Fortum's response to the Commission consultation on the new energy strategy for Europe 2011-2020

12/14/2010 12:55:44

Fortum welcomes the overall approach of the Commission as presented in the consultation document “Towards a new Energy Strategy for Europe 2011 – 2020”. Fortum especially appreciates the strong emphasis the Commission is putting on implementation of the already adopted legislation. The Commission has a key role both in terms of monitoring the application of legislation and in assisting member states with implementation.

A competitive and properly functioning internal energy market is a source of efficiency gains and hence competitive prices, as well as higher standards of service. It is essential also for achieving the ambitious environmental and security of supply goals of the EU in the most efficient way, i.e. at the lowest cost to society. Furthermore, only a properly functioning internal energy market can make the EU unified in its external energy relations.

EU internal energy market development should lead to more efficient policy coordination between the EU member states and, ideally, towards harmonisation of all relevant market-related legislation. While respecting the right of all member states to decide on their own energy mix, the key rules and principles concerning the power sector should be the same across the internal market.

The Commission has a key role in increasing the awareness of the benefits of the internal energy markets. Poor implementation of relevant legislation may partly stem from the low level of awareness of the long-term benefits the internal energy market would provide for all EU citizens. Longer time horizons is one way of describing the common challenges ahead and showing the added value of the European energy policy. In this regard, a close alignment with the new strategy and the long-term (2050) scenarios in the move towards a low-carbon economy is important.

Fortum also welcomes the Commission’s commitment to consult all stakeholders on the preparation of the new energy strategy for Europe and wants to make the following comments on the issues highlighted in the Commission's stock taking document.

Key messages:

  • The completion of the European internal energy market is indispensable for the fulfilment of EU's policy objectives such as climate change mitigation, renewable energy sources, security of supply, competitive energy prices and higher standards of service for consumers.
  • EU internal energy market development should lead to more efficient policy coordination between the EU member states and, ideally, towards harmonisation of all relevant market-related legislation; the key rules and principles concerning the power sector should be the same across the internal market. Infrastructure development must be put in focus. The problems relating to slow and cumbersome permitting procedures should be tackled at the EU level
  • Preparation of an EU strategy for heating and cooling should be considered.
  • Energy research, including nuclear energy research, should be given a visible place in the next EU Research Programme.
  • Harmonisation of the wholesale electricity market should pave the way for the development of a European retail electricity market.   Detailed comments to the Commission document

Modern integrated grids

• The internal energy market is not only about legislation; to a large extent, it is also about physical integration. Therefore, Fortum shares the view of the Commission on the need to focus on infrastructure development.

• Internal electricity market development is progressing through regional market development. In order to reach the next step, a common European electricity market, new interconnections need to be built. There is a need for a clear top-down view on the strategic interconnections, which need to be built in order to realise this target. This requires stronger EU involvement, also in terms of the financing; having a role in financing would give the EU a stronger role also in setting timetables for the completion of the projects.

• Genuine market integration necessitates clear rules for the cooperation and division of responsibilities between the TSOs, power exchanges and regulators. Rapid EU-wide market coupling of spot markets and integration of intra-day and balancing markets are examples of the required short-term measures. The Commission should have a strong role in supervising this work in order to make sure that the development in all regional markets follows the same principles.

• Implementing the targets relating to CO2 reductions, energy efficiency and renewable energy requires development and application of new and innovative technologies for production, transmission and consumption of electricity (smart grid). In order to make this happen, grid-owners need incentives to invest in new technology. Regulators have an important role in enabling this development.

• Fortum fully supports the Commission’s intention to improve framework conditions for investments in renewing power generation and infrastructure. Stable and predictable market conditions are the key for companies’ investment decisions. Fortum believes that an efficiently functioning electricity wholesale market where market signals are not artificially limited with price caps/floors delivers incentives for an appropriate level of investments, and hence generation capacity, as well as market-based demand response.

• All electricity, irrespective of the production technology, should have equal and market-based access to the network.

• Problems relating to slow and cumbersome authorisation and permitting procedures, especially regarding renewable energy sources, create a major challenge for the realisation of the internal electricity market and hence also to the realisation of ambitious RES targets. Extensive grid investments are needed across Europe in order to take in an increasing amount of intermittent wind and solar energy without challenging the reliable operation of the power system. In order to ease permitting procedures, it is necessary to put increased efforts in raising public awareness. The benefits of a well-functioning electricity market and also the role of grid investments in the European process towards decarbonisation should be explained and communicated in a more efficient way. Also, while fully respecting the national sovereignty regarding permitting procedures, a common set of principles (including time limits) to be applied throughout the EU should be established.

• While market integration proceeds, the negative consequences of divergent national support schemes and subsidy competition become more evident. Therefore, the Commission should examine the possibilities to move towards harmonisation of renewable support schemes and opening up trade for green values in Europe in the context of the review of the RES directive (2014) at the latest. Fortum believes that harmonisation of support schemes would both improve the functioning of the market and lead to considerable cost reductions.

Making progress towards a low-carbon energy system

• In addition to replacing power production based on conventional fossil fuels with renewable and other carbon-free production, moving towards more efficient energy use and production is necessary. Smart meters and smart grids are important tools to improve demand response and increase energy savings in buildings, as well as for integrating renewable energy sources and decentralised energy production into the grid and for the deployment of electric vehicles. Utilisation of combined heat and power (CHP) generation, as well as the integration of cooling energy production into the process will also clearly improve energy efficiency in the production chain.

