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ETSO COMMENTS ON EC THE GREEN PAPER FOR A EUROPEAN
STRATEGY FOR SUSTAINABLE, COMPETITIVE AND SECURE ENERGY
Brussels, 1 September 2006
1. Introduction
The European [electricity] Transmission System Operators (ETSO) welcome the
opportunity to comment on the Commission’s Green Paper on A European Strategy for
Sustainable, Competitive and Secure Energy. ETSO has already provided a preliminary
response to the Green Paper and now uses this opportunity to make further detailed
comments and proposals.
ETSO fully supports the development of a truly EU energy policy that includes all
existing and future energy sources. Difference in geography, electricity consumption
profiles, weather conditions and natural resources provide in our view more opportunities
than threats so as to achieve sustainable and secure energy for Europe, at the lowest
possible cost.
ETSO encourages therefore a strong enforcing of the compatibility of the different EU
and Member State legislations on various interacting topics (e.g. IEM, security of supply,
cogeneration, RES, CO2 emissions, balancing mechanisms, transparency v.
confidentiality rules etc.). All this will in our view benefit the single EU market providing
the specificities of the Member States are fully exploited.
Regarding energy market development in general, the proposed actions in the Green
paper are mainly focused on the regulated part of the business, e.g. networks, TSOs and
regulators. However, some of the major market problems as perceived by the consumers
and traders (e.g. lack of competition, concentration of market power and high electricity
prices) relate to the deregulated sector. It would be appropriate that more emphasis be
given to these issues and concrete actions proposed, including e.g. those that lie in the
competence of national and EU competition authorities.
In responding to the paper our comments are mainly concentrated on those areas that
directly affect TSOs. That is, completing the internal energy market in electricity and
guaranteeing security of supply. ETSO also uses the opportunity to briefly comment on
the climate change issues in the Green Paper.
A general point which is relevant to all of our comments is the need for close alignment
between the Green Paper, the EC Sector Inquiry and the ERGEG Regional Initiatives if
focus is to be retained on those issues which will really improve the European electricity
market and duplication of work is avoided.

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2. Completing the Internal Electricity Market
2.1. European Grid Code
The Green paper introduces an idea of a European Grid Code. The term Grid Code is
often used for a catalogue of technical rules and standards that are necessary for secure
power system, grid planning, grid access etc. ETSO considers that a European Grid Code,
in the above sense, does not need to be developed at European level. Apart from the
national grid codes, the synchronized electricity regions in Europe have already
developed their regional grid codes via the sister organizations of ETSO such as: UCTE,
NORDEL, UKTSOA, ATSOI and the Baltic TSOs. These grid codes are updated when
necessary and fully reflect the specificities of the areas where they apply.
The need for regional grid codes between TSOs stems from being part of the same
electrical system and not from belonging to the same market area. A single pan-European
Technical Grid Code would be counter-productive in terms of security and economy.
Grid and generation physical characteristics of different synchronous systems (and
sometime different countries) require different rules and therefore their harmonisation
would not in itself improve system security nor encourage greater cross-border trade.
The Electricity Regulation 1228/2003 already sets out conditions for network access for
cross border trade. So it would be best to focus first on the implementation of the
Regulation before assuming further work is required. This is particularly the case where
the Regulation envisages binding guidelines on congestion management, an inter-TSO
compensation scheme and tariffs, the first of these being scheduled to come into effect in
the coming months.
However, achieving greater compatibility at cross border points (which are not covered
by current codes nor regulatory frameworks) would constitute a significant step forward
in facilitating the cross border trade of electricity. ETSO therefore believes that an
alternative piece of work could be useful at European level (although probably developed
first at regional levels). It should address the cross-border issues still needing further
development both for market development reasons and for system operation.
One outcome of this work could be a kind of TSO handbook on market-relevant cross-
border rules.
Such work will demonstrate the progress that has already been made in developing
technical arrangements at cross border points and clarify what still needs to be done. We
should not ignore the fact that differing technical (and commercial) regimes are
interconnected at present across Europe and that significant trade opportunities are being
utilised by the market players across these interconnectors. Obvious examples would be
the links between Great Britain and France, between the Nordic market and Germany and
the link being developed between the Nordic market and Holland.

