COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Making the internal energy market work
Date: 2012-11-15
Institutions: European Commission
Subjects: electrical energy, energy supply, natural gas, renewable energy, single market, trans-European network

EUROPEAN 
COMMISSION 

Brussels, 15.11.2012  
COM(2012) 663 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Making the internal energy market work 

{SWD(2012) 367 final} 
{SWD(2012) 368 final} 

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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 

Making the internal energy market work 

1. 

INTRODUCTION  

The European Union needs an internal energy market that is competitive, integrated and fluid, 
providing  a  solid  backbone  for  electricity  and  gas  flowing  where  it  is  needed.  To  tackle 
Europe's energy and climate challenges and to ensure affordable and secure energy supplies to 
households and businesses, the EU must ensure that the internal European energy market is 
able to operate efficiently and flexibly. Despite major advances in recent years in the way the 
energy  market  works,  more  must  be  done  to  integrate  markets,  improve  competition  and 
respond  to  new  challenges.  As  underlined  by  the  Commission's  Energy  Roadmap  2050,1 
achieving the full integration of Europe's energy networks and systems and opening up energy 
markets  further  are  essential  in  making  the  transition  to  a  low-carbon  economy  and 
maintaining secure supplies at the lowest possible cost. 

If we fail to make major changes  to  the  way the  energy  market functions, we will be faced 
with a less reliable and more costly European energy system, declining EU competitiveness 
and wealth, and slow progress towards decarbonisation. To reverse these trends, we urgently 
need to invest in  generation,  transmission and distribution  infrastructure,  as well  as storage. 
Existing energy systems need to be modernised, at a cost estimated at a trillion euro2. We also 
need  to  encourage  more  efficiency  measures,  stimulate  fair  competition,  and  empower 
consumers to take an active role and fully exercise their rights and choices. 

Accordingly,  the  European  Heads  of  State  or  Government  set  a  clear  deadline  of  2014  for 
completion of the internal energy market. The internal energy market is not an end in itself. It 
is  a  key  instrument  in  delivering  what  EU  citizens  aspire  to  most:  economic  growth,  jobs, 
secure coverage  of their basic  needs at  an  affordable  and  competitive  price,  and sustainable 
use of limited resources. 

By 2014 the existing legislation needs to be implemented fully, including putting in place the 
essential  technical  rules  at  EU  level,  and  providing  regulators  with  necessary  tools  and 
resources to enforce legislation effectively. Cross-border markets for gas and electricity must 
be  up  and  running  in  all  parts  of  the  EU  and  the  implementation  of  plans  to  complete, 
modernise  and  smarten  EU  grids  must  be  well  under  way.  Only  when  this  is  achieved  can 
consumers start reaping the full benefits of the internal energy market.  

Today  the  EU  is  not  on  track  to  meet  this  deadline.  Not  only  are  Member  States  slow  in 
adjusting  their  national  legislation  and  creating  fully  competitive  markets  with  consumers' 
involvement,  they  also  need  to  move  away  from,  and  resist  the  calls  for,  inward-looking  or 
nationally inspired policies. These tendencies are preventing the internal market from working 

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COM (2011) 885. 
COM (2011) 658 final. 

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effectively.  They  even  threaten  to  unravel  the  progress  we  have  made  on  the  way  to  the 
internal  energy  market.  Yet,  there  is  clear  added  value  in  pulling  Member  States'  energy 
policies  together  and  creating  efficient  and  secure  energy  systems  transcending  national 
borders.  

This  Communication  reiterates  the  benefits  of  integrated  European  energy  markets  and  sets 
out  ways  to  ensure  that  the  market  fulfils  its  potential  as  soon  as  possible  and  satisfies  the 
needs and expectations of the EU's citizens and businesses. Because of its importance for the 
deepening  of  the  Single  Market,  this  initiative  has  been  identified  as  one  of  the  12  priority 
actions under the Communication "Single Market Act II – Together for new growth."3 

2. 

THE  BENEFITS  OF  OPEN,  INTEGRATED  AND  FLEXIBLE  ENERGY 
MARKETS 

National  governments,  businesses  and  individuals  alike  must  be  satisfied  that  the  internal 
market gives them the best deal. This is not the case at the moment. The generation market is 
still highly concentrated. In eight Member States more than 80% of power generation is still 
controlled by the historic incumbent. In a well-functioning energy market, ideally addressing 
costs  of  externalities,  investments  in  generation  should  be  driven  by  market  considerations 
rather  than  subsidies.  Energy  markets  in  general  are  perceived  not  to  be  transparent  or 
sufficiently  open  for  newcomers,  including  demand-side  service  providers.  Economically 
rational  investments  in  energy  efficiency  are  not  being  made  –  or  at  least  not  enough. 
Consumer satisfaction is low even in Member States that today have fairly competitive energy 
markets.  

Yet,  the  internal  energy  market  has  already  delivered  undeniable  benefits  and  the  potential 
gains remain more attractive than ever.  

2.1.  Much has already been achieved 

More choice and flexibility for consumers 

At  least  14  European  electricity  and/or  gas  companies  are  now  active  in  more  than  one 
Member  State  and  there  are  more  than  three  main  electricity  suppliers  in  twenty  Member 
States4. Even households and small businesses can now choose from several suppliers in two 
thirds of Member States. 

Price  comparison  tools  have  helped  consumers  find  better  deals.  An  insight  in  what  can  be 
gained from changing suppliers has led to high switching rates in a number of Member States, 
from Sweden to the UK, to Ireland, Belgium or the Czech Republic5. 

More competitive pricing 

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5 

COM (2012) 573 final. 
See also table 12 in Staff Working Document entitled Energy Markets in the European Union in 2011, 
referred to as "SWD 1". 
Consumer Markets Scoreboards, European Commission, DG SANCO, 
http://ec.europa.eu/consumers/consumer_research/editions/cms7_en.htm, The functioning of retail 
electricity markets for consumers in the European Union, Study on behalf of the European Commission, 
DG SANCO, 2010 ("Study on retail electricity markets"). 
http://ec.europa.eu/consumers/consumer_research/market_studies/docs/retail_electricity_full_study_en.
pdf. 

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Market  opening,  increased  cross-border  trade  and  market  integration6,  and  stronger 
competition,  all  fostered  by  EU  legislation  and  by  the  forceful  enforcement  of  competition 
and State aid rules, are keeping energy prices in check7, helping to keep manufacturing jobs in 
the EU and benefiting all consumers.  

