EU's energy union must overcome serious obstacles

Proposals to be unveiled on Wednesday by the European commission to bring together the energy systems of member states into a single “energy union” represent the most ambitious attempt to date at harmonising energy networks across borders. But the plans face serious obstacles, practical and political, and could take decades to come to fruition.

The prospect of an energy union is a tantalising one, bringing potential benefits such as cost savings, greater energy efficiency, lower carbon dioxide emissions, and far greater resilience in the face of threats to energy supply, from weather and natural disasters to technology failings and the geopolitics affecting fuel imports from unstable or unfriendly regions.

Energy union has been under discussion for more than a decade, with successive national governments and European commissioners debating how such a system could be made to work in practice. On the face of it, the signs are good.

The technology to achieve union is mostly available though not implemented yet, from large-scale interconnectors and pipelines that could be built to carry electricity and fuels across long distances, and better energy storage hardware, to the software needed to make power grids “smart” and to manage energy demand on the consumer side. Most business groups, consumer representatives and political parties officially welcome the concept.

But there are fierce disagreements over the details of what it would involve that risk leaving the ambitions stranded in a bureaucratic quagmire.

An energy union would involve sweeping changes to the way energy systems currently work.

Energy supplies are spread unevenly across Europe: oil and gas are predominantly in the North Sea, accessible only to the UK and the non-EU member Norway; coal is more widespread, with fields in Germany and eastern Europe, but varying in quality; hydro-power plants supply clean and cheap power in Nordic countries, but are seasonally influenced; renewables are spread across Europe, with a high proportion of solar power in Germany and wind in Spain; France gets the vast majority of its power from nuclear reactors.

These disparate systems are not well-integrated. Transporting energy – whether in the form of electricity or fuel – across long distances is difficult and costly. There is no single European grid, and there are few interconnectors to bring power from where it is generated to where it is needed. New pipelines carrying fuel from Russia, the middle East and other regions are also likely to be needed, and the infrastructure for gas deliveries is grossly under-developed compared with pent-up demand.

An energy union could solve many of these problems, for instance with key infrastructure such as new interconnectors, pipelines, and updated grid technology. If power was able to move more freely across borders and long distances, this could bring efficiencies and economies of scale, and also harmonise prices for consumers, which vary widely across member states.

“The energy union has great potential – it could be a grand Marshall Plan for the EU,” says Sandrine Dixson-Declève, director of the Prince of Wales’s Corporate Leaders Group, which brings together businesses urging action on climate change. “It could unlock investment across Europe, and could bring lower emissions and greater efficiency.”

The positive view from many businesses is echoed by investors. The International Investors Group on Climate Change said: “The establishment of the energy union in the European commission is a welcome innovation and should enable the commission to pursue a more strategic approach to climate and energy policy. The vice-president for the energy union should be well-placed to incorporate action on infrastructure. Scaling up of investment through appropriate long-term policies will be key to making substantive progress.”

But as well as being a practical and technological project, energy union has a huge political dimension.

Member states are close to their energy companies, most of which were or are still state-owned, and see control over energy supply – and to some extent, prices - as vital planks of national policy. They are reluctant to give up such powers, so the commission’s proposals must carefully skirt national sensitivities – for instance, avoiding the impression of dictating how states organise their energy mix. Energy companies are also comfortable with arrangements that let them cater differently to national markets, with a wide range of pricing structures to maximise profits.

“There is a reticence among large industries to look at this kind of change,” says Dixson-Declève. “They fear it.”

John Pickett, energy partner at Linklaters, adds: “The proposals look notably centralising at a time when the European project is not universally popular and may therefore require considerable political capital if it is to be achieved. There are a number of things here which have been said before (such as the need for greater interconnectivity) and there is not much offered yet as to how previous obstacles will be overcome.

“However, there are some eye-catching proposals which appear more than just repackaging, including the suggestion that ACER [the EU’s Agency for the Cooperation of Energy Regulators] will be given real powers over national regulators and that there will be a proposal and legislation for a ‘new European electricity market design’ to reconcile tensions between the markets and incentives for renewables and capacity. But, even if they might appear desirable, they still have the potential to be hugely disruptive to an industry already labouring under regulatory risk fatigue.”

The proposals have also come under fire from the green side. The Green Party and environmental groups are concerned about the continuing emphasis on fossil fuels in the proposals, despite the rhetoric on clean energy.

Jason Anderson of WWF said: “The energy union is a decent vision with some big blind spots. They’re explicit about moving away from fossil fuels, and reorganising energy markets around efficiency and renewables, and many of the surrounding notions of what will be required to achieve that are strong. But when talking about energy security, they focus in on fossil fuels. So they’re inconsistent on what it means to ease the supply of fossils in practice on the one side while discouraging them in theory on the other – it spells trouble, for example in the form of stranded assets in future.”

He says: “Whether it’s double-speak or double-vision, the commission can’t have it both ways, and has to prioritise clean energy ahead of dirty energy more clearly and consistently.”

There is a long way to go before the plans reach any kind of consensus.

EU energy ministers will discuss the Commission’s plan in Brussels on 5 March and at an informal gathering hosted by the Latvian presidency on 14-16 April, before formally taking a position at the Luxembourg energy council on 11-12 June. EU environment ministers will also consider the commission’s plan at a meeting in Brussels on 6 March, while EU leaders will discuss it briefly at a European summit on 19-20 March.