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EU’s new energy market reforms kick in

By Siobhan Hall in Brussels

March 3, 2011 - The EU’s third package of gas and power market reforms intended to complete its elusive internal energy market takes effect on March 3. (See related table: Projected timelines for full implementation of third package*).

But although most EU countries will be months late formally implementing it the package is still set to transform how the EU energy market works by 2014.

The aim of all these reforms is to break down national barriers to gas and power trade, improving security of supply and forcing traditional incumbent national monopolies to compete at EU level, so improving choice and services for consumers.

For example, the price differences between EU countries have been around 20% to 30% over the last five years, according to a senior European Commission source.

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“Completing the internal energy market will reduce the differences and lower the overall EU price,” he said.

But the process of lowering the overall EU price may mean price rises for consumers in the cheapest regions and potentially loss of revenue for companies operating mainly in the higher-priced markets.

And so EU energy market opening has always been commercially and politically sensitive.

The most controversial parts in the third package – grid unbundling, increased powers and rights for national energy regulators, and more rights for consumers – are set out in the two high level EU directives on gas and power market opening.

More detailed rules on cross-border power trading, access to gas grids and setting up a European energy regulatory agency called ACER are set out in three EU regulations. (See related table: At a glance: the EU's third energy market opening package – Legislation).

The regulations take effect directly in all 27 countries on March 3, but the directives have to be transposed into national law, and the timings are harder to predict.

In many cases governments have to propose national legislation to transpose the relevant EU directives and then this has to be approved by their parliaments.

According to EU sources, not one of the 27 EU countries had notified the EC of full implementation as at March 2.

Just seven EU countries - Austria, the Czech Republic, Denmark, France, Greece, Italy and Portugal - are expected to have implemented both the gas and power EU directives "in the coming weeks."

Germany, Estonia, Latvia, Luxembourg, the Netherlands, Slovakia, Slovenia, Sweden and the UK are expected to do so around the summer.

And Belgium, Bulgaria, Finland, Ireland, Lithuania, Poland, Romania and Spain are expected to do so before the end of the year, said the sources.

The sources added that there was no up to date information on timings for Hungary, which holds the rotating EU presidency until the end of June.

Projected timelines for full implementation of third package*

Laggards get breathing space

The European Commission, as watchdog of the EU treaties, has the power to start formal legal proceedings against national governments which fail to comply with EU rules.

But the EC is taking a softly, softly approach to the delays – at least for now.

"[March 3] is not an absolute deadline," EU energy commissioner Gunther Oettinger told reporters in Brussels on the sidelines of an energy ministers' meeting in Brussels on February 28.

"Governments have been showing us their proposed legislation [informally] and the EC has been checking it," he said.

"We will wait [and] see how the parliamentary debates turn out. We are entering the final stages. Only once these are completed will we start thinking about infringement procedures," he said.

The third package entered into force in September 2009, and governments had just 18 months rather than the more usual two years to implement most of the main provisions.

But diplomatic sources say they are now expecting six months’ grace to finish the process.

“There are general political reasons for some of the delays that are unrelated to the directives, such as general elections taking place,” an EU source said.

Belgium, for example, has been without a formal federal government since inconclusive general elections last June.

But EU governments also have a poor record on implementing energy market reforms.

As at February 1 the EC had more than 60 infringement procedures open against EU governments for failing to comply fully with the EU’s second energy package that entered into force between 2003 and 2005.

This may explain why the EC pushed hard to get EU leaders to commit to complete the EU's internal energy market by 2014 at their first ever energy summit in Brussels February 4, even though the third package legislation intended to make this possible is already agreed.

As one EU diplomat put it, governments and their priorities change, and such public commitments - even though they have no binding legal power - help the EC to press its case for compliance without resorting to the formal, time-consuming infringement procedures.

A senior EC source put it more strongly: "I have no shame in saying ... it just won't work by going to court," he said.

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