Promoting long-term investment in Europe’s electricity market

As we steadily approach the end of what many could call the most tumultuous legislative term of the Union’s history, the European Parliament and, concretely, its Industry, Research and Energy Committee are hard at work to finish up all the remaining open issues ahead of the upcoming European Elections in 2024.

If something has become evident in the past three years is that having the right energy policy in place is fundamental to ensure economic prosperity, the welfare of our citizens, climate neutrality and for achieving high levels of strategic autonomy at Union level.

Whether it was a pandemic leading to a global lockdown, supply chain disruptions, energy markets’ foreign interference or an unjustified war in our continent, the external shocks that have befallen on the Union since 2020 have put our energy systems to the test to extreme levels.

On the positive side we can say that our energy market has proven to be able to stand the test but we have also to admit that we have had to deal with several shortcomings of the present system. In this regard the ITRE Committee that I have the honour to Chair, has been working very hard to ensure that the Union’s energy policy delivers a well functioning, properly interconnected and integrated energy market that will provide citizens and companies/industries access to clean, competitive and abundant energy. These ambitious goals require a faster pace of electrification of our economy, which, in turn, needs us to ramp up investments in the short term, but sustain those investments in the long-term.

Under normal circumstances, the Union has an energy market that benefits the generation of low carbon energy and that has, over time, ensured that the share of indigenous low carbon energy is becoming larger and on target to reach our 2050 goals. However, it is important to acknowledge that this part year and a half we have been living under extraordinary circumstances where the prices of energy have been heavily impacted by market manipulations by Russia before February last year and the war after that. Instability is the biggest enemy of a stable investment framework, we therefore have been looking at way to ensure that investors see in the Union as a safe, stable and secure place to invest in much needed infrastructure and energy services in the long term.

The war in Ukraine has in any case has only confirmed the need we have to quickly transition to a decarbonised economy based, mostly, on indigenous low carbon and renewable power generation so as to protect our way of life and reduce the Union’s vulnerability to external shocks.

We have to recognise that energy is of strategic importance to us and therefore provide the guarantees needed to develop and sustain an economic model based on the principles of sustainability, competitiveness and security of supply.

It is important to clarify that the current electricity market design has served very well its purpose of promoting the generation of indigenous renewable and low carbon electricity generation, which is and will be essential in our 2050 carbon neutral future. But of course the legislation in force was thought about for peace time and it was not taking into consideration supply shocks as the ones we have been living with since the war started. Therefore, some measures will have to be considered to ensure the vulnerabilities and price volatilities we have discovered will not be repeated in the future. In this regard, as IEA Executive Director Fatih Birol stated during his exchange of views with us earlier this year, the Union reacted to the war swiftly and successfully on energy matters but our transition to a carbon neutral economy also needs an industrial transformation that will ensure the supply chain of materials necessary to boost our renewable generation, supply routes that are diversified and suppliers that are trustworthy. Electrification will be felt in generation but also in buildings, in transport, in charging infrastructure. It will impact a rampant hydrogen market, it will require massive scale investments in electrolysers.

But electrification only makes sense if the power generated is clean from greenhouse gas emissions.

We need therefore to continue our efforts to ensure adequate private and public investments are made in low carbon and renewable electricity generation, in grid update infrastructure with particular emphasis on interconnection capacity and making our transmission systems able to deal with increased injections and multidirectional electricity distribution.

The last couple of months have demonstrated that the European energy system is adaptable and robust in the face of challenges, be it economic, environmental, or social.

On our side, the European institutions are doing all in their power to bring a legislative framework that will increase stability and a clear vision, which are main drivers for sustainable and significant investments.

The work is ongoing. However, let’s not forget that the main driver of uncertainty in the markets is the ongoing Russian war of aggression against Ukraine. While we continue our work as legislators to ensure the Union’s legal framework is as solid as it as it can be, we need to continue the proper investments into the energy sector, and be aware of its underscoring role in creating a more sustainable, united, and resilient Europe.