However, the energy bill paid by consumers consists of more than just its energy component, 
which  makes  this  price  effect  less  visible.  Transmission  and  distribution  networks  charges 
make up a substantial part of the total bill, as do taxes and levies.8 These charges, taxes and 
levies are not always spread evenly over all customer groups, burdening household consumer 
bills  in  particular.  They  are  all  determined  at  Member  States  level  and  subject  to  national 
policies.9  In  some  Member  States  taxes  and  levies  constitute  around  50%  of  final  energy 
bill.10 In the EU-15, taxes in the final bill for domestic customers increased on average from 
22% in 1998 to 28% in 2010.11 

More liquid and transparent wholesale markets  

Liquidity and transparency in traded electricity markets have gradually improved as the result 
of 'market coupling' between Member States.12 Market coupling has spread steadily from the 
North-West of the EU to other regions. Currently, 17 Member States are "coupled". Also the 
formation  of  the  All-Island  market  in  Ireland  in  2007  was  a  positive  contribution  to  the 
construction  of  the  internal  electricity  market.  These  developments  have  led  to  more  cross-
border  trade  and  greater  price  convergence.13  Transparency  is  increasing,  also  as  a 
consequence  of  the  Regulation  on  wholesale  market  transparency  and  integrity  in  energy 
(REMIT) adopted in 2011.14 

With ever more trading between gas companies, the tenfold growth of gas trading platforms 
("gas hubs") between 2003-2011 has been impressive. EU markets with liquid gas hubs have 
been  able  to  benefit  much  more  from  their  exposure  to  gas-to-gas  competition,  including 
global LNG markets influenced by events taking place beyond the EU such as, for instance, 
the  so-called  ‘shale  gas  revolution’  in  the  US.  The  stark  contrast  between  the  beneficial 

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See SWD 1, page 47. 
While prices of primary energy commodities have increased annually by 14% for crude oil, almost 10% 
for  gas  and  8%  for  coal  in  recent  years,  wholesale  electricity  prices  in  the  EU  have  risen  much  less, 
namely by 3.4%. See SWD 1, figure 29. 
Those are used inter alia to reflect the environmental externalities of the energy use as recommended by 
the Commission in Annual Growth Surveys 2011 and 2012 (COM (2011) 11 final, COM (2011) 815 
final) as well as European Council conclusions (EUCO 10/1/11 REV1), aiming to shift taxation away 
from labour towards i.a. consumption and environmental pollution, with due regard to competitiveness 
of EU industry and consumer prices. They can however also be used for revenue raising. 
For details about these elements in individual Member States see SWD 1, part 3. 
See SWD 1, part 2, figure 33. 
See study titled 'Price developments on the EU retail markets for electricity and gas 1998 – 2011', page 
2 http://ec.europa.eu/energy/observatory/electricity/doc/analysis_retail.pdf. However, the average share 
of environmental taxation in total tax revenues in the EU is decreasing. Taxation trends in the European 
Union,  European  Union  2011:  http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-DU-11-
001/EN/KS-DU-11-001-EN.PDF 
Market coupling optimises interconnection capacity and ensures that electricity flows from low price to 
high price areas by the automatic linking of buyers and sellers on either side of a border. 
The  Commission  remains  vigilant  to  ensure  that  power  exchanges  do  not  engage  in  anticompetitive 
practices alongside their necessary cooperation for market coupling projects. 
OJ L 326, 8.12.2011, p. 1 

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effects  this  has  had  on  wholesale  gas  prices  in  liquid  and  competitive  markets  in  the  EU, 
compared to less liquid and competitive markets, is striking.15  

More secure supplies 

The increased liquidity of wholesale markets has also enhanced security of supply in the EU. 
In gas, the number of major gas supplying countries to  Europe has increased  between 2000 
and 2010 from 14 to 23. The effect on security of supply can be seen from what happened in 
early  February  2012,  where  exceptionally  high  demand  for  gas  and  electricity  during 
extremely  cold  weather  coincided  with  reduced  gas  imports.  Short-term  price  signals  at  the 
various gas hubs and power exchanges in the western part of the EU attracted gas to where it 
was needed most and ensured that all available electricity generation capacity was brought on 
line, keeping energy supplies to end-consumers intact. 

More coordination and transparency in relations with third countries 

The  EU  and  its  Member  States  have  recognised  the  need  to  do  more  to  co-ordinate  their 
external energy relations16, in particular towards producer, transit and consumer countries.17 
This gives the EU more weight in energy-related trade relations.  

At the initiative of the EU, the benefits of applying the rules of the EU internal energy market 
have been spread to Western Balkan and neighbouring countries, especially by the agreement 
establishing the Energy Community18. The Energy Community can and should expand further 
to  establish  an  ever  growing  energy  market  going  beyond  the  borders  of  the  EU.  Trade  in 
energy in well-functioning markets provides a true benefit to the EU, the Energy Community 
and  other  neighbouring  countries.  They  create  value  for  importing  and  exporting  countries 
alike  and  enable  the  complementary  use  of  natural  resources  in  various  regions.  The  EU 
assists and supports Energy Community countries in addressing their challenges in applying 
the internal energy market rules.  

Significant  improvements  have  also  been  achieved  in  defining  common  regulatory  best 
practices  and  technical  standards,  on  the  basis  of  internal  energy  market  principles,  with 
Southern Mediterranean countries, paving the way to the intake in the internal energy market 
of  significant  flows  of  renewable  power  and  for  joint  infrastructure  projects  within  the 
framework of the European Neighbourhood Policy. 

2.2. 

Even more to be gained 

In addition to these benefits, there is a number of areas where on-going work is expected to 
bear fruit soon. 

More power for consumers to control their energy costs 

15 
16 

17 

18 

See map 1, page 31 of SWD 1. 
Decision  No  994/2012/EU  of  the  European  Parliament  and  of  the  Council  of  25  October  2012 
establishing an information exchange mechanism with regard to intergovernmental agreements between 
Member  States  and  third  countries  in  the  field  of  energy,  OJ  L  299,  27.10.2012,  p.  13.  See  also 
COM(2012) 218 final 
Europe's  national  regulators  coordinate  their  work  on  international  issues  through  the  Council  of 
European Energy Regulators (CEER). 
Signed  in  2005,  members  are  the  Western  Balkan  countries,  Ukraine  and  Moldova,  with  Norway, 
Turkey, Armenia and Georgia as observers. 

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Energy  prices  are  likely  to  continue  to  rise  in  the  future  due  to,  among  others,  unrelenting 
global fuel demand as well as investments needed to maintain and modernise the EU's ageing 
energy systems19. However, the internal energy market can ensure that investments are made 
in  the  most  cost-effective  way  and  that  pre-tax  costs  for  households  and  industry  remain  in 
check  through  competitive  pressures  on  suppliers.  Estimates  indicate  that  already  today  EU 
if  they  switched  to  the  cheapest  electricity 
consumers  could  save  up  to  €13  billion  per  year 
tariff available20. This potential is currently largely untapped as many people are still not fully 
aware or able to make full use of the opportunities created by the market21. 

Better control of consumption through smart technologies 

New  energy  services  open  to  new  actors  and  market  incentives  can  help  consumers  better 
manage their bills by enabling them to consume energy in a more cost-efficient way and to 
more easily produce their own electricity.  

Further technical developments will support this trend. Smart metering systems both facilitate 
micro-generation  by  consumers  and  can  help  reduce  household  energy  consumption. 
Moreover,  smart  metering  systems  allow  adjusting  electricity  consumption  in  real  time  in 
response to market price fluctuations. This has been shown to reduce household energy costs 
by 13% but can lead to even bigger savings with home appliance automation22.  

