Communication from the Commission to the Council and the European Parliament - Report on progress in creating the internal gas and electricity market SEC(2010)251
Date: 2010-03-11
Institutions: European Commission
Subjects: domestic market, economic recession, electrical energy, energy consumption, energy grid, energy policy, energy supply, gas, price of energy

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EUROPEAN COMMISSION  

Brussels, 11.3.2010 
COM(2010)84 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Report on progress in creating the internal gas and electricity market 

SEC(2010)251 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Report on progress in creating the internal gas and electricity market 

A. CONTEXT  

In  late  2008  and  2009,  the  world  was  hit  by  the  financial  and  economic  crisis.  This  had  a 
direct  impact  on  the  demand  for  energy,  causing unpredicted  falls  in  the  price  of  oil  on  the 
international markets. This, in turn, impacted on gas and electricity prices. 

A  dispute  between  two  companies  outside  the  EU  (Gazprom  of  Russia  and  Naftogaz  of 
Ukraine)  led  to  an  unprecedented  crisis  in  the  EU's  gas  supply.  Between  6  and  20  January 
2009,  gas  flows  from  Russia  to  the  EU  via  Ukraine  were  interrupted,  affecting  several 
Member States. 

2009  was  also  an  important  year  because  the  third  internal  energy  market  package1  was 
adopted  on  13  July  2009.  The  third  package  strengthens  the  regulatory  framework  that  is 
needed in order to make market opening fully effective, in the interest of achieving the lowest 
possible energy prices, better energy security and sustainability.  

This  report2  discusses  how  the  developments  described  above  have  impacted  on  the  EU 
electricity  and  gas  markets  over  the  past  year  and  how  they  are  likely  to  affect  market 
developments in the future.  

B. DEVELOPMENTS IN KEY AREAS, DEFICIENCIES STILL TO BE ADDRESSED 

1. Implementation of legislation 

In  order  to  complete  the  internal  electricity  and  gas  market  and  prepare  the  ground  for  the 
implementation of the third package, it is essential that the rules of the current Directives are 
implemented  correctly3.  In  June  2009,  the  European  Commission  initiated  infringement 
procedures  against  25  Member  States  for  electricity  and  against  21  Member  States  for  gas. 
The  key  violations  identified  lack  of  transparency,  insufficient  coordination  efforts  by 
transmission system operators to make maximum interconnection capacity available, absence 
of regional cooperation, lack of enforcement action by the competent authorities in Member 

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This  package  consist  of  five  new  legal  acts:  Directive  2009/72/EC  concerning  common  rules  for  the 
internal  market  in  electricity  and  repealing  Directive  2003/54/EC;  Directive  2009/73/EC  concerning 
common  rules  for  the  internal  market  in  natural  gas  and  repealing  Directive  2003/55/EC;  Regulation 
(EC) No 713/2009 establishing an Agency for the Cooperation of Energy Regulators; Regulation (EC) 
No  714/2009  on  conditions  for  access  to  the  network  for  cross-border  exchanges  in  electricity  and 
repealing Regulation (EC) No 1228/2003; Regulation (EC) No 715/2009 on conditions for access to the 
natural gas transmission networks and repealing Regulation (EC) No 1775/2005. 
The  input  for  this  report  comes  in  two  forms:  national  reports  submitted  by  national  regulators  and 
Eurostat data on end user prices. The national reports were submitted to the Commission in the second 
half  of  2009  and  they  mainly  cover  2008;  Eurostat  data  were  available  for  the  first  half  of  2009  and 
were retrieved on 26/01/2010. 
Directive 2003/54 and Directive 2003/55. 

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States  and  the  lack  of  adequate  dispute  settlement  procedures4.  In  October  2009,  the 
Commission  launched  further  infringement  proceedings  against  two  Member  States;  these 
proceedings related to gas transit and storage5. 

