Posted by

Tom Nolan, Policy Adviser

09 Aug 2012

Recently the BCC conducted a survey to discover the views of businesspeople on trading with the EU and with other countries. One thing that is clear is that more needs to be done to make the single market work better for businesses. One potential solution is to turn isolated, domestic energy markets into a truly competitive and integrated energy network.

Over a quarter of a century after a European market for goods, services, people, and capital was created (although it is still incomplete) there is no fully functioning single European energy market. Although progress has been made over the past few years there is still doubt if an internal market for energy can be established by 2014 – the deadline that the European Council has set for its completion.

The UK has the most liberalised energy market in the EU, and if an internal market is to be established all Member States will have to adopt a similar level of liberalisation. But the key to achieving this is by a process called ownership unbundling. In other words, no one company should be responsible for the generation, production and supply of a countries energy needs. The lack of competitiveness in the European energy market in comparison to the UK’s open environment has not served British exporters well. As a previous BCC report found there is a perception among British manufacturers that this means that these countries offer preferential and subsidised energy prices to their manufacturers. This enables them to lower their costs and therefore places British firms at a serious comparative disadvantage.

A fully liberalised European gas and electricity market would create higher levels of competition and thereby reduce costs and improve services for all consumers. But to really feel the benefit of greater liberalisation, it will require an increase in the amount of electricity traded between EU countries, and also with non EU countries such as Norway. 

At present only a very small amount of electricity is traded across Europe. If electricity was to be traded in the same way as other goods, it could represent huge opportunities for a country with an abundant supply of energy, such as the UK. As a Parliamentary Select Committee report from last year concluded, if more electricity was traded it would transform the UK from a net energy importer, to a net energy exporter. Alongside the commercial opportunities there would also be potentially great benefits in terms of energy security.

If there is to be an increase in the amount of electricity traded then the correct infrastructure needs to be in place. This would involve neighbouring countries linking up their electricity networks to create a supergrid.  If such a grid was in place then southern Europe, or even northern Africa, could feed electricity generated by solar power into the grid, while colder regions, such as the UK, could feed into the grid electricity generated by sources such as wind. Having access to so many sources of energy would reduce the risk of the lights every going out. At present the UK energy network is relatively isolated compared to other European countries. If a full scale supergrid was created the UK would benefit from increased energy security more than most.

Of course building a supergrid would not be easy. The high costs involved and the technological challenges would be just two of the obstacles that would have to be overcome. And it would also be unlikely to be completed for many years. But the potential benefits are so great that it deserves serious consideration.