The  new  Energy  Efficiency  Directive,  which  includes  provisions  on  distributed  generation 
and demand response23 will help the market to evolve in this direction. Cooperation between 
utilities (in particular energy and telecommunications) can ensure that related investments are 
cost-effective.24 

More competition through better access to transmission grids 

It is not enough to simply have the transmission networks in place, it is equally important that 
all  market  players  are  able  to  use  them.  This  was  the  conclusion  of  the  Commission  in  its 
sector inquiry into the functioning of energy markets in 2007.25  

The lack of open and non-discriminatory access to transmission infrastructure has prevented 
new entrants from competing fairly in the market. EU rules already oblige Member States to 
separate  (unbundle)  their  transmission  and  supply  businesses.26  A  new  industry  branch  has 
emerged  with  a  transmission-only  focus  and  an  increasingly  cross-border  footprint.  The 
European  networks  of  TSOs  (ENTSO-E  and  ENTSOG)  and  the  Agency  for  Cooperation  of 
Energy Regulators  (ACER)  play  an  important role in ensuring that existing infrastructure is 
used  more  efficiently,  and  new  infrastructure  is  planned  and  developed  optimally  with  a 

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24 

25 
26 

See  Commission's  Communication  "Energy  Roadmap  2050", pages  2,  5,  6  and 7. Decarbonisation of 
the energy system would not be more expensive than a continuation of current policies. 
Study on the functioning on retail electricity markets. 
Throughout  EU,  awareness  among  consumers  is  low,  with  only  one  in  three  consumers  comparing 
offers, see the Study on retail electricity markets.  
Vaasaett study, "Empower Demand", http://www.esmig.eu/press/filestor/empower-demand-report.pdf  
COM (2011) 370. 
DG CNECT public consultation: 
http://ec.europa.eu/information_society/policy/doc/library/public_consult/cost_reduction_hsi?cost_redu
ction.pdf. 
COM (2006) 851 final. 
To date, the Commission has received draft certification decisions for over forty Transmission System 
Operators (TSOs) in thirteen Member States, out of 99 TSOs requiring certification. Eighteen of those 
TSOs are to be certified as ownership unbundled. 

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European,  rather  than  company-centred,  perspective,  using  best  available  technologies. 
Unbundling and competition rules will have to continue to be enforced rigorously to ensure 
effective access to transmission infrastructure across the EU. 

More efficient use and development of grids 

Pan-European 
technical  rules  (binding  guidelines  and  codes)  can  deliver  further 
improvements  in  network  efficiencies.  Suppliers  and  users  should  gain  easier  access  to 
infrastructure and profit from lower transaction costs for cross-border trade. In gas, new rules 
on  the  management  of  congestion,  and  the  transparent  allocation  of  pipeline  capacities,  can 
remove  barriers  to  grid  access.  In  electricity,  new  technical  rules  such  as  on  cross-border 
balancing markets and on liquid intra-day markets27, should, in combination with smart grids, 
help improve system flexibility and the large-scale integration of electricity from renewable 
energy  sources  and  participation  of  demand  response  resources  alongside  generation.  This 
will enable renewable energy producers to participate fully in a truly competitive market and 
progressively  take  on  the  same  responsibilities  as  conventional  generators,  including  as 
regards balancing.  

3. 

GETTING THE MOST OUT OF THE INTERNAL ENERGY MARKET 

Although  the  benefits  of  a  well-functioning  internal  energy  market  are  progressively 
becoming visible, there are challenges that need to be tackled urgently in order to complete 
the  internal  energy  market  by  2014.  Without  action,  the  transition  towards  sustainable, 
innovative,  low-carbon  and  energy-efficient  systems  by  2020  and  beyond  may  be 
compromised and urgently needed investments may not be secured at the lowest possible cost 
or even not at all.  

3.1. 

The enforcement challenge 

3.1.1. 

Implementing the Third energy package 

The  architecture  for  the  internal  energy  market  is  clear.  It  is  laid  out  in  the  Third  energy 
package28 and in complementary legislation29. The building blocks are there but they must be 
implemented effectively for the internal energy market to work.30 Delays in implementation 
have negative effects on all players and therefore are not acceptable, neither the parts dealing 
with  market  opening  nor  those  meant  to  ensure  effective  empowerment  and  protection  of 
consumers. 

27 

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30 

Intraday  and  balancing  markets  will  allow  market  participants  (including  consumers)  to  adjust  their 
production and consumption in response to changing circumstances, in particular in response to prices. 
Liquid intraday markets are needed to enable adjustments in supply and demand schedules on an hourly 
basis,  which  is  not  yet  a  reality  Europe-wide.  Cross-border  balancing  markets  will  help  avoid 
unnecessary  costs  linked  to  purely  national  procurement  of  balancing  services.  Thanks  to  these 
arrangements, demand and supply will be matched on a cross-border scale at all time-frames. 
Directives 2009/72/EC and 2009/73/EC, Regulations (EC) No 713/2009, 714/2009 and 715/2009. 
In  particular,  Regulation  No  994/2010  concerning  measures  to  safeguard  security  of  gas  supply  and 
repealing Council Directive 2004/67/EC, REMIT, and the proposed Regulation on guidelines for trans-
European energy infrastructure. 
Details of the Commission's implementation policy of the Third energy package have been set out in the 
Communication on a ‘Better governance for the single market’, COM(2012) 259 final. Referring to this 
Communication,  the  October  2012  European  Council  has  called  upon  Member  States  to  take  urgent 
action.  The  follow-up  to  this  policy  will  be  carried  out,  inter  alia,  in  the  context  of  the  European 
semester. 

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The  Commission  is  pursuing,  as  a  matter  of  priority,  infringement  procedures  against 
those  Member  States  that  have  not  yet  fully  transposed  the  Third  energy  package 
Directives or have failed to do so correctly.31 The Commission intends to provide regular 
updates  on  the  state  of  implementation  of  internal  energy  market  legislation  in 
individual Member States and on the infringement procedures. 

The Commission, with support from CEER, will facilitate Member States' exchange of 
best  practices  on  key  consumer-related  issues,  including  price  comparison  tools, 
transparent pricing and billing, and elaborating the concept of vulnerable consumers.  

National  energy  regulators  are  called  upon  to  disseminate  information  to  consumers. 
Before  the  end  of  2012,  the  Commission  will  launch  web-based  guidance  on  energy 
consumer  rights  and  on  sources  of  consumer  information  and  protection  in  individual 
Member States' energy markets.  

3.1.2.  Ensuring a level playing field 

Energy  regulators  and  competition  authorities,  at  EU  and  national  level,  need  to  act 
decisively to ensure that all companies in the market are treated equally and that a level 
playing  field  is  established  and  maintained32.  The  Commission  will  actively  enforce 
competition rules. 

This is important in particular where legacy advantages of historical operators act as a barrier 
to entry for newcomers. The Commission will continue to enforce antitrust and State aid rules 
in the energy sector to ensure that when barriers to competition that are lifted by regulation 
are  not  reinstated  by  the  actions  of  undertakings  or  public  authorities  that  could  lead  to 
distortions on the market. 

The  Commission  will  press  public  authorities  ensuring  that  concessions,  e.g.  for  hydro 
power  generation  facilities,  storage  facilities  or  the  operation  of  distribution  grids,  are 
awarded  in  full  compliance  with  Treaty  principles  and  EU  secondary  legislation.  The 
most  appropriate  way  should  be  to  put  these  concessions  out  to  tender  on  a  non-
discriminatory basis, using open instruments such as auctions. The Commission intends 
to assess the adequacy of the existing regulatory measures for achieving this goal.  

