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Europe Rewired: A Giant Awakens

EU nations are taking slow steps toward an integrated energy market, but they are many paces ahead of U.S. efforts.
Fortnightly Magazine - February 2004

EU nations are taking slow steps toward an integrated energy market, but they are many paces ahead of U.S. efforts.

Despite recent setbacks in establishing an acceptable balance of voting power among member nations, a new constitution for the European Union (EU) is expected to bring together dozens of separate nations into a single economic and political superpower and lead to an interconnected energy market throughout the European continent-one that will eventually stretch from Portugal to the Baltic Sea and from Ireland to Greece and perhaps beyond.

In contrast to the restructuring of the U.S. electric industry, which was driven largely by an ideological belief in the supremacy of markets over regulation, the drive for change in Europe's markets has critical social and political components, as well as economic aspects. Loyola de Palacio, vice president in charge of transport and energy for the European Commission, has emphasized the linkage of power market reforms with the evolving sense of European community. "Creating a single market would link up power grids across the length and breadth of the EU and put an end to the predicament of some countries [that] feel isolated," she says.

In demographic and economic terms, the EU market will indeed be a giant, moving from the 375 million citizens of the current 15 members to a 25-member consortium of 440 million inhabitants, with the addition of 10 new member states in May. The annual economic output of the EU will rise from 8.5 trillion Euros-approximately $10.7 trillion (U.S.) at today's exchange rates-to more than 13 trillion Euros, or $16.25 trillion by the year 2020.

The outlines of an integrated European network for fuel, power, and energy services have been defined through a long process of negotiation and compromise that stretches back nearly a decade. In the past year, though, specific directives have begun to emerge from EU headquarters in Brussels, including one that will require members to completely open their retail energy markets to competition within four years. Newer directives debated during recent meetings of the European Commission focus on ensuring security of electricity supplies in the aftermath of last summer's blackout events in London, Italy, Sweden, and Denmark, while revising the existing guidelines for expansion of electricity transmission networks and opening access to gas pipelines.

Meanwhile, the European Commission's Energy Council has voted in support of energy market integration in the Balkans that eventually will bring full interconnection among power systems in Southeast Europe and those of current EU members. Palacio hailed these moves as "momentous" and indicative of how energy policies match the broader objectives of EU expansion.

"For the first time," Palacio says, "on a regional level, encompassing all countries and states, a regional market with political function [is being created]. This is a new, very important step of a long process toward a closer cooperation that will ensure peace and stability in this European region."

Retail Competition Brings Wholesale Changes

On the retail side of the ledger, the European Commission last June determined that all commercial and industrial electricity consumers in member states will have a

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