Speech by Andris Kesteris

Page 1:Baltic Sea Parliamentary Conference Andris KesterisMinisters, Honorable Members of Parliaments, Ladies and Gentlemen,May I first convey greetings from Commissioner Piebalgs whom I amhonored to represent today. He asked me to convey his best wishes for asuccessful conference and his appreciation of the work which you aredoing here to build up a confident and effective Baltic region. Theseriousness of this ambition is reflected in today’s agenda coveringnotably strategic energy issues.ChallengesLet me start by saying that the underlying causes of the energy challengesfacing the Baltic region are shared across Europe and, indeed, the wholeworld. They include: significant energy imports, climate change andglobalization of energy markets that brings energy price unpredictabilityand supply insecurity.The uniqueness of the Baltic region is determined by its geography,ecology, history, and different social and political experiences theregion’s countries have made. Consequently the fascination of the Balticregion lies largely with its heterogeneity and a subsequent possibility todraw on different approaches while addressing the above mentionedchallenges. This is the reason why these challenges are paralleled byencouraging and trend setting examples of efficient solutions anddevelopment potential offered within the Region. They are an importantsource of inspiration for the European Commission while it is elaboratinga new energy policy for Europe.Energy supply securityOne of the dominant concerns today for this region is energy supplysecurity. The Baltic States and Poland have raised the issue at theEuropean level on several occasions. The Commission response aspresented by President Barroso was that this problem for these countriesis a problem for the entire EU. On one hand, the Region is next to thelargest energy recourses in the World. Norway, a long standing andreliable partner through EEA agreement supplies a significant share ofenergy resources consumed in the EU. However, Russia is today ourlargest single supplier. On other hand, during the recent years severaldisputes over expiring price contracts and untransparent businessPage 2:decisions by some supplier companies have revealed deficiencies indevelopment of the EU-Russia strategic energy relationship.Let me state the following. It would be unwise to avoid developing theenergy co-operation with a country being in control of the hugest energyresources. Additionally, these resources are next to the EU and Region’sborders. Moreover, the Russian Federation has a keen interest in bringingthem to the European market, and even in becoming an active player inthis market. This is a legitimate interest. But it could become reality onlyif the European-Russian relationship is based on reciprocal access to themarkets and infrastructure, respect to the investment done andtransparency in setting energy policies and in decision making as requiredfrom the strategic partners.Against this background we are assessing the Nordstream gas pipelineproject that is meant to bind Russia firmly to the European markets.These are exactly the kind of supply security considerations we socarefully scrutinize the project for: we cannot afford relying on aninfrastructure that is not flawless! Therefore, while acknowledgingimportance of new supply routes the Commission cannot compromiseprinciples of environmental safety. It is a legitimate concern of theMember States therefore we will be seeking for proper impactassessments of this project. Let me also point out that the pendingdecision regarding the future of Druzba oil pipeline is of equal interest forthe European Commission, in particular how this will impact maritimesafety in the Baltic Sea.Having said this I shall underline that this would be a short-sightedapproach to rely only on one dominant supplier without making supplydiversification into a pivotal element of energy strategies of the entire EUand each and every Member State. Nevertheless, it should be understoodthat energy security through supply diversification does not always meanbringing new pipelines and supplies from remote regions. The measuresto be implemented within the EU itself (and where the Commission isabout to make its proposals) are equally crucial.Ladies and Gentlemen,Let me further concentrate on some of the measures to which the springEuropean Council attached paramount importance in the context ofenergy security.SolidarityPage 3:On several occasions the Heads of States and Governments expressedtheir interest in developing solidarity mechanisms between the MemberStates for cases of supply disruption. The issue is also included in theMandate for IGC and will be adequately reflected in the new EuropeanTreaty. In this political context, the European Commission would beprepared to support any practical steps and regional initiatives aimed atenabling solidarity between the Member States, be it a new transmissioninfrastructure or gas storage facilities.Missing interconnectorsIt is evident that the larger the electricity network, the less sparecapacities are needed, the more secure against supply disruptions aMember State can feel. In order to end up with “energy island” situationsthe EU has given priority to linking up the electricity grids of Lithuaniaand Poland, and those of Poland and Germany. The Commission hasalready launched the procedure to appoint a coordinator, ProfessorMielczarski, to oversee the smooth implementation of this Powerlinkproject.In parallel, the Commission would be happy to support otherinterconnector projects in the region, be it a link between Swedish andLithuanian grids, or the second line for Estlink.Questions have arisen as to the possibilities for the three Baltic States tojoin the UCTE power system. It is rather a complex technical challenge,than a political issue. To this end, the Commission is providing financialsupport to the ongoing feasibility study.Renewable energy sourcesThe decision by the European Council to increase the share of renewableenergy sources from current 7% up to 20% by the year 2020 will create aserious basis for supply diversification, but also give this kind of energy anew dimension. The production of renewable energy will become aneconomy of scale. It will boost investment and development of thecurrently still expensive technology that in turn will bring the pricesdown closer to the market. It is for the Commission to come up with aproper impact assessment quantifying also gains of implementing RESgoal in terms of finances and employment. However, it is clear alreadynow that unlike in the case of buying fossil fuels where we are giving ourPage 4:money mostly to the third countries, renewable energy will be producedlargely locally — in the region with subsequent economic and social gains.In this context I appreciate the ambition of the draft resolution of thisConference claiming to develop the Baltic Sea region into a “modelregion for RES in Europe”. And rightfully so: the countries in the regionpossess potential and long standing experience in this regard. Danishwind energy is famous all over the World, whereas Germany is amongthe World’s biggest RES technology exporters. This experience andambition is really helpful to the Commission which is going to table anew draft Directive on renewable energy before the end of the year.