The  Commission's  infringement  actions  resulted  in  the  European  Court  of  Justice  censuring 
SE and BE for having incorrectly implemented the provisions concerning the competences of 
the  national  regulatory  authorities  with  regard  to  network  tariffs6.  In  another  case,  BE  was 
condemned for having failed to designate a gas TSO7.  

At the same time, the Commission is helping Member States to transpose the new Directives 
of  the  3rd  package  correctly  and  on  time  (i.e.  by  3  March  2011).  The  Commission  has 
published  interpretative  notes  on  unbundling,  national  regulatory  authorities  (NRAs),  retail 
issues and gas storage8. 

2. Market integration  

Graph 1 – EU-27 monthly gross consumption of electricity 

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Source: Eurostat Energy Statistics 

The most obvious impact of the economic crisis was the significant fall in the consumption of 
gas  and  electricity.  Year  on  year,  the  EU-27  electricity  consumption  remained  relatively 
stable,  but  fell  by  12%  and  7%  in  April  and  May,  respectively.  Consumption  started  to 
recover thereafter, but it was still substantially lower than in previous years. 

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IP/09/1035, see: 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1035&format=HTML&aged=0&langua
ge=EN&guiLanguage=en  
IP/09/1490, see: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1490&language=en  
Case C-274/08 (Sweden) and case C-474/08 (Belgium). 
Case C-475/08. 
http://ec.europa.eu/energy/gas_electricity/interpretative_notes/interpretative_note_en.htm  

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The  decline  in  gas  consumption  was  even  more  significant.  Between  January  and  March 
2009, gas consumption (in EU-27) dropped by around one fourth. This drop is partly due to 
the  interruption  of  gas  supplies  from  Russia  via  Ukraine,  but  even  after  the  crisis  in  March 
2009 EU-27 gas consumption was still more than 16% down on the March 2008 level. 

Graph 2 – EU-27 monthly consumption of natural gas 

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Source: Eurostat Energy Statistics 

Volumes and liquidity on wholesale market 

By comparison with the significant declines in electricity and gas consumption in the first half 
of  2009,  volumes  on  most  of  the  wholesale  markets  have  stood  their  ground  quite  well. 
Although  liquidity  in  general  has  gone  up,  trading  activity  on  the  EU´s  gas  hubs  and 
exchanges  remains  ‘thin’  compared  with  power  markets.  On  the  electricity  derivatives 
markets,  the  financial  crisis  seems  to  have  helped  to  produce  an  increasing  shift  towards 
cleared  transactions  as  a  means  of  reducing  counterparty  risk.  A  positive  trend  was  the 
development of hub trading in DE due to the integration of entry-exit zones. 

Another  trend  is  the  consolidation  of  European  power  exchanges.  EEX  (European  Energy 
Exchange)  and  Powernext  jointly  launched  EPEX  (European  Power  Exchange),  a  spot 
exchange in FR, DE and CH, while APX covers NL, BE and UK. Moreover, Nord Pool Spot, 
EPEX Spot and OMEL (ES) have launched a project for a pan-European price coupling. Gas 
exchanges were created in AT and DK, while IT is planning to start a gas exchange in early 
2010.  

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Graph 3 – Liquidity on the electricity wholesale spot market 

Liquid (>30% spot trade/consumption)

Some liquidity (15%< <30%) 

Little liquidity (5%<<15%) 

No liquidity (<5%)

The regulatory framework for traded wholesale power and gas markets is attracting increasing 
attention. With regard to existing European financial and energy regulation, there is concern 
that the current regulatory framework for these markets is not delivering effective oversight or 
sufficient  transparency.  The  Commission  is  therefore  examining  a  possible  legislative 
initiative in this area in 2010. Moreover, the Commission launched the procedure to adopt a 
decision amending the transparency guidelines annexed to Regulation (EC) No 1775/2005. 

Infrastructure investments 

The Second Strategic Energy Review, published in November 20089, sets the priorities for the 
EU  in  the  field  of  energy  for  the  coming  years.  The  priority  for  gas  and  electricity 
infrastructure  is  to  develop  the  energy  networks  and,  in  particular,  to  tackle  cross-border 
bottlenecks, congestion and missing infrastructure links.  