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On the commercial aspects of cross border trade, ETSO has already played a very active
role (with the EC and ERGEG) in the development of the congestion management
guidelines. ETSO also intends to encourage further development in this area with the
launch of a Transparency Platform in the autumn of 2006. This will create a central
repository of information and will enable close to real-time publication of operational
data relating to cross border points. This will contribute to increased transparency and
improved market confidence and will be the start of a work programme in examining
what other cross border issues need to be developed to enhance liberalisation and security
of supply. ETSO is commencing its internal discussions on such a work programme at
present.
As indicated in the introduction above, we feel that the proposals in the Green Paper in
this area need close alignment with the EC Sector Inquiry and ERGEG’s Regional
Initiatives work launched earlier this year. Failure to align these three topics will be to the
detriment of greater cross border trade opportunities and security of supply.
2.2 EU Regulator
ETSO agrees that a closer level of collaboration between regulators is required, especially
in order to encourage cross border investment. It is clearly recognised by ERGEG in its
regional initiative document that a ‘regulatory gap’ exists in attempts to improve the level
of compatibility between rules and for timely decision-making process. Closer working
relations between regulators and network operators will be crucial to closing this gap.
However, ETSO does not feel that a ‘European Regulator’ is required at this stage.
Giving TSOs a more formal consultation role is an important step in achieving greater
cooperation between regulators and network operators, this will be discussed further in
section 3.
2.3. Priority Interconnection Plan
The functioning of the market and power system calls also for important strengthening of
the European grid through new interconnectors. The Green paper mentions this but
offers very little to overcome current hindrances for investing in cross-border lines.
ETSO wants to stress the need for concrete actions to incentivise these investments and to
streamline the authorisation procedures.
Currently there is no coherent legislative or regulatory framework to support investment
by TSOs in cross border infrastructure. Without such a climate, arbitrary targets, such as
minimum levels of interconnection at 10%1
or priority interconnection plans, will be
meaningless. This is because TSOs cannot be expected to invest in cross border
infrastructure with 25 to 40 year life spans if it if not clear how that investment would be
remunerated. In addition the problem of obtaining planning permission should not be
ignored as, twinned with investment uncertainty, it provides the biggest threat to cross
border investment.
1
Barcelona European Council 15 and 16 March 2002

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ETSO has recently published a paper on Cross Border Investment suggesting how the
current barriers that are preventing investment in cross border infrastructure can be
overcome. Broadly our proposals are as follows:
Member States and Governments should be responsible for creating the overarching
policy and framework, which would
- enable permitting procedures to happen in practical and realistic timescales and
ensure their compatibility for cross border lines;
- extend the regulatory arrangements (including return on investments) to cross
border investment;
- clarify how investment in one member state that is for the benefit of the region
should be financed; and
- incentivise generators to locate plant in economically desired areas.
Regulatory authorities should implement a long term stable framework
- giving a long term guarantee of sufficient rate of return on investments;
- providing guidelines on: cost allocation principles between national systems, the
treatment and recovery of third party costs, and revenue-recovery principles;
- implementing methods to evaluate the costs and benefits of new interconnection
capacities; and
- providing guidelines to potential merchant developers and ensuring their
compliance.
TSOs would retain responsibility for planning the development of their networks,
performing feasibility and technical studies in a coordinated manner in order to identify
required investments and building/upgrading where necessary in a timely and adequate
manner.
ETSO would be pleased to discuss these proposals with the EU Institutions.
3. The Internal Electricity Market and Security of Supply
3.1 Formal Grouping of TSOs and European Centre for Energy Networks
ETSO supports the idea of creating a Formal Grouping of TSOs. We understand it as a
new layer of coordination among TSOs and between TSOs and the EC for reasons of
supply security and the efficient development of the IEM. It could be formally set up by
the EC following the pattern that gave place to ERGEG, the Regulator body. However, it
should be clarified by the EC whether such grouping would also cover gas and oil at the
same time.
As to the proposal of the Green Paper on creating also another network institution,
European Centre for Energy Networks, ETSO considers that the activities of both the
Centre and the Formal Grouping as described in the green paper could be merged in the
same body.
The new body could then work on issues such as the ones described in the Regulation for
Cross-border Electricity Exchanges (congestion management and inter-TSO