A  level  playing  field  is  also  important  between  EU  and  foreign  companies.  The  internal 
market  rules  and  trade  by  way  of  liquid  power  exchanges  open  the  EU  energy  market  to 
operators  from  third  countries.  Once  established  in  the  EU,  these  third-country  operators 
enjoy the same rights and obligations as European operators. The lack of import restrictions or 
import duties on gas and electricity imports makes the European market one of the most open 
energy  markets  in  the  world  and  a  good  example  for  the  further  facilitation  of  worldwide 

31 

32 

See  SWD  1,  part  4.  Since  September  2011  the  Commission  launched  19  infringement  cases  for  non-
transposition of the Directive 2009/72/EC and 19 cases for non-transposition Directive 2009/73/EC. By 
24 October 2012, only 12 cases have been closed and the rest of the proceedings are on-going. This is 
without prejudice to the right of the Commission to pursue at a later stage a failure to transpose certain 
provisions,  should  shortcomings  be  identified,  e.g.  in  the  context  of  a  non-conformity  check  (all 
received  notifications  of  national  transposition  measures  are  subject  to  examination  as  to  conformity 
with EU law). 
Competition  law  enforcement  has  proven  to  be  supportive  in  levelling  the  playing  field  in  the  power 
generation sector, e.g. antitrust case against E.On (2008), GDF Suez/International Power merger case 
(2011), and in the gas supply sector, e.g. RWE (2009) and ENI (2010) cases.  

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energy  trade.  EU  trade  policy  aims  to  ensure  that  EU  companies  can  compete  on  an  equal 
footing outside the EU in their competitors' home markets. An internal energy market of 500 
million consumers gives the EU and its companies weight in international trade.  

3.1.3.  Bridging the gap between Member States 

If the EU is to develop a single electricity and gas market, no region or individual Member 
State must be left behind. The fact is, though, that energy market development is, in economic 
terms,  highly  divergent  between  countries33,  for  example  with  respect  to  gas  markets  in  the 
north-western parts of the EU as compared to the Eastern part of the EU.  

The Commission and ACER shall promote regional initiatives to play a prominent role 
in bridging the gap. Regional Initiatives should help set up additional regional gas hubs 
and power exchanges, and reach the target of full market coupling in electricity across 
the EU as soon as possible34.  

However, in  Member States where there is a single supplier  and no  network connections to 
other suppliers, enforcing regional market arrangements is of little help. The Commission is 
committed  to  providing  assistance  to  help  these  Member  States  catch  up.  But  without 
fundamental reforms in the countries concerned, progress will not be possible.  

Member  States  must  stimulate  competition  by  developing  infrastructure,  in  particular 
in support of cross-border activity, and eliminating market entry barriers. 

3.2. 

The consumer challenge: helping consumers take advantage of opportunities 

While rigorous enforcement of consumer protection rules is crucial, it will not be sufficient. 
To make the most of the benefits the internal market brings, consumers, including individual 
citizens and small businesses, must be enabled, and feel incentivised, to play an active role in 
the market.  

Currently,  SMEs  and  households  are  more  passive  than  large  industrial  customers  and  are 
therefore  losing  out  as  available  price  differentials  remain  unexploited.  This  may  be  due  in 
part  to  inefficient  consumer  protection  or  lack  of  transparency  or  consumer-friendly 
information,  which  all  engender  low  consumer  satisfaction35  and  trust.  However,  without 
consumers'  appetite  for  active  participation  in  the  market,  service  diversification  and  value-
added services are not developing.36  

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34 
35 

36 

See SWD 1, part 2 and 3. 
Commission communication "The future role of Regional Initiatives", COM(2010) 721 final.  
Consumers rank the electricity and gas markets poorly. In 2012, the electricity market ranks 26th out of 
30  services  markets,  with  particularly  low  scores  in  Southern  European  countries  (the  highest  for 
Luxembourg and the lowest for Bulgaria). The gas market ranks 21st out of 30 services markets (the top 
ranked country is Slovenia and the bottom ranked country – Belgium). Both electricity and gas markets 
have  poor  scores  on  choice,  comparability  and  switching  suppliers  and  tariffs,  suggesting  that 
consumers are not making full use of the saving opportunities created by market liberalisation. Details 
on 
See 
country-by-country 
http://ec.europa.eu/consumers/consumer_research/cms_en.htm. 
This has been recognised by the European Economic and Social Committee (EESC). Based on its work 
with  civil  society  organisations,  EESC  promotes  an  informed  and  structured  debate  on  energy  issues 
among civil society and between organised civil society and decision-makers. 

performance 

provided 

SWD 

part 

are 

in 

3. 

1, 

EN 

9 

   EN 

 
                                                 
3.2.1.  Enabling the delivery of diverse and innovative services to consumers 

Getting  the  best  deal  might  involve  changing  supplier  to  reduce  bills  or  increase  service 
quality,  choosing  price  formulas  that  reward  efficient  energy  use  or  facilitate  micro-
generation,  etc.  In  competitive  markets,  consumers  are  offered  a  diversified  choice  as 
suppliers  endeavour  to  cater  to  consumers'  diverse  needs  and  preferences.  Some  suppliers 
target price-conscious customers by competing on cost while others base their offer on high 
service  quality  or  added  value  and  ancillary  services,  or  even  bundle  energy  services  with 
other services (e.g. telecoms).  

Timely deployment of smart meters as set out in the EU acquis can trigger demand-response 
and other innovative and smart services. For example, consumers can be given the possibility 
to  take  advantage  of  lower  prices  in  periods  of  weak  demand  while  avoiding  energy 
consumption  in  peak  periods.  This  will  increase  consumer  benefit  and  further  broaden 
consumer  choice.  Such  service  offers  will  depend  not  only  on  the  ability  of  businesses  to 
address  the  diversity  of  consumer  motivations  and  capacities  with  respect  to  their  energy 
consumption  ,  but  also  on  the  availability  of  diversified,  flexible  and/or  dynamic  pricing 
schemes. 37  

However, at present, price regulation in many Member States prevents suppliers from offering 
attractive  services38  and  tailor-made  and  dynamic  pricing  schemes.  It  discourages  new 
entrants  that  could  challenge  the  incumbents.  In  some  Member  States  prices  are  even 
regulated by the State for some or all customer groups at levels below market costs. This can 
lead  to  energy  tariff  deficits  borne  by  energy  companies  or  by  public  finance,  which  may 
burden future energy consumers or taxpayers with serious costs. This also fails to provide the 
right incentive for efficient energy use. It is clear that such a situation is not conducive to the 
development of a competitive market and is economically unsustainable. 

Even if regulated prices allow the cost of operations to be covered, they do not send the right 
price  signals  needed  to  secure  efficient  investment.  They  are  perceived  by  investors  as  an 
indicator  of  political  interference  which  stifles  investment.  While  a  number  of  Member 
States39  have  already  allowed  electricity  and  gas  prices  to  be  free  of  state  intervention, 
including for retail consumers, and the Commission has agreed with several others40 a timely 
phase-out of regulated prices, the majority of Member States still intervene in some form in 
retail price formation.  

The  Commission  has  earlier  opened  a  number  of  infringement  procedures  against  Member 
States  regulating  prices  for  industrial  customers.  A  recent  European  Court  of  Justice  ruling 
states  that  price  regulation  can  be  compatible  with  EU  law  only  under  strictly  defined 
circumstances41. 