The  European  Energy  Programme  for  Recovery  (EEPR)  is  helping  to  secure  and  speed  up 
investments  in  the  energy  sector,  and  thereby  has  a  direct  impact  on  the  EU  economy  and 
employment.  It  is  also  helping  to  improve  the  security  of  supply  of  the  most  vulnerable 
Member States and connect ‘energy islands’ to the rest of the EU energy market. This plan, 
which  has  been  endorsed  by  Council  and  Parliament10,  makes  a  sum  of  EUR  2.365  billion 
available for gas and electricity interconnection projects.  

The work done in the regional initiatives 11 

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Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the Regions - Second Strategic Energy Review: 
an EU energy security and solidarity action plan COM/2008/0781 final. 
Regulation (EC) No 663/2009, OJ, L 200/52, 31 July 2009. 
See also "Safeguarding the move to a single EU energy market" ERGEG Regional Initiatives Progress 
Report – November 2009. 

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The  regional  electricity  initiatives  have  focused  on  improving  congestion  management 
allocation  and  calculation,  harmonising  transparency  and  integrating  market  balancing.  The 
Central-East, Central-South  and  Central-West regions will soon have a single set of auction 
rules at regional level. In the Central-West region, the single auction office now works on the 
basis of harmonised auction rules. The next step is to implement flow-based market coupling. 
Market coupling has also been introduced at the DE-DK interconnectors; the introduction of 
market coupling at the IT-SI border is being explored. A consortium of energy exchanges has 
started testing a pan-European price coupling concept.  

The  Florence  Forum  endorsed  the  work  of  the  Project  Coordination  Group  (PCG)  for  the 
development of a model to harmonise interregional and, in due course, EU-wide coordinated 
congestion  management,  and  its  work  on  the  proposal  for  a  roadmap  including  concrete 
measures.  Future  work  will  focus  on  three  implementation  projects  under  a  new  Ad  Hoc 
Advisory Group (AHAG). 

The  regional  initiatives  for  gas  have  concentrated  on  five  priorities  in  2009:  new 
interconnection  capacity,  access  to  pipeline  capacity,  transparency,  interoperability  and 
security  of  supply.  The  most  striking  examples  of  progress  in  each  of  these  priority  areas 
include:  the  launch  of  an  'open  season'  procedure  to  assess  market  demand  and  allocate 
capacity for the FR-ES interconnector; the launch of the secondary capacity platform in DE, 
NL  and  DK  offering  firm  capacity  on  a  day-ahead  basis;  publication  of  daily  data  on 
transmission  capacity  and  flows  in  the  North-West  region;  exploration  of  ways  to  enhance 
reverse flows within the South-South-East region; and the conclusion of interconnection point 
agreements  and  operational  balancing  agreements,  and  the  implementation  of  EASEE-gas 
Common Business Practices. The work on security of supply focused on improving the level 
of preparedness in Member States, improving access to storage and installing reverse flows.  

The  different  levels  of  progress  in  implementing  the  gas  and  electricity  regional  initiatives 
undoubtedly  contribute  to  further  market  integration.  In  some  cases,  the  results  are  quite 
significant, for instance in the CWE-region. In some areas, such as balancing, it seems to be 
more  difficult  to  make  effective  progress,  despite  the  continued  efforts  of  regulators  and 
stakeholders.  Moreover,  progress  in  most  regions  has  been  insufficient  to  achieve  full 
compliance  with  the  provisions  of  the  current  Gas  and  Electricity  Regulations  –  which 
resulted in the infringement cases being brought in June 2009. 

