European Parliament votes in favor of dismantling energy giants

The European Union is currently undergoing a complex transition towards a liberalised energy market. Such a liberalisation should lower prices for consumers and allow new players, including green energy providers, to acquire a share of the market. The stakes are high as national energy giants control much of Europe's energy landscape and national interests fuel resistance to this vision. Moreover, concentration of power in the energy sector is tightly linked to the continuation of support for fossil fuel based energy supplies; the creation of a free common energy market would allow green providers to become more competitive.

One of the key strategies towards achieving a free energy market is full 'ownership unbundling' – breaking large companies into separate production and distribution operations. The European Commission has long made clear that it favours this approach as the best way to ensure fair competition and ultimately lower prices for consumers in the Union's opening electricity and gas sector.

But Germany and France - who own energy giants such as EDF and E.ON - argue that further liberalisation will threaten supply security and lead to price instability. EU leaders partly gave in to this pressure and showed only partial backing to the unbundling approach at their Spring Summit of 8-9 March. They insisted that existing European Directives on liberalisation be implemented before any further moves are made.

Some socialist forces in Europe resist the vision, saying that dogmatic liberalisation should never triumph over concerns about maintaining public service missions. Such 'public service' can best be guaranteed by national governments and (partly) state-owned energy companies.

But despite these criticisms, a clear majority of EU MEPs has now voted in favour of fully unbundling the ownership of companies that produce and transmit electricity and gas, saying that this would be the most efficient measure to tackle chronic under-investment in the network infrastructure and guarantee access to the market by new competitors.

This is a good day for European consumers, both big and small, but also for the environmental profile of the EU internal market. Indeed, it is clearly indicated by the Parliament's call for all "'subsidies for non-renewable energy sources to be eliminated'. Importantly, it is a clear demand to the Commission to address, in its September package, the question of bias in favour of coal and nuclear power production. - Claude Turmes, Energy spokesman for the European Greens

The report tabled by MEP Alejo Vidal-Quadras, has no binding character but seeks to influence Commission proposals on energy liberalisation due in September. The text lashes out at attempts by certain governments to create "national energy champions", claiming that this amounts to nothing more than protectionism.

Even if this measure [of unbundling] is not considered as the magic tool which will resolve all of the problems, it will be the best one to promote investment in infrastructure in a non-discriminatory way, fair access to the grid for new entrants and transparency in the market. - Alejo Vidal-Quadras, EU MEP (EPP-ED, European People's Party and European Democrats), lead author of the report

The report also called for an end to state-owned companies, such as France's EDF or Italy's ENEL, saying that these are contrary to free competition as they subject the functioning of the market to political considerations:

energy :: sustainability :: energy security :: renewables :: bioenergy :: fossil fuels :: liberalisation :: common energy market :: European Commission :: European Parliament :: European Union ::
The report further calls for more coordination and cooperation between national regulators since the existence of 27 different rules - one for each country - is a serious obstacle to the internal market in energy. The European Parliament proposes a harmonisation of the competences of all the national regulators and especially a reinforcement of their independence, to avoid excessive intervention of governments, as was the case in Spain during the takeover bids of Endesa, the main electricity operator.

The text backed by the plenary, also demands to put an end to regulated tariffs as these are used by some countries against the arrival of new operators in their national markets, and they are a false signal to consumers: "We are in a period where we need to optimise the use of energy and citizens need a radical change of attitude in their consuming habits, which requires that they know the real costs of energy", Vidal-Quadras explained.

Vidal-Quadras expects the European Commission to take into account the Parliament's proposals for the new legislative package to liberalise energy markets, which are due to be presented next September. In the meantime, he asked the Commission to act firmly against those countries which are not yet implementing the first package of liberalisation directives approved in 2003 "as these were enough to create a free competition market and to reach the internal energy market."

French MEPs, both from the right and the left, unsurprisingly rejected the proposal, in a sign that the Commission will face a tough battle against national ambitions when it presents its liberalisation package later this year. Despite French President Sarkozy's ideological committment to free market liberalism, liberalisation of the energy market remains a taboo, for him too. European MEP's from his UMP party rejected the report.

In a context of strong competition, with the emergence of powerful non-European operators, it appears dangerous to dismantle European energy enterprises in the name of a dogmatic competition policy that is a far cry from the industrial logic of strengthening the EU in global arena. - Statement by the UMP members of the EPP-ED

They added that unbundling would prevent traditional energy operators from carrying out the necessary investments to ensure security of gas and electricity supply, saying: "Handing this over to new entrants, which do not necessarily have sufficient financial means, or to non-European companies, which do not necessarily share our forecasts on future needs, is very dangerous and very preoccupying."

References:
EPP-ED: European Parliament calls for more legislative measures to build up a common energy market. Alejo Vidal-Quadras MEP - July 10, 2007.

EPP-ED: Séparation patrimoniale des entreprises énergétiques: les Députés européens de l'UMP expriment leur opposition - July 10, 2007.

The Greens: EU energy market: EP gives clear mandate to the Commission to break up German and French energy oligopolies - July 10, 2007.

European Commission: Energy for a Changing World.

Parliament ITRE committee: Draft report: Prospects for the internal gas and electricity market [*.pdf]

Parliament Legislative Observatory: Report: Prospects for the internal gas and electricity market.

EurActiv: MEPs call for dismantling of energy giants - July 11, 2007.