Member  States  should  seek  to  cease  regulating  electricity  and  gas  prices  for  all 
consumers,  including  households  and  SMEs,  taking  into  account  universal  service 
obligation  and  effective  protection  of  vulnerable  customers.  Suppliers  should  clearly 

37 
38 

39 

40 
41 

BEUC, 'Empowering Consumers through Smart Meters', pp 23-26, http://bit.ly/JKn9R7  
This  may  in  part  explain  the  low  switching  rates  in  several  Member  States.  For  further  details  on 
switching rates see SWD 1, part 3. 
Including  Austria,  Czech  Republic,  Germany,  Finland,  Luxembourg,  the  Netherlands,  Sweden, 
Slovenia, the United Kingdom. 
Romania, Greece, Portugal. 
Case C-265/08, Federutility and others v Autorità per l’energia elettrica e il gas. 

EN 

10 

   EN 

 
                                                 
spell  out  the  different  cost  elements  in  the  final  cost  for  their  customers,  to  encourage 
well-informed decision-making. 

The  Commission  will  continue  to  insist  on  phase-out  timetables  for  regulated  prices 
being  part  of  Member  States'  structural  reforms.  The  Commission  will  continue  to 
through 
promote  market-based  price 
infringement cases against those Member States maintaining price regulation that is not 
meeting the conditions laid down by EU law.  

in  retail  markets, 

formation 

including 

3.2.2.  Targeted assistance to give vulnerable consumers better protection  

Final energy prices for consumers may continue rising in the coming years, having a negative 
impact particularly on consumers in an economically weak situation. They should therefore be 
adequately protected. However, subsidies or regulation aimed at lowering the overall energy 
prices tend to reduce the incentives for energy-efficient behaviour, do not specifically target 
the  most  in  need,  and  can  distort  competition. While  assistance  to  vulnerable  consumers  by 
financial  measures  may  be  part  of  social  policy,  assistance  with  energy  efficiency 
improvements represents a cost-effective form of assistance42. 

The  on-going  changes  in  the  energy  sector  may  pose  additional  challenges  to  certain 
consumers who may not have the tools or competencies (literacy, access to information on- 
and offline etc.) to participate actively in the newly developing market and reap the benefits 
on  offer.  These  consumers  may  need  further  assistance  of  non-financial  character,  helping 
them also to understand their rights and responsibilities.  

The  existence  of  vulnerability  is  not  an  argument  against  continued  liberalisation,  but 
highlights  the  fact  that  ensuring  adequate  protection  of  consumers,  especially  those  in 
vulnerable  positions,  will  be  one  of  the  key  success  drivers  of  the  completion  of  the  EU's 
internal energy market. 

Member States should provide targeted assistance to vulnerable consumers in order to 
address  their  economic  vulnerability  and  to  help  them  make  informed  choices  in  the 
increasingly  complex  retail  markets.  The  Commission  will  support  Member  States  in 
defining  what  is  meant  by  and  what  causes  energy  consumers'  vulnerability  by 
providing guidance and facilitating the exchange of best practice. 

Member States should emphasise the importance of energy efficiency improvements in 
addressing consumer vulnerability and energy poverty.  

3.3. 

The transition challenge: making Europe's energy systems fit for the future 

Our energy systems are in the early phase of a major transition. Significant investments are 
needed to replace the EU's ageing systems, decarbonize them and make them energy-efficient 
and  increase  security  of  supply.  The  EU  supports  these  investments  through  various 
instruments  such  as  the  European  Energy  Programme  for  Recovery,  the  future  Connecting 

42 

On 22 June 2011, the Commission proposed a new Directive to step up Member States' efforts to use 
energy  more  efficiently  at  all  stages  of  the  energy  chain  –  from  the  transformation  of  energy  and  its 
distribution to its final consumption. On 4 October 2012, the Council endorsed the political agreement 
on  the  Energy  Efficiency  Directive.  The  European Parliament  had  casted  its  favourable  vote  on  such 
agreement on 11 September 2012. 

EN 

11 

   EN 

 
                                                 
Europe  Facility,  the  EU  Cohesion  Policy43  and  Horizon  202044.  Investments  are  taking 
place45, but the pace must be stepped up if we are to achieve our objectives.  

The  internal  energy  market  can  help  the  EU  make  the  transition:  well-functioning  markets 
promote and support system change much more effectively and more cheaply than any central 
planning or purely subsidy-driven overhaul. But the system change cannot take place without 
a properly integrated, modern infrastructure.  

3.3.1.  Let the market work to encourage the appropriate investments 

Before  liberalisation,  vertically  integrated  national  energy  companies  were  in  control  of  the 
entire system from production to consumption. With the development of a competitive market 
with  multiple  producers  and  unbundled  network  operators,  no  single  entity  can  on  its  own 
ensure  the  reliability  of  the  electricity  system.  The  market  participants  are  interdependent. 
Integrating more wind and solar energy46 adds to the variability of supply and demand, and to 
the  challenge  of  keeping  supply  and  demand  in  balance  at  all  times,  at  least  until  demand 
response and storage possibilities improve.  

But  these  challenges  to  the  electricity  system  can  be  overcome  provided  the  regulatory 
framework  clearly  defines  the  role  of  the  different  players  involved  in  the  provision  of 
electricity  to  final  customers,  such  as  producers,  network  operators,  demand-response 
providers, suppliers, and consumers. Supply- and demand-side flexibility can and should be 
rewarded  on  the  basis  of  market-based  price  signals  (short-,  medium-  and  long-term)  to 
encourage  the  energy-efficient  production  and  use  of  electricity.  The  enforcement  of  the 
antitrust rules will complement regulation in this regard. Public intervention that discourages 
private investments and undermines the internal market must be avoided.  

Flexibility 

The market, if allowed to function, will always indicate the economic value of power at each 
point in time. Prices will be low when there is a sudden surge in supply (e.g. when there is a 
lot of wind and solar power) and higher at times of shortage.  

Such  dynamic  price  signals  are  essential  to  encourage  consumers  and  demand-side  service 
providers  to  reduce  consumption  during  periods  of  peak  demand.  In  the  electricity  sector, 
changes of price have traditionally had little effect on the demand volume. But as smart grids 
and  meters  are  rolled  out,  the  potential  for  demand  flexibility  on  the  part  of  individual 
consumers or aggregators can really be tapped into.  

Price signals are equally pivotal in encouraging flexibility on the supply side, from storage or 
from  generation  capacity  that  can  be  quickly  ramped  up  or  down.  Together  with  a  stronger 

43 

44 
45 

46 

With  planned  allocations  of  at  least  EUR  11  billion  foreseen  for  2007-2013.  For  2014-2020  the 
Commission  has  proposed  a  significant  concentration  of  EU  Cohesion  Policy  efforts  on  renewable 
energy and energy efficiency, including smart grids, as well as a strong focus on RTDI. Member States 
and  regions  need  to  ensure  that  this  funding  complements  private  investment,  leveraging  it,  and  not 
crowding it out. 
Aimed at well targeted support to R&D. 
See Staff Working Document entitled "Investment projects in Energy Infrastructure", also referred to as 
SWD 2. 
The Energy Roadmap shows that renewable energy will be the core of the EU energy system in a 2050 
perspective, and represent very high shares of electricity generation already by 2030. 

EN 

12 

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EU Emission Trading System47, the market can secure optimum investments and ensure the 
quality of our electricity systems in the future. 

