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European energy market revolutionised
. The Energy Ministers reached agreement on 25 November on completely open gas and electricity markets for non-household customers by 2004 and for household customers by 2007.

"This is a radical change, with European countries moving from national monopolies to full liberalisation within a few years," said Loyola de Palacio, Vice-President of the European Commission responsible for transport and energy. "The creation of the European energy market is a revolutionary step; it will boost the competitiveness of European businesses and benefit all our citizens".

The agreement reached by the Member States also seeks to strengthen public service obligations, in particular universal service and consumer protection. The markets will be opened by establishing independent regulators and separating transmission and distribution functions from generation and the provision of services.

The Council also agreed the regulation on cross-border ‘tariffication’ and the development of trans-European energy infrastructure. According to the Commissioner, "the single energy market is an additional guarantee of a safe, sustainable energy supply".

The main points of the agreement cover the following areas:

Timetable for market opening:
The electricity and gas markets will be fully liberalised by July 2004 for non-household customers, while all customers (households) will be able to choose their supplier by 1 July 2007 at the latest. This process will take account of a report assessing the impact of liberalisation to be presented by the Commission in 2006.

Protection of final customers and energy labelling:
As proposed by the Commission, the opening of the energy markets will be accompanied by clear, stringent public service obligations (protection of final customers, universal service, possibility of rules for balancing the electricity transmission system, security of supply, investment planning obligation, etc). The universal service obligation will apply to all households and small businesses, which will have the right to be supplied with electricity of a specified quality at reasonable prices. In addition, the energy-labelling provisions require the contribution of each energy source to the fuel mix to be shown on energy bills as well as the environmental impact in terms, at least, of CO2 emissions and radioactive waste.

The Commission's proposal, backed by the European Parliament, requires transmission and distribution activities to be separate from generation and service provision. The Ministers have agreed on the obligation to implement legal unbundling of transmission by July 2004, while distribution will be unbundled by July 2007. This obligation does not in any way imply unbundling of ownership in vertically integrated companies.
In the meantime, the Commission will have to present a report to the Council and the European Parliament reviewing experience gained in applying the directive, and the independence of network operators in integrated companies.
If necessary, the Commission may submit all the proposals ensuring full and effective independence of the distribution system operators earlier than scheduled. Furthermore, if it finds that the same objectives have been achieved in full through less stringent separation, the Commission may, at the request of a Member State, adopt an opinion and submit a proposal to the Council and Parliament to allow the State concerned to maintain this experience.

Access to storage:
Access to gas storage is guaranteed. It may be regulated or negotiated. The Council also reached agreement on a draft regulation on cross-border electricity exchanges, which is crucial to the creation of a true single market as opposed to the juxtaposition of 15 liberalised markets. This proposal is mainly geared to adopting rules on cross-border ‘tariffication’ and congestion management for electricity.

Development of trans-European energy networks:
The Council also reached agreement on the proposal for a decision to promote interconnection, interoperability and the development of trans-European energy networks (TEN-E), and access to the networks. The objective is to achieve 10% electricity interconnection capacity between Member States. The Barcelona European Council concluded that this crucial project was of prime importance and called for it to be adopted by the end of 2002. The main points of this dossier concern:
• Optimising the use of existing infrastructure, in particular with the aid of transparent rules on congestion management and tariffication;
• Encouraging the construction of new infrastructure on the basis of a transparent regulatory framework conducive to investment;
• Concentrating efforts on a new list of priority projects by revising the guidelines for the trans-European energy networks and focusing Community financial support on a list of 12 projects in the field of electricity and gas. These should be declared "priority projects of European interest" as provided for in the Green Paper on the security of energy supply, which stresses the need to overcome local reservations where necessary. The Commission thus proposes raising the maximum rate of co-funding for priority projects from 10% to 20%;
• Increasing awareness in political circles and commitment to energy infrastructure at all levels;
• Guaranteeing the security of gas supplies in Europe;
• The Council adopted the list of 12 priority projects of European interest that are to be developed in the coming years;
• seven critical bottlenecks in the electricity sector (on the border between France and Spain, between Germany and the West of Denmark, the frontiers of the Benelux countries and Italy, interconnection between the United Kingdom and continental Europe, interconnection of Greece and of Ireland);
• five projects essential to Europe's gas supplies.
Author:Neil Flynn
Posted Date:11/28/2002

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