The future role of the regional initiatives  

The  future  success  of  the  regional  initiatives  depends  on  how  they  are  able  to  adapt  to  a 
number  of  challenges.  The  first  challenge  is  to  match  the  "bottom-up"  approach  of  the 
regional  initiatives,  and  the  more  "top-down"  approach  of  the  third  package,  especially  in 
relation to the drawing up of framework guidelines and network codes. Secondly, there is the 
risk of divergence if different regions implement different solutions to tackle similar issues. In 
order to address these challenges, the Commission intends to adopt a Communication on the 
future  role  and  shape  of  the  regional  initiatives,  which  might  address  issues  such  as  the 
development  of  a  common  market  model,  the  identification  of  an  appropriate  format  of 
stakeholder involvement and the need for political support from Member States for regional 
integration.  

A positive development is the fact that Member States are becoming increasingly engaged in 
regional  integration.  In  June  2009,  the  European  Commission  and  eight  Baltic  Sea  Member 
States (DK, DE, EE, LV, LT, PL, FI and SE) signed a memorandum of understanding on the 

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Baltic Energy Market Interconnection Plan (BEMIP). In December 2009, a “Memorandum of 
Understanding  regarding  the  Central  Eastern  European  Forum  for  Electricity  Market 
Integration” was signed between AT, CZ, DE, HU, PL, SK and SI. 

3. Concentration and consolidation  

There  seems  to  be  a  slight  tendency  towards  decreasing  concentration  in  the  electricity 
wholesale market in terms of capacity. In the reporting period, a decrease of the Herfindahl-
Hirschman Index (HHI) was reported in no fewer than 10 Member States. This tendency was 
particularly pronounced in BE, SI and SK – although the market remains highly concentrated 
in BE and SK. Progress on the SI market resulted in a lower level of market concentration. 
This progress is therefore visible in individual Member States rather than in the regions. The 
high level of concentration on the electricity wholesale market is confirmed by the fact that 
the market concentration was moderate in only seven Member States12.  

On  gas  wholesale  markets,  the  concentration  remains  high.  In  10  Member  States,  the  three 
largest  wholesalers  have  a  market  share  of  90%  or  more13.  The  share  of  the  three  biggest 
companies decreased in only five Member States (BE, FR, HU, IT and ES). Notable increases 
in  the  overall  market  shares  of  the  largest  three  suppliers  were  experienced  in  RO,  and 
especially in BG (+57%)14.  

In  the  electricity  retail  market,  the  market  share  of  the  three  largest  companies  in  the  retail 
market  as  a  whole  was  above  80%  in  14  Member  States15.  In  comparison  to  the  previous 
reporting period, the market share of the three largest companies in the whole electricity retail 
market  decreased  significantly  in  HU  and  SI.  In  SK,  the  market  share  of  the  three  largest 
companies rose by 25%, although the total market share of the three largest companies was 
limited to 60%. For the gas retail markets it is difficult to gain a proper overview, because of 
the lack of figures for 11 Member States.  

4. Price trends  

The  oil  price  on  the  international  market  suffered  from  the  effects  of  the  global  economic 
crisis. Whereas the Brent crude price peaked around 92 €/bbl ($147) in  July 2008, it went as 
low as 27 €/bbl ($37) by  the end of 2008, i.e. a decrease of 70 %. The Brent crude price then 
increased in 2009 despite a weak demand. This development reflects both supply restrictions 
imposed by OPEC as well as improved market sentiment. By mid 2009 the Brent crude price 
traded at around half of the price of the peak in July 2008.  

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See table 3.1 and 3.2 of the Technical Annex. 
See table 4.2 of the Technical Annex. 
See table 4.1 of the Technical Annex. 
See table 3.4 of the Technical Annex. 

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Brent crude FM12

Brent crude spot

Graph 4 – Evolution of Brent price in €/bbl 16 

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90 €/bbl

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Source: Platts 

The  changes  in  the  oil  price  have  a  direct  impact  on  gas  wholesale  prices,  given  the  link 
between  oil  and  gas  prices  in  many  long-term  gas  supply  agreements.  These  gas  wholesale 
prices in turn influence electricity wholesale prices.  

