Kim Talus

EU energy law and policy : a critical account

1. Introduction: EU Energy Law and the Approach Taken in this Study 2. The Regulatory History of EU Energy: The Evolution of EU Energy Law from 1957 Onwards 3. The Evolution of the Sector-Specific Regulatory Framework 4. Treaty Law and the Energy Sector 5. Environment and Energy: On a Bumpy Road Towards a Clean Energy Future 6. The International Dimension of EU Energy Law and Policy 7. From State to Market and Back: The Changing Role(s) of Markets and States in the EU 8. Conclusion: European Energy Law under the Impact of Globalization: From State to Market, from Plan to Contract, from Public Ownership to Economic Regulation and Beyond Bibliography

Winds of Change: Long-Term Gas Contracts and Changing Energy Paradigms in the European Union

European gas markets have traditionally been based on long-term contractual relations between the EU importers, typically a national monopoly company or a company with special or exclusive rights, and the external producers. In the EU, the background to this contractual model was the development of the Groningen field in the Netherlands, and it is based on the concept of replacement value and long-term minimum-pay export contracts. These are designed to attract the highest possible rent from the gas field before depletion (ECT 2007: 146). However, due to the special characteristics of natural gas, particularly in comparison to oil, this need for long-term contracts has been accepted as a general principle of energy governance in various markets around the world (Smith et al. 2010: 1047). Out of the three main natural gas markets in the world, only the United States has in large part moved away from long-term contracts towards short-term trading (Petrash 2006: 545). Europe and the Asia-Pacific still rely on traditional long-term contracts. Similarly, while the Asia-Pacific relies on oil price indexation, the US has moved to hub-based pricing of natural gas. In Europe, an energy governance paradigm shift has started to occur in this respect. The traditional structure of long-term natural gas contracting with take-or-pay clauses, oil price linkages and netback pricing appears to have reached a crossroads (Talus 2010a: 8–12). The context in which these contracts operate has significantly changed, and this has not come without consequences to the contracts themselves. There is increasing pressure to review some of the key elements of the traditional long-term natural gas contracts, including the pricing mechanism.

Electricity Interconnectors: A Serious Challenge for EC Competition Law

Interconnectors pose a challenge to EC competition law. Finding investment for capital-intensive infrastructure investment such as interconnectors means that the requirements of financiers and project sponsors for long-term predictability of cash flow is assured. That usually involves long-term contractual commitment with at least temporary preferences for the sponsors to make it economically viable. This long-term tie-up of interconnector access by long-term contracts or significant project sponsor preferences does not seem to be aligned with the overall EC competition policy to create more competitive markets This essential dilemma of much of heavy, and in particularly cross-border, energy infrastructure investment is well exemplified by the situation of electricity interconnectors. These interconnectors thus illustrate the challenges increasingly and acutely posed by the tension between long-term infrastructure investment in the interest of energy security, and the “normal” application of competition law. The issue became highly topical when the Commission declared the access to interconnectors as one of its immediate priorities. This article will examine the application of EC competition law in interconnectors contributes towards a better appreciation of the dilemma between energy security investments on one hand and the objective of competitive, integrated EU energy markets on the other hand. It is also an essay about the difference between competition theory and the realities of the energy markets.

First Interpretation of Energy Market Directives by European Court of Justice - Case C-17/03, Vereniging voor Energie

On 7 June 2005, the European Court of Justice gave its first interpretative judgment concerning the Directive on the internal market for electricity. The judgment concerns preferential access to an electricity interconnector by an undertaking that previously held a monopoly, because of agreements concluded prior to the liberalisation of the EC energy markets. This article will assess some of the most pertinent aspects of this judgment: the interpretation of Article 86 (2), role of the principle of legal certainty in transitory measures facilitating the transition from a closed-market regime into an open one and so on. The article will also assess the judgment against the ongoing liberalisation process in the European Community.

