October 16, 2015

Why Is the European Energy Community Still Not a Reality?

File photo dated 3/7/2015 of aolar panels at Kencot solar farm in Lechlade. More than a quarter of the UK's electricity came from renewables this spring, official figures show.
File photo dated 3/7/2015 of aolar panels at Kencot solar farm in Lechlade. More than a quarter of the UK's electricity came from renewables this spring, official figures show.

Consumers would benefit from energy cooperation between EU member states.

One of the main issues that members of the European Parliament elected a year ago are dealing with under the leadership of the European Commission is the creation of a joint energy community. It seems strange that the subject is still on the table, given that one of the ideas behind the creation of the original European project was to form an economic and atomic energy community. A brief reminder: the EURATOM (European Atomic Energy Community) treaty, concluded in 1957 in Rome, entered into force the following year together with the EEC Treaty. The main purpose for establishing EURATOM was to coordinate the joint peaceful use of atomic energy in member states. The aims of the EEC were wider in scope—the abolition of trade restrictions between member states, and the establishment of a common market and customs union.
Why is it that the energy community of member states is still not up and running, nearly 60 years since the atomic energy treaty came into being, and what can we do to make it work?

Energy Security

One of the main reasons is the way energy security has been dealt with thus far. Even in Estonia there is a widespread view that, in order to achieve energy security, the country must be ready to meet 100% of its energy requirements at any time by itself. Producing energy or having an energy source located on one’s own territory seems more secure than transporting energy from a neighbouring state. Yet, when we look at Europe as a whole, we see that various member states have different strengths in terms of energy sources, and these should complement each other nicely. Moving from state-based to EU-based energy security would be beneficial for all, as history has shown that, when acting alone, one is vulnerable in terms of energy.
In order to make it possible to consume cross-border energy, the member states should invest substantially more in connections between them. The existing connections were generally built for occasions when consumption is high and production falls short of demand, and are not meant for bilateral trade on a scale at which a large industrial state could buy energy from a producer in another member state. Investments in energy connections are, as a rule, very time- and resource-consuming, and the governments of member states find it hard to defend spending money on this to their electorates.
However, Central Europe is also beginning to require functioning electricity connections, as illustrated by serious examples. For instance, last Christmas there was real concern in Belgium that people would be left without electricity and heating because several of the country’s power stations were out of order. At the same time, a power station in the Netherlands, only three kilometres from the Belgian border, had to be closed down due to overproduction! It would only require 12 km of overhead power lines to be built to connect these networks. It is technically possible; the problem lies in getting approval from government departments. As the age of its existing power stations means there will be energy shortages in Belgium in the future, the country is looking for options to connect the grids expeditiously, something that should have been done long ago.
To ensure energy connections work and guarantee the reasonable distribution of production, someone needs to look at the big picture and make sure that member states do not proceed based solely on their individual interests, and that the energy community works equally well within the EU as a whole. The member states inevitably tend to set market restrictions to benefit their own companies. This, however, may not be in the interests of consumers since protectionism contributes to higher prices. ACER (Agency for the Cooperation of Energy Regulators) could be the organisation looking at the big picture, in cooperation ENTSO-E (European Network of Transmission System Operators for Electricity), but member states are reluctant to hand over their decision-making powers and still think that the decisions they arrive at individually are better.
When we talk about energy security, there is also the question of energy supplied from Russia and third countries. Perhaps it is due to mistrust between member states or belief in the capabilities of one’s negotiators that the EU has thus far not negotiated the terms of energy supply with third countries as a single unit; rather, each member states tries to negotiate better terms for itself individually. This, naturally, delights Russia, which is trying to create disunity in the EU by whatever means possible, and turn member states against one another.
As can be seen from a recent European Commission report on Gazprom, the Russian company has been cleverly making the most out of the situation, which is why some member states have paid more for gas than they should have. The Commission’s view regarding this case is that Gazprom is in breach of EU competition rules by setting trade restrictions between certain EU member states, hindering the movement of gas and inter-state competition, and thus abusing its status as the dominant company in the market.
This position is based on a 2011 study covering Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria. Today, the European Commission plans to harmonise negotiations with third nations so that all countries can reach better agreements. Naturally, this will not come about easily, because member states will not want to surrender their competences as they still believe it is better to negotiate alone.
Some have also voiced the opinion that, as Russia is no longer a reliable trading partner, we should look for new suppliers and markets, such as Libya and Egypt. Given the geopolitical and internal situation of these countries, they may not be the most stable of trade partners. But it is reasonable not to put all your eggs in one basket—there should be as many energy sources and suppliers as needed to ensure that Europe is not dependent on a single country.

Digital Solutions

In addition to physical solutions, the energy community must work in actual life. This, in turn, means that consumers will be more empowered and have a variety of choices. Today, consumers in many countries cannot choose between different suppliers because they are registered with large producers and changing suppliers is not straightforward. Likewise, consumers are not sufficiently informed to make a considered choice—not to mention having such information concerning suppliers from other countries. Nevertheless, modern digital solutions provide us with great opportunities to learn new information and make conscious choices about energy: from how the energy we consume is produced, to which companies supply it and which country it comes from.
Network operators in every country have this information, and distributing or publishing it should not be difficult, if there is the political will to do so. By the way, this has been done in Estonia—the main network operator, Elering, has created data repositories where this information is available. As an accomplished digital state, Estonia can be an example for all of Europe in this matter. Moreover, freely distributing information on energy production and consumption should be conducive to many new business models and solutions that may, in turn, empower consumers even more.
Digital solutions are accompanied by the issue of cyber security. Cyber-attacks on data repositories and energy centres could cause massive disruption. As we are dependent on energy—more specifically on electricity—for our fundamental needs (according to Maslow’s hierarchy of needs), we must think these things through early on.
In conclusion, one can say that the subject of a European energy community must be developed further and the member states need to apply themselves to this. We are not stronger alone and cannot achieve better conditions by negotiating individually with third countries. Likewise, no single member state has a formula enabling the supply of the cheapest energy in that country at any time. This can be achieved via cooperation with one’s neighbours. Without functioning networks and cooperation, consumers in member states will be the injured party, as they will pay much more for energy than in a competitive situation. Naturally, launching the energy community requires large initial investment but, if we take into account that energy is one of people’s fundamental needs without which hardly any other modern needs can be fulfilled, we can conclude that today’s investments will be cheaper than the potential costs of energy deficiency years from now.


This article was published in ICDS Diplomaatia magazine.

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