Hub prices were substantially lower than the oil-linked prices in long term contracts due to the 
economic crisis, increased LNG upstream capacity and the success of unconventional gas in 
the  United  States.  Although  this  put  pressure  on  the  price-setting  mechanism  of  the 
continental European long term gas contracts, it also created opportunities for competition by 
flexible supplies traded on liquid gas hubs, since they were cheaper than long term contracts. 

16 

See also 2009 Annual Report of the Market Observatory for Energy TREN/69693/2009 Figure 30, p. 
27. 

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Graph 5 – Price of competitive fuels (left axis) versus gas prices (right axis)17 

140 €

120 €

100 €

80 €

60 €

40 €

20 €

0 €

35 €/MWh

30 €/MWh

25 €/MWh

20 €/MWh

15 €/MWh

10 €/MWh

5 €/MWh

0 €/MWh

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9

2007

2008

2009

(left axis) Brent Spot Euro/bbl
(left axis) Coal CIF ARA Spot Euro/t
(right axis) NBP DA index (Euro/MWh)
(right axis) DE border (Euro/MWh)

Source: Platts and BAFA 

The  2008  benchmarking  report  highlighted  the  increases  in  gas  and  electricity  prices  as  a 
result  of  rising  oil  prices  on  the  international  market  in  the  first  half  of  2008.  As  oil  prices 
started to fall as a result of the economic crisis, a similar pattern was to be expected for the 
gas and electricity prices in early 2009. 

In the first half of 2009, gas prices for industrial consumers fell in most Member States (on 
average by 7 to 12%)18. In LT, SE and PL the prices were down by more than 20%. In most 
Member States households were able to benefit from a decrease of around 8 % on their gas 
bill. In BG and LT , on the other hand, household gas prices increased by 11 % or more; this 
is probably due to the fact that these Member States have regulated prices and had to adapt 
them to market prices. 

Electricity  prices  remained  relatively  stable  when  comparing  the  first  half  of  2009  to  the 
second half  of 2008. Electricity consumers  faced more  significant increases in FR, LT, LV, 

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See also 2009 Annual Report of the Market Observatory for Energy TREN/69693/2009 Figure 52, p. 
48. 
Compared to the prices of the second half of 2008. See table 5.13 of the Technical Annex.  

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PT, SI and SK (industrial consumers) and in LU, SI and PT (households); at the other end of 
the  scale,  electricity  prices  in  CY,  DK,  IE,  RO  and  SE  (industrial  consumers)  and  BE,  CY, 
PL, RO and SE (households) decreased considerably19. 

In a majority of Member States, however, prices in the first half of 2009 were still higher than 
in 2008, although the trend in the oil prices would indicate a more significant fall in end user 
prices.  In  part,  this  may  be  due  to  the  time  lag  with  which  changes  of  the  prices  on  the  oil 
market  are  factored  into  the  end  user  prices.  However,  it  appears  that  the  fall  witnessed  in 
wholesale energy costs has not been fully reflected in end user prices.  

5. Independence of network operators 

The number of Member States going beyond the present requirements of legal and functional 
TSO unbundling remained the same.  

2009 saw the first example of a cross-border TSO in electricity: E.ON sold its high-voltage 
transmission network to the Dutch state-owned TSO (TenneT). A cross-border TSO already 
existed in the form of Gasunie owning GTS in the Netherlands and Gasunie Deutschland in 
Germany. RWE announced that it would start selling its gas grid in the first quarter of 201020. 
These developments were taken forward under the Commission's competition policy.  

At  distribution  level,  the  unbundling  regime  remained  relatively  stable,  although  in  some 
Member States the number of DSOs has changed. Member States continue to make extensive 
use of derogations from unbundling at distribution level21. 

It is to be expected that several Member States will have to adapt their legal framework to the 
new unbundling requirements of the third package. 