Policy  makers  and  consumers  may  be  concerned  about  the  variability  of  prices.  Linking 
markets across Member States will limit the risk, as spikes and falls are less likely to occur 
simultaneously in all countries. Increased demand responsiveness and flexible generation and 
storage will help absorb the peaks. There is no evidence that more volatile short-term markets 
lead to higher average prices, especially when there is continued back-up generation. 

Suppliers  will  be  able  to  hedge  the  risk  against  short-term  price  volatility  in  longer-term 
forward markets. Retailers will be able to offer innovative price plans to consumers interested 
in benefitting from flexible supply contracts, which will allow them to optimise their energy 
costs by using smart metering systems and appliances to focus their consumption on periods 
of low prices. 

In short, properly functioning long-term and short-term wholesale markets (in particular, day-
ahead, intraday, balancing and ancillary services markets), which reflect the economic value 
of  power  at  each  point  in  time  in  each  area  can  steer  investments  to  where  they  are  most 
efficient. 

The Commission will as a matter of priority: 

- 
ensure  the  further  development  of  well-functioning,  cross-border,  wholesale 
markets  in  all  timeframes  by  developing  network  codes48.  The  Commission  counts  on 
ACER,  ENTSOs,  the  European  Parliament  and  Member  States  for  their  support  in 
ensuring  that  network  codes  are  put  in  place  according  to  plan49.  These  codes  will 
establish  common  rules  to  enable  network  operators,  generators,  suppliers  and 
consumers to operate more effectively within the market. 

- 
help  speed  up  the  integration  of  storage  and  flexible  generation  e.g.  by  tackling 
remaining  regulatory  issues  in  the  context  of  the  European  balancing  market  network 
code.  The  Commission  will  consider  setting  up  a  co-ordination  initiative  to  address 
emerging  regulatory  and  technical  issues.  Its  upcoming  communication  on  energy 
technologies and innovation will analyse how technology development, including storage 
technology  and  micro-generation,  could  link  up  with  market  developments  at  the 
European level to achieve the climate and energy targets.  

Optimising State intervention: steering the energy mix to low carbon 

To  achieve  agreed  greenhouse  gas  emission  reduction  objectives  at  least  cost  the  EU 
Emissions Trading System — a market-based instrument that has created a single European 
carbon  price  —  has  been  introduced.  From  2013  on,  also  the  carbon  market  design  is  fully 
'europeanised',  thus  enabling  the  internal  energy  market  to  facilitate  the  transition  towards 
sustainable, low carbon and efficient energy systems by rewarding low-carbon investments50 
and low-carbon fuels over carbon-intensive ones. 

47 
48 
49 

50 

Directive 2003/87/EC as amended by Directives 2008/101/EC and 2009/29/EC  
See paragraph 2.2, more efficient use and development of grids. 
Commission  decision  of  19  July  2012  on  the  establishment  of  the  annual  priority  lists  for  the 
development of network codes and guidelines for 2013, 2012/413/EU. 
Including in carbon capture and storage ("CCS"). 

EN 

13 

   EN 

 
                                                 
In addition, the above-mentioned transition challenge will require optimising state support to 
ensure that the appropriate investment continues to take place. 

Currently,  Member  States  use  various  forms  of  direct  or  indirect  state  support  and/or 
surcharges  on  consumers'  bills  for  a  range  of  energy  sources.  Assuming  further  progress  in 
completing  the  internal  energy  market  as  described  above,  falling  production  costs,  and 
evolution  in  the  carbon  market,  all  forms  of  support  mechanisms  need  to  be  regularly 
reviewed.  

For  example,  support  schemes  for  renewables  -  as  well  as  a  number  of  mandatory  rules  on 
priority  grid  access51  -  were  introduced  on  the  grounds  of  incomplete  market  opening, 
incomplete internalisation of the external costs of conventional generation, and the early stage 
of  development  of  most  renewable-energy  technologies.  Markets  and  technologies  have 
evolved since then. 

The  Commission  will  issue  guidance  on  best  practice  and  experience  gained  in 
renewable energy support schemes and on support scheme reform.52  

The aim here is greater consistency in national approaches, whilst protecting the principles of 
cost-efficiency  and  regular  degressivity,  as  well  as  to  avoid  fragmentation  of  the  internal 
market.  The  more  efficient  schemes  are,  the  cheaper  renewable  energy  becomes.  And  the 
more consistent they are, the easier it is to integrate renewable energy across EU borders and 
beyond.  

The  Commission  is  in  the  process  of  reviewing  the  guidelines  on  State  aid  for 
environmental  protection  to  reflect  changes  in  the  technological  landscape  and  EU 
policy  objectives  in  the  energy  sector,  while  minimising  competition  distortions  in  the 
internal market. 

In particular, the revision aims at ensuring that State aid control facilitates the granting of aid 
provided  that  it  is  well-designed,  targeted,  least  distortive  and  provided  that  no  better 
alternatives  (regulatory,  market  based  instruments)  are  available.  The  Commission  will 
encourage in particular solutions that are cost-efficient and promote cross-border integration. 

The  Commission  intends  to  actively  contribute  to  the  G20  goal  to  remove  all 
environmentally harmful subsidies, including remaining direct and indirect support for 
fossil fuels.53 

Optimising State intervention: security of supply in electricity 

Some Member States have introduced or plan to introduce separate payments for the market 
availability of generation capacity, as they are concerned that the 'energy only' market will not 
deliver  sufficient  investment  in  generation  to  ensure  security  of  supply  in  the  longer  term. 

51 
52 
53 

Directive 2009/28/EC. 
COM(2012) 271 final. 
Roadmap for a resource efficient Europe, COM (2011) 571 final, includes a milestone that ‘by 2020, 
environmentally harmful subsidies will be phased out'. Annual Growth Surveys 2011 and 2012 (COM 
(2011) 11 final, COM (2011) 815 final) also call for elimination of environmentally harmful subsides. 
Commitments to reform fossil fuel subsidies have also been adopted at the global level, for example in 
the context of the G20 and at the Rio+20 conference. 

EN 

14 

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Such  capacity  mechanisms  are  long-term  tools  that  aim  to  provide  a  stream  of  revenue  to 
(selected) generators and commit consumers to paying for the capacity provided.54  

However, the Commission is of the view that if capacity mechanisms are not well designed 
and/or are introduced prematurely or without proper co-ordination at EU level, they risk being 
counterproductive. If capacity mechanisms do not treat demand reduction fairly, they can lock 
in generation-based solutions rather than energy efficiency or demand response solutions. If 
they  do  not  distinguish  base  load  from  peak  load,  they  may  not  attract  sufficiently  flexible 
generation capacity. Capacity mechanisms distort the EU-wide price signal and are also likely 
to favour fossil fuel generation sources over more variable renewable sources (beyond levels 
necessary  for  maintaining  power  systems  in  balance)  and  may  therefore  run  counter  to  EU 
decarbonisation and resource efficiency objectives.  

In  well-functioning  energy  markets,  generation  investment  incentives  and  security  of  power 
generation  supply  depend  also  on  the  evolution  of  the  carbon  market.  The  Commission  is 
putting  forward  options  for  structural  measures  to  address  the  current  over-supply  of  ETS 
allowances  resulting  from  the  economic  crisis55.  This  would  create  more  investor  certainty 
and reduce the need for national measures. 

