‘Energy Union’ high on European agenda

“Energy Union” is the new buzzword in the energy departments of Brussels and columns of the trade press. Business Review takes a deeper look at the motivation behind and details of the new strategy.

Laura Grigore

In February, the European Commission started working on a so-called “Energy Union Package”. It consists of “the usual suspects”: energy security, solidarity, and trust; a fully integrated European energy market; energy efficiency; a decarbonized economy; and research, innovation and competitiveness. These expand on the traditional three pillars of the European Union’s (EU) energy policy: liberalized and competitive markets; energy security; and environmental protection and climate change mitigation.

The goal of the Energy Union Package is to move away from the fragmented system to a single energy market. This includes the free flow of energy across borders, reducing dependence on single suppliers while fully relying on energy exchange among EU member states, increased energy efficiency and transition to a low-carbon style of development.

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The commission has set a specific minimum electricity interconnection target at 10 percent of the installed electricity production capacity of member states. However, 12 member states, including Romania, remain below the target.

In terms of energy security, Romania could become an exporter of security in the region through a policy of supporting energy interconnectors and exploiting their resources.

EU member states have agreed to accelerate infrastructure projects, including interconnections for electricity and gas, to ensure energy security and a well-functioning internal energy market. They are also calling for players, including governments (to “ensure full compliance with EU law of all agreements related to the buying of gas from external suppliers, notably by reinforcing the transparency of such agreements and compatibility with EU energy security provisions”. However, the confidentiality of commercially sensitive information in commercial gas supply contracts must be guaranteed.

The Energy Union Package text makes two references to member states’ sovereign rights to decide their own energy mix and to explore and develop their own natural resources. The freedom of each state to decide on its national energy mix was insisted on by Romania.

According to officials, Romania must ensure a competitive energy mix, including electricity produced from renewable sources and nuclear energy. Romania is interested in nuclear energy and the role it can play in the energy mix of each state and, moreover, in achieving the EU decarbonization targets, according to Andrei Gerea, the Romanian Energy Minister.

President Klaus Iohannis, who was present at the at the European Council on March, voiced support for the ongoing development of the internal energy market, which in Romania’s case would entail the development of energy infrastructure in the medium and long term.

“By our reckoning, the establishment of an Energy Union will offer member states major advantages. The priorities should be the creation of a genuine internal energy market, improving efficiency in capitalizing on indigenous energy resources, diversifying energy supply sources and routes as well as developing infrastructure that allows better connection among European Union member states,” he said.

The president also underscored the importance of using, in a flexible and complementary manner, all the available funds and European financial instruments for the development of energy infrastructure. “For Romania, in the medium and long term, this means the development of energy infrastructure, ensuring affordable fees for consumers, maintaining industry competitiveness and economic growth and jobs,” said Iohannis.

European energy market integration could present concrete investment opportunities in energy infrastructure development, say industry commentators. Romania’s net electricity exports totaled 7.1 Twh in 2014, 3.5 times higher than the previous year, according to the audited results presented by Transelectrica. Production capacity exceeds domestic consumption so Romania is in need of external markets.

Romania is the EU country with the lowest dependency on imported natural gas, according to the Development Plan for the National Gas Transmission System. Its favorable geostrategic position, Black Sea resources and the potential of shale gas could make the industry an important player in the region, say industry watchers.

Commentators say that one of the reasons for planning a European Union Energy was the deterioration in relations with Russia. Member states discussed the need to reduce the EU’s dependence on energy imports from the country following its annexation of Ukraine’s Crimea region last year, Gazprom’s decision to cut off the natural gas supply to Ukraine and the uncertainty in winter 2014-2015 regarding a possible reduction of gas supplies to Europe. The EU imports about 30 percent of its gas from Russia, 40 percent of which flows through Ukraine.

The original intention put forward by Donald Tusk, president of the European Council, when he was prime minister of Poland was to create an Energy Union with “a single European body charged with buying its gas” to “confront Russia’s monopoly position”.

Gazprom chief executive Alexey Miller warned in April that the EU’s planned Energy Union would result in higher prices. “If the European Commission insists on equal prices, a base price is not the lowest price. It will be the highest price,” said Miller.

He added that Gazprom will stop delivering gas through Ukraine at the end of the current transit contract in 2019 and instead use the pipeline it plans to run through Turkey and Greece into Europe with an annual capacity of 63 billion cubic meters.

Niculae Havrileţ, president of the National Energy Regulatory Agency (ANRE), said at the time that setting up the Energy Union could lead to higher prices in Romania due to balancing the network tariffs to a European average, but that the gas supply would be secure. However, the measures agreed by the European leaders do not introduce a single price across the EU gas market.