The price of Energy Union

From this summer, Europeans will be able to use their cellphones outside their home member state without fear of racking up huge bills: it is the fruit of a campaign to slash roaming fees that is one of the European Union’s most vaunted success stories of recent years. EU energy ministers would love to present a similar triumph in energy, by cutting consumer bills which remain high. But decades after the first efforts to create a true single energy market, can the EU really bring us cheaper energy?

EU Commission Vice-President Maroš Šefčovič certainly thinks so. Since 2014 he has spearheaded the creation of an Energy Union, aimed at connecting member states and boosting resilience to potential supply shocks, making energy more secure, affordable and sustainable. Its guiding principle is that energy should flow freely between EU members. The plans say that new technologies and renewed infrastructure will cut household bills and create new jobs and skills, as companies expand exports and boost growth.

In his State of the Energy Union speech on 1 February, Šefčovič summed up the successes of EU energy and climate policy. The EU is on track to meet its 20% renewables target for 2020, with 16.4% of the EU’s gross final energy consumption coming from renewables. He also argued that energy policy went beyond clean fuels or tackling climate change, and spoke of economic transformation: while EU GDP has grown by 50% since 1990, emissions fell by 22%, showing a successful decoupling of emissions from economic growth. And European consumers and industry reduced its energy consumption by 11% between 2005 and 2014.

Prices still high

Despite this European consumers and businesses have not seen their bills going down. EU households spend on average €1,300 on domestic energy products. This is not a one-off, but part of a longer term trend: household prices have increased by more than 3% every year since 2008. At the same time the price to produce energy has decreased dramatically. Wholesale prices in 2016 reached their lowest levels for 12 years, falling by almost 70% since 2008.

So what keeps energy bills for Europeans so high? The Commission already identified the problem in a 2014 communication, noting that a growing part of retail energy bills in the EU consists of taxes and surcharges. The European electricity sector says that half of all EU member state governments interfere in the retail market. “Whilst wholesale costs have decreased and network costs have remained relatively stable, the proportion of policy costs and taxes in the consumer electricity bill have increased by 47% between 2008 and 2014,” the industry group Eurelectric says.

EU energy ministers and the European Parliament will have an opportunity to address energy costs and prices when turning the European Commission’s jumbo package of energy proposals into law in the course of 2017. It will be a tremendously difficult political balancing act to satisfy demands for security of supply, climate-friendly energy, affordable energy bills and generate the necessary investment. On the latter, industry group Eurelectric is painting a bleak picture, labelling their sector as currently “uninvestable”. Such a statement raises immediate concerns about the ability to maintain a healthy and competitive sector that can generate the necessary investments in the EU’s energy system and provide jobs. At the same time independent climate and energy expert group E3G argues that “clean can be good for industrial competitiveness.” All in all enough reason to make energy an EU political priority in 2017.

In times of elections, populism and euroscepticism, it is tempting to promise lower energy bills by addressing member state taxes and surcharges. But is that realistic? Or do we have to accept that high energy bills are the price European consumers and industry have to pay to build a modern, reliable and clean energy system?

Vice-President Maroš Šefčovič has called 2017 the year of delivery for Energy Union. Let’s see if he can reverse the trend of growing energy consumer bills whilst strengthening the investment climate in a secure, clean and affordable energy system.

Words Diederik Peereboom & Leo Cendrowicz
Photo CC/European Parliament

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