Clean Energy for all Europeans

It is a great pleasure to be back at Bruegel to share with you a preview of the Commission’s upcoming energy package. Not even a year has passed since I last visited Bruegel, and yet so much has changed since then.

Thanks to the EU’s quick ratification, the Paris Agreement has entered into force earlier than expected. And with it, we have further cemented the transition towards a clean and sustainable energy system.

Our success has not gone unnoticed by the markets: investment in clean energies has kept growing. And for the first time, renewables have surpassed coal as the main source of capacity generation.

But at a time where global energy markets are changing at a very fast pace, electricity markets are being challenged by the need to decarbonise. And with current wholesale electricity prices in Europe at the lowest levels in a decade and declining, attracting investment to modernise our electricity system poses a real challenge.

Now, it is in these circumstances where ambition and determination can make change possible. And for us, the decarbonisation challenge offers a unique opportunity for the modernization of our economy and for the provision of Clean Energy for all Europeans.

Investing in the clean energy transition

Let me assure you: this is not just wishful thinking. Over the period 1990-2014, our GDP increased by 48%, while our emissions intensity was reduced by almost half. And in 2015 alone, the EU saved around 25bn EUR in energy imports thanks solely to energy efficiencies.

But this is just the tip of the iceberg: we can add 70bn EUR more to our economy and create 400,000 new jobs if we achieve the 30% target in energy efficiency. Now, as an institution that has followed developments so closely, you know all too well that this won’t be enough.

It won’t be enough to leverage the additional 177bn EUR per year that we will need just to meet our 2030 objectives. And it won’t be enough to make investments flow into sustainable and innovative solutions.

We will need to do much more and go much faster if we want to trigger the necessary investment to make the clean energy transition happen. And that is why our Clean Energy package has been designed in a way as to unlock our green growth potential across the board:

• The new Renewables Directive will create the right conditions for clean energies to thrive and make the EU number one in renewables again.
• The new market design, on which I will elaborate in a minute, will improve market integration and competition, reinforce investment signals and empower consumers.
• And the review of the Energy Efficiency legislation will tap into the energy savings that can kick-start our economy.

If we get this right, we could unlock a 1% increase in GDP by 2030, pumping up to 190bn EUR into the European economy and creating as many as 900,000 jobs.

Making the market work for everyone

Now, the market has to work for everyone. And to ensure this, we will need to adapt some rules first.

In an electricity market that will be increasingly dominated by variable renewables and by a more flexible demand, this means that we need to generate the right incentives to foster investment. We have already done part of our homework by making proposals on how to strengthen the carbon price signal by revising the ETS. But these efforts will fall short if prices do not react quicker to reflect changes in variable generation and shifting demand. And of course, this can only happen if prices are able to rise when demand is high or generation scarce, and if constraints on pricing are removed. But it also means that demand needs to react to changes in the generation if we want to avoid enormous costs for back-up generation.

We need a system that rewards flexibility and brings tangible benefits to EU consumers by allowing active participation and demand-response. This is why we will promote better integrated short-term markets, notably, EU-wide intraday and cross-border balancing markets.

And we won’t stop there.

We will further remove roadblocks to innovation in order to enable the natural development of new energy services and to open the door to non-traditional actors to the market. This, in turn, will help us respond to the need for growth and investment, and create value in a market that has in the past been closed to new business models.

But in the end, the deep transformation of the energy system that we are witnessing calls for a wider re-thinking of the way we engage with our energy system. And we cannot ignore anymore the new developments that have led consumers to play an increasingly important role in the market. Because ultimately, consumers should be able to make the most of the energy transition and reduce their electricity bills.

Empowering consumers

Thanks to technological developments and cost reductions, consumers are becoming the real drivers of this energy transition. And every year, more consumers become active participants in the market, generating renewable electricity onsite to consume it, store it, or sell it to the grid.

Consumers will play a key role in achieving the flexibility that we need to integrate abundant renewables and to provide quick and efficient demand response. But this won’t happen if consumers don’t trust the system in which they operate.

And right now, they still face huge barriers to fully engage in today’s energy system, and in many ways we are not letting them get a fair deal from our energy improvements.

This is why, as part of our new electricity market design we will promote measures that empower consumers and that facilitate their active participation in the electricity market:

• First, we will increase retail competition to improve consumer engagement, keep consumer costs low and ensure all consumers have access to these new services.
• Second, we will make the grid flexible at both the generation and the consumer ends to foster self-generation and demand-response so that consumers can adjust their consumption to price fluctuations resulting from variable wind and sun, and can benefit from lower electricity prices.
• And third, we will allow consumers to switch providers more easily, get clearer billing and comparison tools, and reduce restrictions and switching fees.

Altogether, these measures will incentivise consumer engagement with the market, help consumers save money in their bills, and allow them to benefit from new services that add value.

Better integrated markets

But in the end, empowering consumers will mean nothing if energy cannot flow quickly and unimpeded to those places where it’s most needed. This is why we will promote better regional and cross-border cooperation on energy policies and support schemes to ensure a secure supply of energy to all Europeans.

Now, full market integration will require more than simply building new interconnectors. It will also require making a more efficient use of the existing infrastructure.

And let me be clear:

• we will no longer tolerate a situation where bottlenecks are artificially pushed to the border;
• and we will not accept the existence of fragmented and uncoordinated national measures to remunerate generation capacity.

This is not a viable approach anymore. In fact, it could seriously jeopardise the market and the security of millions of Europeans. An effective market requires a shift in focus from the national to the European level.

That is why we will propose a European framework for capacity remuneration mechanisms to ensure coherence, cross-border participation and avoid market distortions.

And let me also be clear about one thing: such capacity mechanisms mustn’t serve as an excuse to subsidise high-polluting generation assets that would counteract our decarbonisation objectives. It might therefore be necessary to include strict environmental criteria in such mechanisms to avoid giving wrong incentives that might lead to stranded assets as our emission cap gets tighter.

And we will also develop a new Risk Preparedness proposal to guarantee that all Member States duly prepare for crisis situations and co-operate with one another to prevent electricity crisis situations.

In this way, we will make sure that a secure supply of electricity can reach those that need it most during a crisis.

Conclusion

Reforming our electricity market should not be seen as an isolated action, but as a cornerstone of our climate and energy strategy.

As the clean energy transition unfolds before our eyes, we need to be ready to lead and shape it in a way so that all Europeans can reap its benefits.

And in this context, I am confident that the legislative package that we will launch in a week’s time will help us to provide smart and clean energy for all Europeans.