Far  from  ensuring  generation  adequacy  or  security  of  supply,  poorly  designed  capacity 
mechanisms will tend to distort investment signals. As such, these interventions can interfere 
with  cross-border  trade  and  competition  as  they  can  close  off  national  markets  from 
generation  elsewhere  in  the  EU  and  also  distort  the  location  of  generation  in  the  internal 
market.  Nationally-based  capacity  mechanisms  can  increase  costs  for  all  Member  States  by 
preventing the best use of generation and flexibility across borders. 

The Commission considers that capacity mechanisms are likely to be subject to EU internal 
market rules, including State aid control and Directive 2009/72/EC.  

Member States should demonstrate the need for such mechanisms over alternative approaches 
such as peak-shaving measures, increased imports through appropriate interconnections, and 
facilitating demand-side participation in the market for industrial as well as retail customers. 
Even  in  times  of  generation  capacity  constraints,  cross-border  exchanges  need  to  be 
maintained. Allocation procedures need to be transparent and non-discriminatory. 

Member States should carry out a full analysis of whether there is a lack of investment 
in  generation,  and  why.  They  should  seek  cross-border  solutions  to  any  problems  they 
find  before  planning  to  intervene.  Any  capacity  mechanism  needs  to  take  into  account 
any  impact  the  intervention  will  have  on  neighbouring  Member  States  and  on  the 
internal energy market. Fragmentation of the internal energy market must be avoided. 

The Commission is launching a public consultation on security of supply in electricity, 
generation adequacy and the internal energy market. 

Depending  on  the  results  of  its  consultation  and  further  engagement  with  Member 
States and stakeholders, the Commission may propose follow-up measures. 

54 

55 

In  some  Member  States,  the  public  intervention  envisaged  takes  the  form  of  long-term  security  of 
supply contracts, with the State or an entity assigned by it as counter party. Capacity mechanisms are to 
be  distinguished  from  short-term  mechanisms  aimed  at  ensuring  that  the  real-time  balance  between 
supply and demand is maintained even in the face of sudden variation on either side. 
See Communication "The state of the European carbon market in 2012", COM(2012)652 

EN 

15 

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Security  of  supply  requires  coordination  among  Member  States  that  can  deliver  short-term 
crisis  response  and  long-term  solutions  to  security  of  supply  challenges.  As  our  energy 
systems  become  more  integrated,  we  shall  need  more  coordination  and  cooperation  across 
borders to identify and address risks, and to ensure proper crisis response.  

The  Commission  is  formally  setting  up  an  Electricity  Coordination  Group  with  the 
mandate  to  facilitate  cooperation  on  security  of  supply  in  electricity,  including 
generation adequacy and cross-border grid stability. 

3.3.2.  More integration, faster modernisation and better use of grids 

More grids to integrate EU energy markets 

Energy  must  be  able  to  flow  to  where  it  is  needed,  without  physical  barriers  at  national 
borders.  This  implies  inter  alia  addressing  the  effects  of  unplanned  power  flows  ("loop 
flows") on cross-border market integration. Serious investment in energy networks is needed 
to enable certain areas of the EU to emerge from isolation56 and to achieve our Europe 2020 
targets. 

There  is  a  pressing  need  to  enhance  the  way  investment  takes  place  as  stressed  in  the 
proposed Regulation establishing the Connecting Europe Facility57. Work has already started 
on defining the energy networks of the future in accordance with the environmental acquis. In 
October 2011, the Commission tabled a  proposal  for a  Regulation on  "Guidelines  for trans-
European  energy  infrastructure"58.  It  identifies  twelve  priority  corridors  and  areas  covering 
electricity, gas transmission and storage, and oil and carbon dioxide transport networks and a 
dynamic  identification  of  projects  of  common  interest.  The  Commission  has  come  out  in 
favour  of  faster  permit-granting  procedures,  improved  cross-border  infrastructure  cost 
allocation, and financing support.  

The swift adoption and implementation of the Energy Infrastructure Package is crucial 
as acknowledged by the European Council on 9 December 2011. 

Faster modernisation towards smart grids  

With the growing need for flexibility and energy efficiency and to accommodate distributed 
generation  and  demand-side  participation,  co-ordinated  action  is  needed  with  a  view  to  the 
deployment  of  smart  grids  at  European,  regional  and  municipal  levels.  Smart  grids  rely  on 
digital infrastructure. The Commission tabled a proposal for a Regulation on "Guidelines for 
trans-European  telecommunications  networks"59  identifying  inter  alia  digital  services 
infrastructure  as  priorities.  An  efficient  deployment  should  exploit  the  synergies  between 
telecommunication  and  energy  operators  at  infrastructure  and  services  level,  which  must 
cooperate in a pro-competitive way, thus opening the field for new entrants.  

The  Commission  will  continue  to  promote  pro-competitive  co-operation  between  the 
energy  and  the  ICT  sector,  including  innovative  service  providers  for  advancing  the 
modernisation of grids and accelerating innovation in the energy sector. Member States 

56 

57 
58 
59 

See the conclusions of the European Council of February 2011. In particular, Baltic states operating in 
Russian and Belarussian electricity system should be synchronized with the EU. 
COM(2011) 665 
COM(2011)658 final. 
COM(2011)657 final. 

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16 

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are  asked  to  encourage  this  on  a  national  level.  The  European  Standardisation 
Organisations (CEN/CENELEC/ETSI) have the urgent task of developing a first set of 
Smart Grid standards by the end of 2012. The Commission will promote the use of these 
standards. 

The  Commission  already  earlier  adopted  a  Communication  on  smart  grids60  calling  for  the 
necessary  framework  conditions  for  industry  to  successfully  develop  the  technologies  and 
production  capacities  to  deliver  this  investment,  and  setting  out  the  vision  of  integrated 
infrastructure  management61.  Based  on  best  practices  and  projects  in  Member  States62  the 
Commission is presently developing guidelines and new instruments to further stimulate the 
rollout of smart metering systems in the present decade63, monitoring the progress of current 
smart metering projects in the EU and supporting promising R&D and pilot projects64in smart 
grids.. 

The Commission  will  further  support R&Dand innovation to facilitate the  deployment 
of smart grids. The Commission will renew the standardisation mandate granted to the 
European  standardisation  organisations  in  order  to  develop  a  second  set  of  standards 
and develop guidance and identify potential Projects of Common Interest by the end of 
2012. 

Stronger demand response in distribution networks  

With  the  advent  of  smart  metering  systems,  microgeneration  technologies,  smart  appliances 
and  home  automation,  consumers  will  be  increasingly  enabled  to  modulate  their  energy 
demand according to the actual situation in energy markets. Such demand response will allow 
consumers to save money while increasing the efficiency and stability of energy systems. It 
will,  however,  require  that  Members  States,  regulators,  Transmission  System  Operators 
(TSOs),  Distribution  System  Operators  (DSOs)  and  retailers  cooperate  with  each  other  and 
with other players (demand-side service providers, ICT companies or system developers). The 
objective is to develop transparent and easily understandable rules and standards for demand 
response and data management. 

