The creation of an internal energy market is an objective being pursued by the European Union. Last month the European Council has agreed the Commission's proposal to support Member States in achieving the interconnection of at least 10% of their installed electricity production capacity. However, it failed to establish the target as binding. The cross-border interconnections are expected to have a positive influence on energy prices, sustainability and supply security, as they allow countries to trade energy with each other.
As agreed by the Member States’ governments on 23 October this year, the countries which have not yet achieved a minimum level of integration in the internal energy market (Portugal, Spain and the Baltic States) are to take measures to make 10% of its electricity production volume available to other countries as soon as possible and no later than 2020.
Although the minimum target is not binding, it is to be reached by the implementation of projects of common interest and to be supervised by the European Commission. These terms may ensure that the Commission will react if a country does not wish to act in order to achieve the agreed target. France, for example, has been accused of trying to protect its nuclear industry from the competition of the Spanish and Portuguese renewables.
The Commission will also be responsible for presenting possible sources of financing for the interconnection projects and for reporting to the European Council on the progresses being made to reach the interconnection of 15% of the electricity production capacity by 2030.
The Iberian energy market
The agreement reached by the European Council was not completely satisfactory for Portugal. Before the summit of heads of state and government, the Portuguese goal was to achieve either a non-binding target of 30% or a binding target of 15% of existing electricity production interconnections. According to the Portuguese minister for the Environment and Energy, Jorge Moreira da Silva, these targets would have helped to end the energy isolation of Portugal and Spain and would have made it easier to achieve a higher level of renewable energy consumed in the EU.
Currently there are seven lines connecting Portugal and Spain and two more are expected to be operational next year. However, because of the geographical position of the Iberian Peninsula, there are few options to exchange energy with the rest of the continent. The interconnections with France are the only option for Portugal and Spain to trade energy with the other EU Member States. But only four high voltage lines connect Spain to France. In 2011, Spain had an interconnection ratio of less than 5%, although it is expected to increase to a ratio of 5% to 10% in 2020.
Portugal and Spain launched in 2007 the Iberian Electricity Market (MIBEL), establishing a single energy market in the peninsula. This year both markets have been connected for 90% of the time and there has been a one euro difference in electricity prices between the two countries. In 2007, in the beginning of the MIBEL, the two markets were connected for 13% of the time and there was a ten euros difference in electricity prices.
Diversify energy supplies
The Ukraine crisis has once more highlighted the importance of having diverse supplies of energy. A well-integrated European market is seen as a way to address the need of having a diverse, secure and affordable energy market. In order to enhance regional cooperation, it is necessary to connect isolated areas and invest in infrastructure links that allow energy to be sent to where it is needed.
The EU currently imports 53% of all energy it consumes. This comprises: 88% of its crude oil, 66% of its natural gas, 42% of its solid fuels, and 95% of its uranium. The main exporter of oil, gas, uranium and coal to the EU is Russia. In 2012, Russia was the origin of 25.9% of solid fuels, 33.7% of crude oil and 32% of natural gas imported by the EU.
The increase on energy production in the EU is thus mentioned in the European Energy Security plan presented by the European Commission as a way to improve the security of energy supplies. The production of renewable energy is an environmentally friendly way to reduce the reliance on imported energy.
In 2012, 23.5% of electricity consumption in the EU was generated from renewable sources. According to Eurostat figures, the countries with the highest share of consumed renewable electricity were Austria (65.5%), Sweden (60%), Portugal (47.6%) and Latvia (44.9%).
Share of renewable energy in gross final energy consumption, 2012 and 2020
However, some of the energy produced from renewable sources in a country may end up not being used. This occurs because at a specific time the market may not have the capacity to absorb all the energy that is being produced. The surplus generated from wind turbines or solar panels can be exported to other countries by cross-border interconnections. That is one of the reasons behind the importance of having an interconnected energy market in Europe.
In order to help end the Iberian isolation regarding the energy market, an electricity project is planned to be finished by 2020. A subsea cable interconnection will link the electricity transmission grids between Aquitaine, in France, and the Basque Country, in Spain.
The investment on cross-border interconnections is also a way for the Member States to help each other achieve the 27% binding target of renewable energy consumed in the EU in 2030. In an interconnected market, a country which has not invested as much as others in the renewable energy sector has the possibility of consuming energy from renewable sources produced by other Member States.