[Sustainability aspects]Energy efficiencyThere is one more source of energy that equally contributes to supplysecurity, creation of employment, reduction of energy bills and is evencleaner than RES. It is energy efficiency. The anticipated savingspotential by using exclusively cost effective technologies is 20% of theprojected energy consumption by the year 2020. [From next year onwardsthe Commission will start rolling out a series of initiatives on energyefficiency; from minimum product standards, to better labeling thatassesses energy performance of the appliances, to improved buildingstandards, to more efficient transport systems in European cities.]Some of the most efficient EU member states are present here today. Butthere is a huge gap between the new and old EU countries regardingenergy efficiency. Therefore I may attempt an arbitrary comparison thatby assessing energy efficiency potential of the region one can conclude itis tantamount to bringing a new gas pipeline to the Baltic shores. Anotherpoint; most of the energy efficiency measures are with a short pay-offperiod which underlines the priority character that needs to be given themby the Governments in the current tight energy supply situation.The Commission congratulates also the rapidly developing Russianinterest in a wide range of energy efficiency measures. That should helpto significantly reduce negative environmental consequences, but alsoincrease Europe’s supply security. The saved gas and oil will be broughtonto the European markets.Internal energy marketPage 5:And now the last, but certainly not the least — completion the internalEuropean energy market. Currently, the EU imports around half of theenergy it consumes. Once asked what would be the desirable share ofenergy imports in order not to undermine energy security CommissionerPiebalgs answered that even 10% dependency might prove to be crucial.Eventually there was no precise figure to mention: if there is a healthymarket based energy sector, if the investment signals from the market arenot distorted by, for instance, unjustifiably low energy tariffs, thebusiness can take care of possible supply shortages.Market reform in the EU has moved apace since the first energyliberalization package in early 1990’s. The basic objectives of the marketliberalization were to ensure for the customers reliable energy suppliesfor an affordable price in expectation that the Europe wide energy marketwould provide timely signals for necessary investments thus contributingto supply security. These efforts have brought certain results. Forinstance, since July this year, every European customer has the right tochoose his supplier. In many respects our basic objectives remainuncompleted. However, most of markets remain stubbornly national inscope, cross border offer is hampered not only by missinginterconnectors, but also economic hurdles put by national champions inthe energy sector (in fact, many interconnectors themselves are not builtbecause of these obstacles); and far too many customers have little or noreal competitive choice of supplier.Ladies and Gentlemen,Across the EU, almost | trillion euro worth of investment will be neededin power generation alone over the next 25 years, not to mention thetransmission infrastructure. If the market does not work in providingadequate investment signals, we risk undermining our security of supply.On grounds of being convinced that the current European legislation doesnot provide sufficient stimulus for implementing the common market inthe energy sector, the Commission intends to propose the third marketliberalization package this autumn.The situation around the Baltic Sea, again, is largely heterogeneous. TheNordic Countries represent a really functioning electricity market thatsets an example for the entire EU whereas some of the markets are stilltoo fragmented and remain closed. It is largely due to regulated andunreasonably low energy tariffs and market domination by verticallyPage 6:integrated national energy companies, effectively preventing cross-bordercompetition. However, to attract investment in necessary new generationcapacity, infrastructure and interconnectors, foreign (or domestic)investors need to be convinced that it is in their financial interest to investhere. This is precisely where the EU rules and framework will be able tohelp.At the same time, the EU rules could prove to be successful only if theMember States possess enough political will to achieve the commonobjectives. In this regard, regional initiatives do not only manifestpresence of such will, but also are extremely helpful to the Commission’sforthcoming legislative proposals. I already mentioned the example of theNordic Countries; the energy issues are currently high on the agenda ofmeetings in different formats around the Baltic Sea. This creates a fertilesoil for developing practical cooperation steps in the region. In thisrespect I would also recommend to have a closer look at anotherframework of energy cooperation in Central Europe. Germany, Franceand the three Benelux countries have created the so-called “PentalateralEnergy Forum” gathering Governments, regulatory authorities,Transmission System Operators, power exchanges and marketparticipants. The goal is to ensure a better integration of the energymarkets between these countries, which, by virtue of their proximity arenatural trading partners. Some ideas from this approach combined with aprofound experience of the Baltic Sea region countries might be usefulfor practical implementation of a long standing idea, namely, the creationof the Baltic Grid.Ladies and Gentlemen,I am convinced that today’s Parliamentary Conference is crucial inpromoting political understanding of contemporary challenges in theirregional cut. With their intelligent concern about the energy security andenvironment, determination to create energy solidarity between thecountries, explicit support for developing of RES, preparedness to facethe energy market globalization by consolidating them on a regional basisthe participants of today’s Forum strongly facilitate adoption of theforthcoming European decisions on a new energy policy this autumn.27.08.2007