6. Effective regulation by regulators  

Regulators  should  be  given  the  necessary  powers  to  enforce  compliance.  That  is  why  the 
Commission's infringement exercise in June also dealt with the absence of effective systems 
of penalties at national level in the event of violations of the electricity and gas Regulations. 
The  third  package  has  the  potential  to  change  this  situation,  given  the  existence  of  detailed 
rules  governing  the  duties  and  powers  of  regulators.  Regulators  are  required  to  promote  a 
competitive, secure and environmentally sustainable internal market for electricity and gas in 
the  Union.  Moreover,  the  Agency  for  the  Cooperation  of  Energy  Regulators  (ACER)  will 
ensure regulatory oversight of cross-border issues.  

Also, TSOs are preparing for the implementation of the third package. The European Network 
of Transmission System Operators for Electricity (ENTSOE) became fully operational in July 
2009. For gas, ENTSOG (The European Network of Transmission System Operators for Gas) 
was  created  in  December  2009.  Both  organisations  will  require  their  statutes  and  rules  of 
procedure to be approved as soon as the Regulations come into force in March 2011. 

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See tables 5.7 and 5.9 of the Technical Annex. 
IP/09/410, see: 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/410&format=HTML&aged=0&languag
e=EN&guiLanguage=en  
See figure 7.4 of the Technical Annex. 

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The  third  Package  gives  the  Commission  a  role  in  identifying  priorities  for  framework 
guidelines and network codes, after consulting the Agency, ENTSOs and other stakeholders. 
In the Madrid and Florence regulatory fora22 held in 2009 it was agreed that the work would 
start with pilot projects, in order to learn how to make the process effective and efficient. For 
gas, there will be pilot framework guidelines and a network code on congestion management; 
and  for  electricity  there  will  be  a  pilot  framework  guideline  on  grid  connection.  The 
Commission will also launch the work on other framework guidelines and codes.  

7. Customer dimension 

The  second  Citizens’  Energy  Forum,  which  was  held  in  London  in  September  2009, 
considered  a  range  of  issues  designed  to  improve  the  retail  market  for  consumers.23  One 
measure  considered  was  the  production  of  template  bills  and  recommendations  on  best 
practices  for  billing.  The  Forum  endorsed  recommendations  for  good  practice  in  billing, 
which aimed to provide EU consumers with simple, clear and informative bills for their gas 
and electricity. The recommendations build on good billing practices in several EU countries. 
In addition, the Forum focused on complaint handling, smart metering and the role of DSOs. 

Consumer response — switching  

It is difficult  from the information provided on switching rates to gain an overall picture of 
switching  across  Member  States.  For  electricity,  in  those  Member  States  that  provided 
information, overall rates for the whole retail market have remained roughly similar to 2007, 
except  in  DE  where  the  rate  rose  by  1.4%  and  SE  where  the  rate  increased  to  11.3%.  The 
annual  switching  rate  for  large  industry  was  quite  significant  in  CZ,  at  45%,  which  was  up 
12%  on  the  previous  year.  SE,  NL,  IT  and  GB  saw  the  highest  switching  rates  for  small 
industry and households24. Taking annual switching rates per volume into account, switching 
rates of more than 10% were reported for large industrial users in AT, BG, DE, LU, PL, RO 
and IE25. 

For gas, there are few consistent figures available on supplier switching. Of the countries that 
reported switching numbers by eligible meter point for the whole retail market, NL and FR - 
with  9.1%  and  9.8%  respectively  -  posted  the  highest  levels.  GB,  FR  and  NL  are  the  most 
active markets in terms of switching for small industry and households, with rates of 18.9%, 
9.8% and 9.1% respectively26. For the countries that reported figures by volume, the DK rate 
on the whole retail market decreased from 29% to 16% and ES showed a similar decline to 
6%.  HU,  where  11.8%  switched  supplier,  is  the  most  active  market  for  small  industry  and 
household customers27.  

Switching levels vary considerably across Member States, with some mature markets - such 
as  the  UK  -  experiencing  relatively  high  rates  and  a  number  of  others  showing  little  or  no 
activity.  At  the  level  of  small  industry  and  households,  the  reported  figures  suggest  that 
electricity consumers tend to be more active than gas consumers. 

