An integrated European electricity market

​12/14/2010 12:55:44

An integrated and well functioning European electricity market is a key building block of a secure, competitive and sustainable European Union. A competitive internal electricity market is a source of efficiency gains, and hence competitive prices, as well as higher standards of service. It is also essential for achieving the ambitious environmental goals of the EU at the lowest cost to society.

Fortum is of the opinion that:
• Rapid implementation of the existing EU legislation must be ensured
• Development of an EU internal electricity market through regional integration has proved to be a good way to proceed
• Large bidding areas are essential for guaranteeing the liquidity of the electricity market
• A functioning market provides the necessary incentives for investments and demand response
• Investments in strategic cross-border transmission infrastructure and large-scale demonstrations should nevertheless be supported by EU funding
• The EU should move towards harmonised RES support schemes and market-based trading
• Integration of the wholesale market should be followed by retail market integration across Europe
• European market integration should be followed by energy policy harmonisation
• Only with an integrated energy market is the EU able to use one voice in external energy relations
• Communicating the benefits of the internal energy market should be increased

 

Rapid implementation of the existing EU legislation must be ensured

Implementation of the already-agreed energy market legislation is the top priority in order to achieve the benefits of the European internal market. The Commission should monitor the situation closely and use its powers fully to eliminate the existing implementation gaps in order to guarantee a level playing field for European electricity companies across the internal market.

Fortum fully supports the new institutional set-up as established in the 3rd internal energy market package, namely the European Agency for the Co-operation of Energy Regulators (ACER) and a European Network of Transmission System Operators for Electricity (ENTSO-E) and Gas (ENTSO-G). These organisations should operate under the guidance of the European Commission, which has the main responsibility for developing the EU energy policy and for supervising the functioning of the internal market.

Development of an EU internal electricity market through regional integration

Fortum considers the development of an integrated European electricity market through regional markets and their integration is a good way to proceed. Important progress has been achieved recently but there is plenty of work that needs to be done in order to have an integrated EU-wide electricity and gas market in place by the target date of 2015. Genuine market integration requires clear rules for the co-operation and division of responsibilities between TSOs, power exchanges and regulators. The required short-term measures include rapid EU-wide market coupling of spot markets and integration of intra-day and balancing markets. The Commission should have a strong role in supervising this work in order to guarantee that the development in all regional markets follows the same principles.

Large bidding areas are essential for guaranteeing the liquidity of the electricity market

Fortum considers it important that market integration leads to the biggest possible bidding areas. TSOs must implement adequate and transparent congestion management procedures to guarantee the available transmission capacities. Small bidding areas would cause market fragmentation and hence reduce the liquidity of the market, negatively influencing the functioning of the retail electricity markets. Also, all electricity, irrespective of the production technology, should have equal and market-based access to the network.

A functioning market offers the necessary incentives for investments and demand response

As investments in the energy sector are very capital intensive with long lead-times, a stable and predictable legislative framework and a reasonable return on investment are key prerequisites for the realisation of both power generation and infrastructure investments. Fortum believes that an efficiently functioning electricity wholesale market, where market signals are not artificially limited by price caps, delivers incentives for an appropriate level of investments (and hence generation capacity) and a market-based demand response. The development of smart grids will enable an efficient hourly optimisation of demand and distributed generation. 

Investments in strategic cross-border transmission infrastructure and large-scale demonstrations should nevertheless be supported by EU funding

Market integration requires swift progress in building transmission infrastructure. Therefore, in Fortum's view, investments in strategic cross-border transmission infrastructure as well as large-scale innovative demonstrations, such as offshore wind farms and related grid investments with a clear European interest, should be supported by EU funding. A clear implementation timetable should be established for projects receiving EU funding. A common set of principles to be applied in permitting procedures throughout the EU should be established.

The EU should move towards harmonised RES support schemes and market-based trading

As market integration proceeds, the negative consequences of divergent national support schemes and subsidy competition become more evident. Furthermore, subsidy-based electricity production is not economically sustainable in the long term. In Fortum's view, the discussion should be opened about the possibility to move towards harmonisation of renewable support schemes and opening up trade for green values in Europe in the context of the assessment of the RES directive (2011). Fortum believes that harmonisation of support schemes would both improve the functioning of the market and lead to considerable cost reductions. The aim should be that after 2020 the pricing of the renewable energy will be market-based.

Integration of the wholesale market should be followed by retail market integration across Europe

Integration of the wholesale market should be followed by retail market development and integration across Europe. Efficient retail markets contribute to overall competitiveness and sustainability by empowering customers to execute their preferences through active choices. The role of customers is changing with smart meters, smart grids, decentralised production and electric vehicles. In Fortum's view, the ongoing Nordic retail market development work could serve as an example to the EU-level development. Meanwhile, it must be ensured that the development of the wholesale and retail market across the EU goes in the same direction and that the solutions are mutually supportive.

European market integration should be followed by energy policy harmonisation

In Fortum's view, European market integration should be followed by a move towards a stronger and more centralised energy policy, including more efficient policy co-ordination between the EU member states. Ultimately, the EU should have a fully integrated energy market with a centralised institutional structure. 

All relevant market-related legislation should be harmonised. Key rules and principles concerning the power sector should be the same across the internal market. In essence, all market-based generation investments should be possible in all countries, based on common safety and environmental requirements.

Only with an integrated energy market is the EU able to use one voice in its external energy relations

Only a properly functioning and integrated internal energy market can make the EU unified in its external energy relations. This would also strengthen the EU's global economic competitiveness.

Communicating the benefits of the internal energy market should be increased

In Fortum's view, communicating the benefits of the internal energy market should be increased. The benefits of a well-functioning internal energy market are evident for all stakeholders in the longer term. Public support is important also in terms of getting the necessary infrastructure investments realised.

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12/22/2011