FOR critics of the European Union, one of its more infuriating aspects is a tendency to meddle in issues with a trivial impact on cross-border trade while acting dumb on matters of strategic importance.
Thus the worthies of Brussels fretted for years over excessive British working hours; theorised about extending television regulation to the internet, and created a bureaucratic monster out of the effort to liberalise financial services. But when it came to something fundamental like creating an open and competitive energy market, they had little of substance to say.
“Had”, I said. Because in recent weeks, this picture of malign neglect in the realm of energy policy has been changing. Suddenly, energy security is centre stage in political debate about Europe’s economic future. And suddenly energy markets and energy mergers are among the hottest European business stories.
To readers frustrated that this column is harping on again about energy, I make no apologies — the subject is simply too important — and given the big price rises now plaguing British business, thanks in part to restricted energy competition on the Continent, it is an area in which Europe really can make a difference.
Consider the following disparate but related events from recent days.
February 16. European competition commissioner Neelie Kroes warned electricity and gas suppliers of anti-trust action to end “distortions” and create a competitive energy market.
February 17. After talks in Berlin, Tony Blair and German chancellor Angela Merkel called on EU states to develop a 15-year strategy for energy supply and security. Centrica, the leading British supplier, raises residential gas and electricity prices by 22%.
February 21. The German power giant Eon launches a €29 billion (£19.8 billion) all-cash offer for Endesa of Spain, trumping a rival cash-and-shares bid from the smaller Spanish utility Gas Natural and promising to create the world’s biggest utility, with 50m customers in 30 countries.
What are the strands uniting these stories? First, a rapidly growing awareness that energy is Europe’s economic Achilles heel, with oil and gas prices double the level of two years ago and imports growing along with dependence on a small and volatile collection of suppliers, from Russia to Iran.
Second, a realisation that power-market structures in Europe — fragmented along national lines, with ageing power stations and refineries and inadequate interconnection facilities between member states — are an important part of the problem. They lead to inefficiencies in supply, excessive costs, waste and, at worst, power blackouts.
As Dieter Helm, an Oxford academic, wrote in a little-publicised paper setting out a European energy policy for Blair ahead of last autumn’s EU summit: “The internal energy market is not much more than a series of national markets with limited cross-border trade. As a result, each country carries a high burden in spare capacity, physical trading is limited and security of supply is lower.”
Third, a sense that nation-states alone cannot tackle these issues effectively — that securing Europe’s power supplies will require a mixture of tough and concerted action by politicians at EU level and consolidation among private-sector power suppliers across the continent.
Here lies the true significance of recent machinations. What is emerging is a battle royal between companies and politicians out to create a single European market in electricity and those fighting to defend narrow national interests. Whatever the short-term obstacles, the dice are heavily weighted in favour of the former.
Thus, in one corner Neelie Kroes, the feisty Dutch commissioner, declares war on cartels. In another Spain’s socialist government overrules competition objections to create a “national champion” gas and power group. Into the ring bursts Eon with its knockout offer for Endesa. Round one to the Germans, gnashing of teeth in Madrid.
There is every reason to suppose that Spain’s official opposition to the Eon bid will prove as ineffectual as the recent posturing in Paris and Luxembourg over steel. Madrid has already signalled that it does not intend to use its “golden share” in Endesa to block Eon’s bid, an act that would draw instant litigation from Brussels.
The simple fact is that there is suddenly big momentum in pan-European power consolidation, with a substantial weight of money and political support behind it.
The big power utilities — muscle-bound Eon, its German neighbour RWE, Enel of Italy and nuclear-powered EDF of France — are awash with cash from high power prices and asset disposals, and anxious to spend it mopping up their peers. Wulf Bernotat, Eon’s chief executive, speaks about the future belonging to just a few pan-European energy giants — none of them, sadly, British-owned.
Even those governments inclined to stand in the way, such as Spain’s, will hesitate to do so for fear of offending their main trading partners, and Brussels will, if necessary, use its competition powers to sweep roadblocks aside. Eventually, believe it or not, the liberalisation bug will even reach France, which has a strong interest in allowing its utilities to join the European buying spree.
Of course there are worries about the pan-European giants getting too big for their boots and abusing their dominance. But there, too, Brussels is signalling it will use its powers to curb them. The important point is that it can only do so once the picture acquires a cross-border dimension. While EU states were busy creating national champions, as Madrid tried to with the Gas Natural/Endesa merger, the commission was impotent to act.
This is the way Europe’s single market — 20 years old this month — was built in the first place: private-sector companies taking the lead in cross-border investment, Brussels providing support. It is a process from which Britain has derived great benefits, and the same will go for energy — even if British utilities such as Centrica or Scottish Power turn out to be bid victims rather than bidders.
After all, we long since stopped worrying about foreign ownership of power companies: nobody bats an eyelid about the French keeping London’s lights on or the Germans providing its water supply. The good news about the past week’s events is that continental Europeans may be about to profit from the same lesson.
andrewgowers@btinternet.com
