increased liquidity of the power markets and higher integration of the EU power markets due to market coupling;
  • The switching rates of the supplier are still too low both for electricity and gas. The main cause for this is that electricity and gas prices for final customers are still regulated in a substantial number of member states.

Priorities for the CEE member states

Austria

Electricity

Gas

Implementation of the day-ahead implicit flow-based electricity transmission capacity allocation for the CEE region

Decrease high dependency on imports

Building new electricity inter-connectors at the border with the Czech Republic

Tackle the problem of network congestion

Implement reverse-flow arrangements on the Austrian--Hungarian pipeline

Bulgaria

Electricity

Gas

The public provider system (dominated by NEK) should be replaced with a market-based design where generators and suppliers are free to choose their contracting partners

Set up an organised wholesale market to break down the monopoly of Bulgargaz and allow new players to enter the market

Gradually phase out regulated prices

Implement full third-party access to pipelines and virtual reverse flows on all pipelines

Eliminate all transaction–related transmission charges that distort the free flow of electricity across border

National pipeline system should be fully connected with the gas "transit" system

Continue the work on setting up a power exchange

Diversify supply in order to decrease dependence on Russian gas

Ensure the independence of the TSO2 and DSOs3

Gradually phase out regulated prices

Organise a properly functioning balancing market;

Remove regulatory obstacles to suppliers switching

Safeguard the independence of the national regulatory authority (NRA)

Continue to develop demand side measures (ie: interruptible contracts) to manage demand, especially in the event of supply disruptions;

Czech Republic

Electricity

Gas

Explore the options for market coupling with more neighbouring MSs

Noted progress in 2010/11 due to introduction of vir-tual trading point – improved liquidity and enhanced competition

Increase capacity level at certain local points of its distribution system to balance electricity from renew-able sources at local level

2011: bi-directional reverse flow capacities introduced on main pipelines

Put in place regional coordinated procedures for the calculation and allocation of cross-border capacity in cooperation with other NRAs from CEE. The Czech Re-public has the highest overall interconnection capacity of all CEE region

Continue to diversify its portfolio of supply sources

Streamline permitting procedures for infrastructure

Hungary

Electricity

Gas

Eliminate regulated prices and extra taxes

Restore non-discriminatory network tariffs and third-party access rules to cross–border interconnectors

HEO (Hungary's NRA) should be given powers to set network tariffs autonomously and to become an independent body

Diversify gas transmission routes through cross–border interconnections

Increase cross-border capacity to facilitate trade with neighbouring countries and the integration of renewable energy– regional market coupling

Implement reverse flow arrangements on unidirectional pipelines (Hungarian-Romanian border)

Set up a Hungarian gas exchange

Romania

Electricity

Gas

Phase out regulated end-users prices for non-households until the end of 2013 and for households until the end of 2017

Phase out regulated end-users prices for non-households until the end of 2014 and for house-holds until the end of 2018

Set up a functional intra-day market

Address the high market concentration at generation level and the long-term supply contracts, which are structural obstacles to more competition

Set up procedures for the allocation of capacities on interconnectors – market based and coordinate congestion management on all its borders

Implement full third-party access

Eliminate all transaction-related transmission charges

Set up an organised wholesale gas market

Review the discriminatory rules on trading on the power exchange

Ensure that transit pipelines are physically linked to the Romanian national gas system

Expand interconnectors

Ensure that the new interconnectors with Hungary are bi-directional

Update the action plan to upgrade and extend the infrastructure

Remain committed to the timely implementation of the Romanian–Bulgarian reverse flow and a new Romanian–Bulgarian interconnection

Slovakia

Electricity

Gas

Step up efforts to open the market – eliminate regulation of end-users prices

Continue its efforts to build strong North–South inter-connectors with Poland and Hungary

Cooperate with neighbouring countries to solve the problem of loop flows and enhance cross-border capacity

Step up efforts to open the market – eliminate  regulation of end-users prices

Cooperate with neighbouring countries to solve the problem of loop flows and enhance cross-border capacity

Slovenia

Electricity

Gas

Increase the cross-border capacity

Pursue more effective congestion management procedures, as the grid suffers from frequent contractual congestions at all its border points

Strengthening the national electricity grid would fill infrastructure gaps and help deal with the loop flow issues

Upgrade the transmission systems and implement the Recovery fund project

Regulated Prices for Electricity and Gas

All member states in the CEE region -- except Austria, the Czech Republic and Slovenia -- still maintain regulated prices for both household and non-household customers.

Electricity

Gas

Household

Non-Household

Household

Non-Household

Austria

No

No

No

No

Bulgaria

Yes

Yes

Yes

Yes

Czech Republic

No

No

No

No

Hungary

Yes

Yes

Yes

Yes

Poland

Yes

No

Yes

Yes

Romania

Yes

Yes

Yes

Yes

Slovenia

No

No

No

No

Slovakia

Yes

Yes

Yes

No

Infringement Procedures4

All CEE member states, except the Czech Republic and Hungary, have at least one case of infringement procedures pending. Most of the infringement procedures are for the non-transposition of the 3rd Energy Package.

The Staff Working Document can be viewed here http://ec.europa.eu/energy/gas_electricity/doc/20121217_energy_market_2011_lr_en.pdf .

Footnotes

1 Commission Staff Working Document SWD(2012) 368 final of 15 November 2012 accompanying the Communication "Making the internal energy market work" (COM(2012)663 final

2 Transmission System Operator

3 Distribution System Operator 4 Based on the national legislation notified by the member states until 29 October 2012

4 Based on the national legislation notified by the member states until 29 October 2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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