• A clear EU view on smart grid development is important. The EU should take the lead in developing the necessary standards for smart grids. Smart meters are a key customer-centred tool to improve the rational use of energy and to develop the demand responsiveness of the energy system. The use of smart meters with more frequent meter readings, e.g. hourly readings, and the development of smart grid applications will open up for price transparency and new market offerings for all customers, supporting the balancing of power systems and energy efficiency.

• Reducing the carbon intensity of the transport sector serves the two main goals of the EU energy policy: reducing CO2 emissions and increasing the security of energy supply. The EU needs both sustainable bio-fuels and electric vehicles. Swift progress in the standardisation of charging technology and infrastructure is needed in order to speed up the large-scale take-up of electric vehicles.

• Fortum supports the use of market-based instruments, both for moving towards low-carbon energy production and for energy saving. In our opinion, green certificates would be the most appropriate tool to promote the use of renewable energy sources in the EU. If the white certificates systems are taken into use to incentivise energy efficiency activities, it should be based on EU-level rules.

• Taxation should support the achievement of energy and climate policy targets. Taxation should also be used as a tool to put ETS and non-ETS sectors on equal footing with regard to CO2 cost. Activities covered by the EU ETS should be excluded from the CO2 tax.

• Preparation of an EU strategy for heating and cooling should be considered. There are various policies and legal measures having an impact on heating and cooling, but no clear view on the role they play in low-carbon energy production and consumption. Combined heat and power (CHP) is an efficient way of producing energy, and it is well suited for using biomass and waste, among other fuels, hence also contributing to the fulfilment of the RES targets. District heating would create the necessary heat load for CHP contributing to a more efficient energy production. Although heating and cooling is a local rather than cross-border business, the new legal basis for energy provided by the Lisbon Treaty would justify the development of a more active heating and cooling strategy for the EU.

• Nuclear is a production technology with zero or low CO2 emissions and which can also be used in CHP production thus increasing its efficiency considerably. Regardless of each member state’s right to decide on their energy mix, a European legal framework covering nuclear safety aspects, including common requirements for spent nuclear fuels, is needed.

Leadership in technological innovation

• Fortum shares the view that technological innovation is of utmost importance both in terms of reaching the ambitious energy and climate policy targets and improving European competitiveness. EU countries need to pool their resources better and establish new cooperation models in order to implement the SET Plan and large-scale industrial initiatives efficiently. Energy research, including nuclear energy research, should be given a visible place in the preparation of the forthcoming Research Framework Programme. Maintaining a broad and open view as regards different technologies is important.

• Energy-related research and innovation is currently supported through several financial instruments. Besides the Framework Programme, there are several other financial instruments available for R&D cooperation activities but the financial framework is not transparent enough. The Commission should put more effort both in simplifying the administrative procedures and in communicating the R&D financing possibilities in a more coordinated way.

• In addition to improving technological research and innovation, there is also a clear need to improve the level of energy economics in order to facilitate the development of policies and legislation that would fit into liberalised energy markets, would exploit market forces and would not create unnecessary distortions within the internal energy market.

A strong and coordinated external energy policy

• In order to be able to speak with one voice externally, the EU must be internally unified.  This requires the implementation of the internal energy market, which makes the member states interconnected and hence unified.

• Fortum supports the work for integrating European energy markets with neighbouring countries. The same set of market, environmental and safety principles and a level playing field applied also in greater Europe is an important political and economic objective.

• Maintaining and developing good bilateral and multilateral relations with key supplier and consumer countries, including emerging economies, is important. The EU should take a leading role in the standardization of low-carbon technologies both in its bilateral relations and in international forums.

• When it comes to the specific relations between the EU and Russia, it is often good to address electricity and gas and oil separately as, from the market and political point of view, they are very different. Rapid completion of the Permanent Co-operation Agreement (PCA), including a clear chapter on energy, is the target. Meanwhile, it is important to maintain an active dialogue between Russia and the EU on energy issues. In order to maintain Russia's commitment to climate change mitigation and to establish a value and market for carbon, helping Russia to improve energy efficiency would be of key importance. In this regard, the heat sector is a very important one, and supporting the development of a market-based heat market in Russia would be necessary.

Protecting EU citizens

• Fortum welcomes the Commission’s aim to put more emphasis on consumer aspects. Although the focus of the EU harmonisation has so far been on the wholesale electricity market, more attention should be paid in the future on development of the retail market. When making decisions concerning the former, their impacts on the latter must be considered.

• As stated earlier, consumers need better information on the benefits of the energy markets. The role of the EU in providing this greater awareness should be considered.

• Fortum strongly supports the establishment of regional retail markets for electricity in order to bring the benefits of competitive regional electricity market closer to EU citizens in a more concrete manner. The Nordic retail market model currently under preparation can provide the model for the rest of Europe.

• With the development of smart grids and the roll-out of smart meters, together with implementation of customer-centric, efficient retail market mechanisms, European consumers can become active participants in the energy market showing their preferences between different energy suppliers and/or products. This should pave the way towards the development of a European retail market. A common end-user market would lead to improved efficiency, due to a larger electricity market and an increased number of market players, and thereby benefit customers through competitive retail margins. A larger market would also provide customers with a wider choice of offerings and products to meet their needs. 

• While fully sharing the aim to reduce energy poverty in Europe, Fortum is against using energy legislation, including pricing, as a tool for social policy. Public support for e.g. energy efficiency improvements to the affected consumer groups would serve better in meeting also the other energy policy goals of the EU.