SPEECH/06/765

Neelie Kroes

European Commissioner for Competition Policy




20th anniversary of the UK-France electricity interconnector – introductory remarks

Les Mandarins, Interconnector France Angeleterre (IFA)
Calais, 30^th November 2006

M. Merlin, ladies and gentlemen,

Many thanks for inviting me to join you here today to mark the 20th anniversary of the Interconnector France Angleterre.

The EU needs more interconnectors, and the IFA is one of the most important examples because it has shown how the internal market can help us to use EU energy resources in the most effective way possible.

As you all know, energy has been high on the political agenda for a while now. In January the Commission will present two new documents which will shape the future of Europe's energy debate:

1. The final report on the Sector Inquiry into conditions in the electricity and gas sectors will be published. I launched this inquiry last year because competition in these sectors seemed very limited, even 7 years after the opening-up of the electricity market and 5 years after the opening of the gas market to competition.

2. The Commission will also present initial proposals for changes to the legal and regulatory framework for electricity and gas markets.

This morning I'll talk briefly about what we have learned about energy markets from the first twenty years of the IFA, and our Sector Inquiry, and then offer some thoughts on the energy path forward for Europe.

Learning points from the IFA

Looking at the IFA over the last twenty years, there has been much change for the better in the energy markets it connects:

1. For a start, the IFA project was first developed between two vertically integrated monopolistic companies. Since then, competitive electricity markets have been introduced on both sides of the Channel.

2. Second, for the first fifteen years, the IFA capacity rights were held on the basis of a long term contract. When this arrangement came to an end in 2001 the operators had the foresight to involve the Commission in discussions about how the interconnector should work for the market. And capacity was opened up to all market participants at auction.

This has had positive and far-reaching consequences for energy markets across the European Union. Allocation of scarce capacity on a non-discriminatory basis is now an accepted principle in both competition law and Community legislation. An open process for the allocation of capacity strengthens competition by giving all companies the possibility to trade electricity across borders.

3. Third, the IFA interconnector now offers cutting-edge products, such as intraday capacity to allow energy companies to "bid into" balancing markets in other Member States.

4. I'm also very pleased by the high level of co-operation and co-ordination that has developed between the transmission system operators behind the IFA.

Sector Inquiry

So, lots of progress, and useful experiences from which Europe as a whole can learn. And Europe will need to learn from these experiences. Because in my view we are going to need to see even more changes over the next 20 years if we are to assure our citizens of secure, sustainable and affordable energy supplies.

The example of the IFA and the findings of the Sector Inquiry both point to similar conclusions on what we need to do to meet our aim of secure, sustainable and affordable energy supplies:

• For an efficient, integrated market we need open network operations that are efficiently run and receive enough investment.
• And a competitive internal market is the only way to deliver security of supply to European consumers and the Community’s environmental objectives in a cost effective way.

Commissioner Piebalgs and I share the view that now is the time for the European Union to make a decisive move towards an integrated and competitive market for electricity and gas. An integrated market with a common set of rules will help ensure security of supply and ensure cost-effective investments. The existence of an integrated market will also strengthen the position of European consumers in the global energy market. The voice of an integrated European market of over 490 million consumers will always be heard more clearly than the 27 different national voices that currently compete.

But this isn't the only issue on the table. Our work on the Sector Inquiry has shown that a clear separation of interests between the network operators, energy producers and energy retail companies is imperative. Speaking very personally, I see only one way forward if we are to restore credibility and faith in the market. Europe needs a structural solution that once and for all separates infrastructure from supply and generation. In other words: ownership unbundling. Then we will finally see an end to discrimination, and we will also have laid the ground for a system of proper investment incentives.

Tranmission system operators

As we're gathered here today to celebrate twenty years of an important part of the European transmission network, I'll finish with a few thoughts on what I would like to see take place in the transmission sector.

Transmission System Operators - or "TSOs" - have a crucial role to play in developing competition in European energy markets. The lack of fair access to electricity and gas transmission capacity so far has impeded competition. And this has been exacerbated by the slow pace of investment in infrastructure under the current vertically integrated regime.

I said earlier that we need to see more openness, efficiency and investment. For openness and efficiency we need to see decisive action from regulators and operators, working together. The IFA is a good example of this, and I want to see this level of co-operation developed and replicated throughout the European Union. There are some encouraging signs:

• on the basis of Community legislation, many TSOs are beginning to follow the example of the IFA in introducing non discriminatory third party access
• a recent Court of Justice judgement has begun a process to end priority allocation on the basis of long term contracts and
• developments such as the 'market coupling initiative' between France, Belgium and the Netherlands suggest that TSO cooperation is on the rise.

But I am afraid to say that these are very much the exceptions rather than the rule.

My second point was on the need for more investment. We need an expansion of European transmission networks because more capacity should give Europe more security of supply and more competition.

This requires investment. But many transmission companies are failing to make the investments we need. Sometimes the problem is bundling together of different functions within one company. Where there is vertical integration of transmission businesses with generation, gas production and import and trading and supply, it often seems that investment in new infrastructure is low on the list of priorities for the group as a whole. But Europe’s energy consumers are paying a high price for this lack of initiative. This is why we are looking at unbundling.

And in line with what I said earlier, for the full benefit to reach consumers, we also need to ensure that new capacity gives open and non-discriminatory third party access to networks, based on market mechanisms. A closed process resulting in long term capacity contracts should no longer be the model.

And to those who doubt whether this is realistic, I say "look at how far the IFA has come in 20 years". When the incentives are right change happens. And what could be a stronger incentive than reliable affordable energy for all?

Conclusion

I'd like to finish by wishing the interconnector a Happy 20th Birthday.

I hope that as it comes of age the IFA will continue to develop the services it offers to network users, and retain its position at the forefront of our efforts to integrate Europe’ electricity and gas markets.

Thank you very much.