European electricity regulators' response to energy themes in EU Framework Programme 7 (link)

Brussels, 19 July 2006

Regulators' comments on Energy Themes in FP7
Ref: C06-SEM-18-03

Dear Mr Fernández Ruiz

Firstly, I would like to thank you for meeting with CEER on 4 May to discuss the development of the 7th Framework Programme (FP7) and the opportunities for us to present our ideas in particular subject areas. We made an initial contribution in our paper sent to you on 3 February and at our meeting we agreed to offer some further thoughts now that the FP7 themes have been published.

We are very pleased to see that "Energy" is now identified as one of the nine primary FP7 themes. This elevation, compared with FP6, is very appropriate. The challenges facing, in particular, the electricity supply industry as a whole in the coming decades are very significant and without an appropriate level of investment in R&D optimum solutions are unlikely to be found. It is self evident that the focus and resourcing of this RD&D activity deserves very careful attention. This letter provides our further thoughts on behalf of the energy regulator community, focusing on electricity supply.

We note that none of the nine "Energy" activities relate explicitly to the gas supply and delivery industry. While we believe that the challenges facing electricity supply are much more significant than for gas supply it may be appropriate to direct an appropriate level of attention to gas supply as well.

The Challenge

In purely technological terms, the electricity supply industry is entering a new paradigm, driven by two fundamental developments. Firstly, electricity generation technologies are currently being developed that can be connected at every level of the electricity supply chain. Examples that demonstrate this range include domestic photovoltaic systems and 'traditional' large scale gas, coal and nuclear plants.

Secondly, the prospect of the demand side playing an active role in the operation of the electricity supply chain is now real and as with generation this could be implemented at every voltage level. The combination of these two developments brings many technical challenges but also very real opportunities to optimise the system both in terms of cost and environmental performance.

In parallel with these technological developments, electricity markets are being progressively opened both at national and international levels. Making these markets operate efficiently brings new economic, social, political and technical challenges that will require much fresh thinking and researches. Policy makers are facing new challenges by combining energy market development, new environmental policies and market instruments to incentive competition and investment and to protect consumers.

Implementation of the Electricity Directive 2003/54/EC and the Gas Directive 2003/55/EC - the key European legislation to establish the Internal Market of Electricity and Gas - has shown Member states adopting different regulatory policies which are now difficult to be compared each other. The plurality of political and regulatory objectives make very difficult to find common tools and methods to achieve efficient results. For this reason CEER believes that FP7 program give a very important opportunity to study and promote common methodologies and tools that can be used by different policy makers to achieve a real competitive and efficient European energy market.

The industrial community does of course invest significant resources in electricity and gas supply related RD&D. Products that can be offered competitively in an international market naturally attract RD&D investment. The rapid development of combined-cycle generation in recent years offers a good example here. However, CEER believes that there are some areas, like networks, where normal market forces may not generate sufficient RD&D activity to fully exploit future opportunities for examples, without an appropriate incentive regulatory policy the network sector is not interested in energy efficiency and savings.

For these reasons the resources available under FP7 should be focused on networks, energy efficiency and savings and knowledge for policy makers.

[...]