22 
23 
24 
25 
26 
27 

www.ec.europa.eu/energy/gas_electricity/index_en.html  
See Commission MEMO/09/429 of 30/09/2009.  
See table 2.2 of the Technical Annex. 
See table 2.1 of the Technical Annex. 
See table 2.4 of the Technical Annex. 
See table 2.3 of the Technical Annex. 

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Regulated prices 

It  is  still  quite  common  in  Member  States  for  open  energy  markets  and  regulated  energy 
prices  to  coexist.  More  than  half  of  the  Member  States  have  regulated  prices.  The  Member 
States that have regulated prices for electricity and gas are: BG, DK, EE, FR, EL, HU, IE, IT, 
LT, PL, PT, RO and SK. In LV and CY there are regulated prices for electricity, but not for 
gas.  With  regard  to  household  customers,  the  number  of  households  covered  represents  a 
significant proportion of the population in some cases, such as FR and IT. In most Member 
States price regulation is not confined to household customers28.  

Moreover,  the  Commission  sent  letters  of  formal  notice  to  EL,  LT,  PL,  PT  and  RO  for 
maintaining a system of regulated prices in violation of the EU directives on electricity and 
gas29. Other infringement cases on regulated prices are pending against EE, IE, IT and FR. 

Task Force for the implementation of smart grids in the internal energy market 

The  implementation  of  more  active  and  intelligent  transmission  and  distribution  systems  in 
the form of smart grids is central to the further development of the internal market for energy. 
The role of the Task Force - which was launched in November 2009 - is to advise on policy 
and  regulatory  directions  at  European  level  and  to  coordinate  the  first  steps  towards  the 
implementation  of  smart  grids  under  the  provisions  of  the  third  energy  package.  The  task 
force  will  take  stock  of  technology  visions  and  developments  by  other  groupings  of 
stakeholders. It should submit its final report in the first half of 2011. 

C. SECURITY OF SUPPLY 

Directive 2005/89/EC concerning measures to safeguard the security of electricity supply and 
infrastructure  investment  focuses  primarily  on  the  monitoring  and  reporting  aspects  of 
transmission  and  adequacy  of  generation.  The  aim  of  the  Directive  is  to  align  policies  in 
Member States, so that significant differences between the policies of the Member States are 
not  likely  to  lead  to  distortions  of  competition.  In  2009,  all  Member  States  notified  full 
transposition of the Directive's provisions into national legislation. 

As  part  of  its  monitoring  exercise,  the  Electricity  Cross-border  Committee30  discusses  short 
term  adequacy  of  electricity  supply.  The  analysis  indicates  that  generation-load  balances  in 
most countries are generally regarded as adequate for secure system operations under normal 
conditions.  

For gas, the Commission proposed a new Regulation on 16 July 200931. The Regulation will 
also repeal Directive 2004/67/EC. It focuses on both preventive actions and preparations for 
crisis management so as to be able to act efficiently and in a coordinated manner across the 
EU in cases of crisis and disruption of supply. It also establishes an infrastructure standard (n-
1  indicator),  a  supply  standard  and  reverse-flow  mechanisms.  The  Commission  is  confident 
that this Regulation will be adopted in 2010. 

28 
29 

30 
31 

See tables 2.5 and 2.6 of the Technical Annex. 
See IP/09/1035 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1035&format=HTML&aged=0&langua
ge=EN&guiLanguage=en  
See http://ec.europa.eu/energy/gas_electricity/cross-border_committee_en.htm  
See COM (2009) 363 final. 