It  will  also  require  reconsidering  the  role  of  DSOs.  In  particular  it  needs  to  be  ensured  that 
their regulated activities are limited to tasks which are best performed by a natural monopoly, 
and  that  new  services  made  possible  by  new  technologies  are  developed  in  competitive 
markets. In this context, it seems also appropriate to consider the role of third parties (such as 
aggregators,  energy  services  and  actors  from  other  network  sectors,  e.g.  ICT,  telecoms, 
electrical engineering) in the future development of local distribution grids or energy services. 

The Commission has launched the debate under the auspices of the Citizens' Energy (London) 
Forum and will continue the discussion based on the smart metering rollout plans of Member 
States.  

60 
61 

62 
63 

64 

COM(2011)202. 
The  Electricity  Directive  and  the  Energy  Efficiency  Directive  provide  a  complementary  mix  of 
obligations and incentives to Member States to establish such a framework. 
In line with the Commission's Industrial Policy Communication COM(2012)582. 
The number of smart meters in the EU will need to rise from some 45 million at present to at least 240 
million by 2020, with the necessary annual investment spending increasing from just over €1 billion at 
present to €4-5 billion by 2015, subject to costs-benefit analysis. 
For  example  through  the  European  Industrial  Initiatives  for  Electricity  Grids,  and  the  European 
Innovation Partnership for Smart Cities and Communities. 

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The  Commission  will  address  the  technology  aspects  of  further  evolution  in  energy 
distributions networks in the upcoming communication on energy technologies. 

The Commission calls on Member States to adopt ambitious strategies for the roll-out of 
smart metering systems and to ensure that they meet the interests of energy suppliers, 
distributors and consumers alike. 

The  Commission  asks  Member  States  to  produce  action  plans  which  reflect  how  to 
modernise their grids, including rules and obligations for DSOs, synergies with the ICT 
sector and promotion of demand-response and dynamic  prices, in accordance with the 
Energy Efficiency Directive. 

4. 

CONCLUSION 

Market opening gives consumers a real choice. It limits the need for public intervention and 
prevents  inappropriate  public  intervention.  There  are  a  number  of  issues  which  need  to  be 
tackled  urgently  in  order  to  complete  the  internal  energy  market  by  2014,  end  isolation  of 
several  EU  Member  States  from  EU  networks,  realise  the  Europe  2020  agenda  and  move 
towards a transformed energy system by 2050 at least cost to all. These issues also stand in 
the way of realising full benefits to consumers, raise barriers to competition and innovation 
and undermine the security and sustainability of European energy. 

The Commission is committed to deliver, within its sphere of competence, on the challenges 
of building and modernising a European network, and incorporating renewable energy, micro-
generation and smart grids by means of stable regulatory framework that sets out the role of 
the  different  actors  (network  operators,  producers,  suppliers,  demand  response  providers, 
consumers and regulators). 

On the basis of this Communication, the Commission proposes an Action Plan (Annex 1) to 
ensure the success of the internal energy market. The Commission calls upon all Institutions, 
Member States and Stakeholders concerned to work together towards achieving the proposed 
actions  according  to  the  proposed  timing.  The  Commission  will  review  the  progress  of 
implementation of the Action Plan in 2014. The Commission is determined to ensure that the 
follow-up  to  the  Action  Plan  at  Member  State  and  at  EU  level  be  firmly  anchored  in  the 
European semester, in particular via the Annual Growth Survey, the Single Market Integration 
Report and the Country specific recommendations. 

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Action/Measure 

Enforcement  

Annex 1: Action Plan for Europe 

Actor(s) involved 

Timing 

1. Timely and comprehensive transposition of the Third 
energy package Directives and implementation of the Third 
energy package Regulations 

Member States / national 
regulators for energy / 
Commission 

March 2011 

2. Guidance on defining the concept of "vulnerable 
customers" 

Commission 

2013 

3. Rigorous application of the internal energy and competition 
rules 

4. Enhance effectiveness of Regional Initiatives and their 
contribution to the integration of the internal energy market 

Commission / Member States 
/ national regulators for 
energy / national competition 
authorities 

continuous 

Commission / Member States 
/ national regulators for 
energy / ACER 

continuous 

5. Revision of guidelines on State aid for environmental 
protection 

Commission 

Improve consumer empowerment and support  

6. Further efforts to involve, inform and motivate consumers, 
including through the implementation of the Energy Efficiency 
Directive and through web-based content for consumers 
pointing to relevant consumer-protection resources and 
energy consumers' main rights.  

7. Through the Citizens' Energy Forum, support Member 
States in setting the scope for research, data collection and 
reporting on energy retail markets.  

Commission / Member States 
/ national regulators for 
energy/ consumer 
associations 

Commission/ Member States 
/ national regulators for 
energy/ consumer 
associations 

8. Improve information provision to consumers, establish 
guidelines and best practice on price comparison tools, clear 
and transparent billing, and on support to vulnerable 
consumers 

Commission / Member States 
/ national regulators for 
energy / consumer 
associations 

End 2013/ 
Beginning 
2014 

2013 / 2014 

2013 

2013 

9. Targeted assistance to vulnerable consumers to make 
informed choices and giving them the necessary support to 
enable them to cover their energy needs in competitive retail 
markets 

Making EU Energy Systems fit for the future 
10. Adopt and implement network codes 

- in electricity: 
capacity allocation and congestion management rules 

Commission / Member States 

2013 

ACER / ENTSOs / Commission 
/ Member States / national 
regulators for energy 

2013/2014 

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rules for longer-term (forward) capacity allocation 
network connection rules 
system operation 
- in gas: 
capacity allocation 
balancing rules including network-related rules on nomination 
procedure, rules for imbalance charges and rules for 
operational balancing between transmission system 
operators' systems 
interoperability and data exchange rules 
rules regarding harmonised transmission tariff structures 
11. Swift adoption and implementation of the Energy 
Infrastructure Package 

Council / European 
Parliament / Member States / 
national regulators for energy 

December 
2012 

12. Adoption of the first Union list of Projects of Common 
Interest 

Commission / Member States 

2013 

13. Create framework and market for broad introduction of 
smart appliances (e.g. via R&D support, standardisation, 
ecodesign and energy labelling) 

14. Prepare national action plans for swift deployment of 
smart grids  

15. Reflection on future roles and responsibilities of DSOs, 
demand response, smart appliances and home automation, 
distributed generation and energy saving obligation schemes 

Commission / stakeholders 
(in particular European 
standardisation 
organisations) 

2014 

Member States / Commission   2013 

Commission / Member States 

2013 

16. Analyse how the internal energy market can contribute to 
improving energy efficiency  

Commission 

17. Analyse how technology development, including storage 
technology and micro-generation, can link up with energy 
market developments  

Commission 

Ensuring appropriate State interventions 

18. Phase-out of regulated gas and electricity prices taking 
into account universal service obligation and effective 
protection of vulnerable customers. 

Commission / Member States 

19. - Analyse investment incentives and generation adequacy 
in electricity under the existing European framework  

Member States 

- And develop criteria for assessing and ensuring consistency 
of national capacity-related initiatives with the internal 
market 

Commission 

20. Adopt guidance on support schemes for renewables 

Commission 

2013 

2013 

2009 and 
beyond 

2013 and 
beyond 

2nd/3rd 
quarter 2013 

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20 

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21. Formalise the Electricity Coordination Group 

Commission 

October 2012 

22. Phase-out of environmentally harmful subsidies, including 
direct and indirect fossil-fuel subsidies. 

Commission / Member States  By 2020 at 
the latest 

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