European Union Energy: New Role for States and Markets

The European Union (EU) is among the world’s largest integrated energy markets and is now in transition towards the Europeanization of its energy policies. EU energy policy is currently searching for the optimal regulatory framework. The previous overly market-based ideology is rapidly changing to a more interventionist policy based on public intervention for security of supply and, increasingly, also for environmental purposes. The market-based method is being (partially) replaced by stronger public sector involvement and solidarity between EU member states. Since markets fail to deliver security, despite economic theory suggesting that they could, states and the EU step in and provide for state responses to energy security threats. This is visible in many areas of EU energy law and policy, infrastructure investments being one of them. Here, the mechanism to make the investment decisions and EU ‘solidarity’ provide examples. Similarly, the push for renewable energy is changing the role that the state and the public sector play in the markets. Despite claiming to be a market-based system, this area of energy business is driven by state subsidies. The final area where state intervention into the markets in the name of the environment becomes particularly visible concerns the shale gas exploration in EU member states. Here, states make the decisions on activities in this area based on sustainability and security considerations.

First experience under the exemption regime of EC Regulation 1228/2003 on conditions for access to the network of cross-border exchanges in electricity

On 23 April 2005 the European Commission accepted the national decisions granting a ‘full-exemption’ under Article 7 of Regulation (EC) No 1228/2003 to the Estlink project for the construction of an interconnector between the national grids of Finland and Estonia. This is the first formal exemption to be granted under the Regulation. This article will assess some of the issues that were raised during the proceedings towards the exemption.

Development of the Sustainability Aspects of EU Energy Policy

This chapter will examine and discuss the sustainability aspects of EU energy policy. This area of EU energy policy rests primarily on three main legs: promoting energy efficiency, promoting renewable energy and the EU emission trading scheme. In all these areas EU has adopted a thick and growing body of secondary legislation. This chapter will present the main components of these regulatory instruments and their development. In addition, examples of other EU sustainability measures in energy sector are also discussed. In all areas of action, the development has moved from voluntary soft-objectives to or towards binding targets.

WTO Panel Report in the EU – Energy Package dispute and the European Commission Proposal to amend the 2009 Gas Market Directive

The World Trade Organization Panel Report in the EU – Energy Package dispute brought by Russia against the European Union was released on 10 August 2018. As was widely expected, the Panel found in favour of the EU in most aspects. However, on certain claims the Panel found in favour of Russia. The findings in this respect may have a far-reaching impact on EU natural gas infrastructure policies and the Commission Proposal to extend the Gas Market Directive to external pipelines. This article will examine the impact of the Panel Report from this perspective.

Aspects of advancement of distribution tariffs for small consumers in Finland

This paper discusses the development of distribution tariffs of small consumers in Finland. Changes in the electricity sector have created pressures for the Distribution System Operators (DSO) to develop their pricing practices in order to better reflect their cost structures. In this context, power-based distribution tariffs (PBDT) have been seen as a potential direction for development. This paper analyses the EU and Finnish legal framework for distribution tariffs with an aim to identify potential regulatory barriers and incentives for developing PBDTs in Finland. To support this analysis, the paper also provides results of a survey conducted in Finland in 2016 in the EL-TRAN project, reflecting the will of Finnish consumers to improve their ability to affect the distribution fees. The results indicate that the consumers are interested in having this opportunity.

Capacity to Compete: Recent Trends in Access Regimes in Electricity and Natural Gas Networks

Ensuring access to a truly ‘European’ energy grid for every consumer and supplier in the European Union is a core objective of the single market project. From the first wave of liberalization directives up until the ‘draft’ framework guidelines of September 2010 on capacity allocation and congestion management being prepared by ERGEG on behalf of the new Agency for the Cooperation of Energy Regulators (ACER), the objective of the access regime in both sector is similar: to creating capacity to compete. The objective of this paper is to review and compare from a legal point of view the evolution of the EU access regime in the electricity and gas sectors. We find strong similarities for two otherwise very different sectors, as well as an influence of the electricity regime on the gas regime. The sector-specific regulatory regime, supported by the use of competition law, organises a market design in both sectors based as much as possible on short-term capacity allocation with a liquid secondary trading platforms. The imposition of UIOLI mechanisms and an increased focus on firmness of capacity is certainly the way forward but implementation still is an issue. The right portfolio of capacity durations that are to be proposed by TSOs also remains an open question. The specific features of these two commodities result however in slightly different results in practice. In electricity, the development of market coupling initiatives creates new regulatory challenges but price convergence is now in sight. In gas, the progress has been slower and efficiently functioning spot markets are yet to emerge.