In or out? Why those steering Europe’s single energy market might pay attention to the UK’s EU referendum debate

Being a UK-based company, the news schedule my colleagues and I at ICIS are exposed to away from the work place has already been dominated for weeks by the UK’s EU referendum, despite the vote being four months away.

The issue at the heart of this debate strike a chord with the key issue that has underpinned the energy news agenda during the seven years I have been writing about the power sector: Europe’s push towards a single energy market.

In simplified terms, the UK has called its EU referendum because problems associated with a policy of integration – economic, social and cultural – are perceived by some, rightly or wrongly, to outweigh the benefits.

Today, parallels can be drawn between the referendum debate and the single energy market project, while at the same time contrasts also exist. And from this we can learn a thing or two about the single market project, and how to ensure the countries of Europe eventually find themselves ‘in’ a single energy market, as opposed to ‘out’.

The parallels are self-evident: the principle of union, of working together for a common good, of leveraging economies of scale to achieve an end – low carbon and secure energy – at the least cost.

But contrasts exist as well: while the UK’s referendum debate is by its nature framed by national politics and internal interest, a well-functioning energy market is an international issue: European nations buy fossil fuels on a global market; the most efficient place to produce renewable power is often hundreds of miles away, across borders, from the largest source of consumption; carbon emissions occur at a single power plant but the long-term impact is as global as it gets.

Fractious

One thing the constant drip of referendum news exposes daily in the UK is its often fractious relationship with the EU, which is where broad lessons that relate to the single energy market can be learned.

Just as it has been proven to be dangerous for the EU to turn a blind eye to the disparate nature of its economic make-up, the single energy market ignores the inherent differences in national energy systems at its peril, and in some areas, the strain has started to show.

For example, France says it needs an electricity capacity market, but Germany plans to proceed without. The range of different designs of such mechanisms, and how they might fit into a single market, triggered an in-depth EU investigation last year.

The UK sees intervention as a necessary means of safeguarding energy supply, hence the state underwriting of a giant nuclear power plant. Germany however, which is permanently exiting atomic power, maintains faith with market forces.

What will surely emerge will be a disparate patchwork of national energy market designs, linked in places, but only where possible. If those overseeing the drive for a single market attempt to force integration, the project may face insurmountable difficulties, with national governments deciding instead that energy security is best dealt with unilaterally.

So here, measured and considered integration is key. To avoid its component states finding themselves pushing to be ‘out’ of a single energy market, the EU’s grand project must be developed slowly, gradually, and with regard to differences in national systems. This means it will look very different from the initial one-size-fits-all intention, but energy will never be a one-size-fits-all issue.

Yet energy issues do remain best dealt with internationally. Whichever way the UK votes in June, the principles of union and togetherness do have their place in 2016. The energy sector, and the benefits that a single market can bestow if developed with the necessary patience, should eventually provide evidence of that.

About Fionn O'Raghallaigh

Fionn O’Raghallaigh is news editor at ICIS Energy. He covers the regulation of EU energy markets such as power, gas, coal and carbon.

Phone: +44 20 7911 1941
Email: fionn.oraghallaigh@icis.com
Twitter: @FionnIH