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compensation mechanisms), those related to the Security of Electricity Supply Directive
and others such as the enhancement of market transparency via the collection, analysis
and publication of relevant information as well as the increased operational coordination
in the real time control of the European power supplies. In our view, this Grouping would
also help in advancing more quickly on the development of the regional markets. For
instance, the development of regional Multilateral Agreements could be considered a
useful tool to manage regional energy flows and to guarantee the local area operational
security.
Such new body should cover all EU TSOs, report to the EC and work in close
cooperation with ERGEG.
3.2. European Energy Supply Observatory
ETSO understands the role of such an observatory as covering the whole energy sector in
a similar way to what the IEA already does for all industrialised countries. So the
question may arise whether the IEA could carry out also regionally focused monitoring
instead of creating a new institution.
As regards electricity, the Formal TSO Grouping (as described above) could provide all
relevant data. It is worth noting that ETSO was very active in the development of the
Security of Supply Directive (2005/89/EC) and is now involved in several activities that
could be relevant to this proposal. For example the Generation Adequacy Report,
assessing long term production adequacy, is published annually based on the work also
performed by our sister organizations: UCTE, NORDEL, UKTSOA, ATSOI and the
Baltic TSOs. The Winter Outlook Report, assessing production adequacy for the
upcoming winter, will also be published for the first time later in 2006. If such an
observatory is created, a close relationship with bodies such as ETSO is crucial in order
to avoid unnecessary duplication of work.
4. Climate Change
ETSO fully supports the development of a European energy policy that includes all
existing and future energy sources. All generation sources should be encouraged and
enjoy a level playing field, as the benefits of a diverse mix of primary energy sources for
the generation of electricity are widely acknowledged. We also need to be aware of the
system impacts of different types of generation. For example, increased levels of
intermittent generation, such as wind, significantly increase the need for capacity of other
generation that would need to be kept in service to operate on low wind days, in order to
retain a secure plant margin.
It is important that the future of the EU Emissions Trading Scheme is clarified, as the
current uncertainty surrounding the scheme may lead to investments being delayed. The
possibility that the form and duration of phase 3 may not be confirmed until 2010/11,
when plant margins are already falling steadily, is a significant concern as investment
decision for new capacity need to be made sooner than this.

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5. Concluding Remarks
ETSO has already worked closely with the EU Institutions and specially the Commission
in developing measures such as the Congestion Management Guidelines and the
Electricity Security of Supply Directive. ETSO intends to continue its work in this area
with the launch of its Transparency Platform and also through detailed studies of
Operational Network Security, Demand Side Response and both short term and long term
system adequacy.
As we have set out in this response, ETSO believes that the main trends set up in the
Green Paper are very positive but that further clarity is required on a number of the
proposals and looks forward to working with stakeholders to further develop and
implement them. However focus should be given to ensuring that any new proposals
complement existing measures and work areas, avoiding unnecessary duplication and
additional layers of bureaucracy. In this regard it is important that there is close alignment
between the Green Paper, the Sector Inquiry and ERGEG’s Regional Initiative.
A key issue that needs to be addressed is lack of adequate investment at cross border
points; however mandatory targets will not achieve this. Instead focus needs to be given
to clarifying the framework and the roles of the parties involved.
ETSO is committed to further developing its work in these areas and looks forward to
working closely with the Commission and the other Institutions in the future.

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