Europe needs the will to build an energy union – FT.com

T

he EU’s 28 member states face many challenges if they are to revive Europe’s sluggish economy. One of the most important – and one receiving too little attention – is the need to co-ordinate energy policy. The fragmentation of the European energy market is a glaring strategic weakness, highlighted by the fact that the club, as a whole, imports more than half its gas and electricity. EU heads of government will discuss the matter at a Brussels summit on Thursday but progress remains grindingly slow.

The EU is under pressure to develop a more coherent and efficient energy policy for two reasons. The Ukraine crisis means member states need to reduce their dependence on Russia for power supplies, especially gas. Some 30 per cent of EU gas comes from this source, meaning the bloc is nowhere near enjoying energy security vis-à-vis Moscow. The US shale gas revolution should also be concentrating minds in Europe. Shale is giving American companies a big competitive advantage over European rivals which are paying a far higher price for electricity.

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Donald Tusk, the incoming EU Council president, has rightly made the task of building an EU energy union one of his main missions. In his view, EU nations comprise a patchwork of inefficient “energy islands” while a properly functioning EU market for gas and electricity would reduce wastage and bring down prices. The consultancy firm Strategy& (formerly Booz & Co) believes the EU could save €40bn a year by 2030 if it were to integrate its energy grids.

However, harmonisation has proved hard to deliver. Some member states such as Hungary and Bulgaria have been hard to wean off their reliance on relatively cheap Russian gas supplies. Others worry a more unified system would expose national energy champions to external competition. Connecting member states has moved at a glacial pace. The EU’s investment in transmission lines and interconnectors will be a paltry €6bn over the next six years compared to the €200bn demanded by the EU Commission.

A row between Spain and France over renewable energy demonstrates how protectionist EU member states have become. Spanish wind turbines produce far more power than is needed in the domestic market but the energy cannot be exported to Spain’s biggest neighbour because there are few transmission lines to carry it across the Pyrenees. Mariano Rajoy’s government says France is reluctant to open its border to flows of cheap renewable energy, accusing the French state-backed nuclear industry of blocking the move.

France argues that intermittent flows of renewable Spanish electricity pose a technical challenge to their nuclear power stations, whose output cannot easily be adjusted. But Spain’s argument about the need for Europe to boost interconnectedness is sound. At Thursday’s summit Madrid will demand that all member states sign up to a binding target obliging them to be capable of transferring 15 per cent of national generating capacity over borders. Its partners should give the Spanish proposal a fair hearing.

Since 2008 Europe’s agenda has been dominated by the eurozone crisis and the need for national leaders to respond urgently to potential financial meltdown and extinguish the blaze. Despite the conflict in Ukraine, the challenge of forging an energy union has not generated the same sense of urgency. Success in this matter is critical to Europe’s economic future. European leaders should start to focus on this project with far more resolution and dynamism than they are currently demonstrating.

via Europe needs the will to build an energy union – FT.com.