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A  major  challenge  in  the  context  of  the  economic  crisis  is  to  maintain  the  investments  in 
energy  infrastructure.  The  financial  crisis  risk  resulting  in  postponed  or  annulled  energy 
infrastructure investments and as a result the EU faces an increased risk of lack of or delay in 
construction  of  infrastructure  to  meet  future  supply  needs.  This  is  a  particular  concern  in  a 
situation  where  the  energy  sector  needs  to  be  reshaped  to  address  the  challenges  of  climate 
change  and  energy  security.  In  order  to  help  to  address  this  risk  and  to  help  economic 
recovery,  the  EU  is  facilitating  the  financing  of  energy  infrastructure  projects  via  the 
Economic Recovery Plan. In particular, the Plan includes € 2.365 bil lion to support a number 
of  key  electricity  and  gas  interconnection  projects.  The  Commission's  commitment  to 
encourage infrastructure investments will continue with the adoption, at the end of 2010, of an 
infrastructure package. 

D. CONCLUSIONS 

The financial crisis had a significant impact on the internal energy market during the reporting 
period.  On  the  one  hand,  the  crisis  puts  pressure  on  planned  investments  –  due  to  possible 
financing difficulties and uncertainties affecting the supply side – and has resulted in a fall in 
demand,  which  is  more  pronounced  for  gas  than  for  electricity.  On  the  other  hand,  it  has 
created  new  opportunities  for  competition,  since  more  gas  is  available  at  lower  prices  on 
liquid hubs. Furthermore, the situation with excess supply in gas markets may pave the way 
for final consumers to see gas prices that are based on the supply and demand for gas rather 
than on the price of oil.  

Although reduced gas and electricity consumption has had an impact on end-user prices, the 
fall  witnessed  in  wholesale  energy  costs  has  not  been  entirely  reflected  in  end  user  prices. 
Overall,  prices  in  the  first  half  of  2009  were  still  higher  than  in  the  first  half  of  2008.  The 
trend  in  retail  prices  was  quite  diverse,  suggesting  perhaps  an  insufficient  level  of  market 
integration at retail level.  

The  work  of  national  regulatory  authorities  tends  to  shift  the  focus  towards  the  consumer, 
including the roll-out of smart meters as the key to smart grids in the internal energy market. 
This is a welcome trend for the deployment of active participation by customers in the internal 
energy market and  increased energy  efficiency and large-scale integration of  renewables, as 
well  as  additional  energy  services,  increased  market  transparency  and  easier  supplier 
switching.  

Additionally, cooperation between European power exchanges, as well as the ongoing trend 
of  increasing  trade,  is  a  promising  sign  of  functioning  markets.  However,  even  if  there  are 
positive  signs  on  the  retail  and  wholesale  level,  the  degree  of  market  concentration  has  not 
changed very much. 

Against  this  background,  the  Commission  is  providing  incentives  to  invest.  This  will  be 
reflected in the infrastructure package. The third package adopted in 2009 also provides for 
clearer sector specific rules and thus for incentives to invest. The Commission is preparing for 
the application of the third package in developing, together with ERGEG and ENTSO-E and 
ENTSO-G,  pilot  framework  guidelines  and  codes.  A  demonstration  of  Member  States' 
commitment  to  the  internal  energy  market  will  be  the  timely  and  correct  implementation  of 
the third package into national law. Meanwhile, the Commission will assist Member States in 
implementing  the  third  package  and  will  continue  to  pursue  the  full  and  correct 
implementation of the second package, including through formal infringement procedures.  

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Not  only  investments  but  also  the  implementation  of  more  active  transmission  and 
distribution  systems  in  the  form  of  smart  meters  and  smart  grids  are  central  to  the 
development of the internal market for energy. 

If needed, the Commission will not limit its action to energy regulation and will not hesitate to 
use its powers under competition law. 

The  EU  is  facing  major  challenges  in  its  strategy  for  a  sustainable,  competitive  and  secure 
energy policy. A properly functioning internal energy market is essential in order to send the 
right  investment  signals  and  to  be  able  to  react  to  the  general  economic  downturn.  The 
Commission  is  taking  action  to  ensure  that  the  energy  market  brings  clear  benefits  for 
electricity and gas consumers across the EU. 

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