Solidarity in the EU – The Regulator’s View

Regional solidarity is one of the most important issues facing Europe today, Vice Chair of the Board of Regulators of the Agency for the Cooperation of Energy Regulators (ACER) Walter Boltz has said. 

Speaking at the recent GIE Conference in Dublin, Mr. Boltz said that, though in principle gas solidarity is an idea that every EU member state would agree to in principle, in crisis the practice may be harder to implement.

“Once there is a problem, every country retreats into its own territory—‘who cares about the other Europeans as long as my cities are not hurt?’” he stated. “If countries could show more solidarity, we’d be in a much better situation.”

That principle’s inclusion as a priority for the European Commission’s planned Energy Union was a good first step, he said.

The Energy Union, which was announced in February this year, is designed to break dependence on a single gas supplier, which for many European countries is Russia. 

It aims to create “an integrated continent-wide energy system where energy flows freely across borders, based on competition and best possible use of resources, and with effective regulation of energy markets at EU level where necessary,” its initial policy documents say. 

But whether that ambitious aim can be achieved remains to be seen, Mr. Boltz says.

“It [the Energy Union] is a good summary of energy policy priorities. The final judgement will be, is this going to be effective and properly implemented? 

“It’s one thing to say, we want to have solidarity in case of disruptions. Everyone will say, “That’s a great idea.” But then you say, “Oh that means you can only supply half of your protected customers, because half of the gas has to go to the neighbouring country if there’s a disruption” and that solidarity, sometimes very quickly, evaporates. We have to overcome this problem, which will be a challenge. It will be a big challenge especially for countries that are currently not very well integrated... A lot needs to be done here.”

He pointed particularly to the situation in Central and Eastern Europe, which saw huge shortages in the harsh winter of 2009. The situation highlighted the fragility of inter-country cooperation on gas supply.

“Some of those countries could have done more,” he said. “Bulgaria was one of the worst hit countries in 2009, but real physical expansion of the grid, almost nothing has happened in this region. Just connecting Romania to Bulgaria would have enabled Bulgaria to survive at least a few weeks of disruption by taking some of the gas from Romania, which has natural gas resources. But this has not happened. I cannot say whose fault it is but I just note that a region that has real problems has not been able to do a few easy, inexpensive, quick steps to improve the situation.”

On a practical level, better structuring for individual decision-making was the way forward, he said. Currently, the EU makes a lot of decisions for individual countries, a situation that was inefficient and needed to be tackled for proper solidarity.

“I think we are seeing the need for more effective governance and that includes more effective decision-making from the regulators,” he said. “We have problems, if there are three or four countries supposed to do something jointly, like a pipeline, market merger, or something like that, there are no proper governance structures for these regions. 

“If we go regional, we need to have regional decision-making structures. The EU is ill-suited for regional decision-making. I think we have to keep that in mind.”

Additionally, Europe needed to be careful in how it achieves the aims of cross-border sharing, he stressed, in order to remain competitive. 

Firstly, he said, Europe needed to ensure that it kept prices at a level low enough to be competitive. This would be impacted by how much infrastructure was built.

“Careful assessment really needs to be taken in relation to infrastructure… If we build too much hardware, gas will be expensive. It will just not be used—people will go to pellets or other products and walk away from gas. This is something we have to be very careful about when we talk about subsidised or not subsidised infrastructure developments.”

Over-regulation of the market could have a knock-on effect for the continent’s competitivity, according to Mr. Boltz, a situation he said was particular to gas in a way that it wasn’t to other commodities or products.

The fault, he said, was partly down to individual governments.

“We still have a majority of European consumers who are still subject to regulated prices, which in a way demonstrates that the government have a deeply rooted suspicion as to their own market organisation. I mean, they set it up and they don’t trust it. If they trusted it, there would be no need for regulated prices.”

He argued that the fuel was awarded a status that frustrated the market. 

“Gas is important, but I’m not sure if it is much more important than baby food or medicine or other important products. 

“There is nobody who would suggest regulating the price of baby food or bananas or bread. Many other product markets are not regulated. Gas, in a majority of countries, is regulated.   I think it’s our common goal to make sure that this suspicion is reduced. There’s no need for it.”

That had a further effect on the end price for retail customers. He asked why retail customers could not choose yet to purchase gas from sources outside of their home country, despite the capability to do so in some locations.

“Because we have not managed to get cross-border retail competition going, I still can’t buy my gas from a country other than my home country, which is silly because it’s probably crossed three or four borders by the time it reaches me. But, if I’m a retail customer, I have no option to buy from somewhere else.”  

Implementing all of those steps and ensuring a smooth, function market was the surest manner in which Europe could safeguard itself against future crises, he said.

“I think a well-working market is the best and cheapest way to protect against security of supply disruptions.”

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