Director-General Beyrer,

Ladies and Gentlemen,

Let me start by thanking you for the invitation. I am delighted to be here today at this event that cuts right to the heart of the debate around Europe's future.

Our energy system is on the brink of a revolution which will change the way we consume and produce energy, and future-proof our economy.

It's true that over the years, the power market has already evolved from the old monopoly days to a liberalised market system.

But we need to go much further and much faster and also look beyond the power sector alone. After all, we are now working in a new reality.

We now have some of the most ambitious climate commitments in the world. Thanks to the EU's leadership we brought the world with us by helping to shape the Paris Agreement and by bringing about its entry into force thanks to the EU's quick ratification.

But with that leadership, comes greater responsibility. It means we have to get to grips with the challenges and opportunities that come with decarbonisation.

And let me be absolutely clear: we have to do it in such a way that boosts our competitiveness and creates the jobs and growth we need.

So today I want to outline what Europe's energy system of the future will look like and what are the concrete steps we are about to propose to make it a reality.

The energy market of the future

Whichever way we look at it, the energy system of tomorrow will have to look completely different to what it does now.

That's the natural conclusion to draw when you consider that, in 2030, half of electricity generation will come from renewables. Or if you think that by 2050 our electricity will have to be completely carbon-free.

The electricity market in the next ten years will be characterised by more variable and decentralised electricity production.

And it will also be driven by a technological revolution that will give consumers a chance to become active players in the markets through demand response, self-consumption or storage.

But this sort of change doesn't happen overnight and it doesn't happen without a clear policy and regulatory framework.

And perhaps more importantly, reforming the electricity market shouldn't be seen in isolation, but as a cornerstone of the decarbonisation of our entire energy system. After all, a decarbonised power supply can provide an important contribution to our efforts to green the transport and heating sectors as well.

And that is exactly why before the end of the year we will propose a comprehensive package of measures that will help to achieve a radical overhaul of the EU's entire energy system.

Energy Package - Triggering investment in the energy transition

At the outset I want to stress that we see this overhaul as a dual opportunity: both to speed up decarbonisation and to speed up growth and job creation across the EU.

This means that we want to give a clear signal to investors that the clean energy transition is the growth sector of the future. Both through adapting our regulation and by putting on the table concrete financing tools.

In that respect, I am happy to note that the Investment Plan for Europe which was launched a year ago is already delivering, creating jobs and triggering investments in the real economy every day.

Within one year, a substantial number of EFSI projects have been already approved, for a total investment value of 100 billion euros.

And energy represents the biggest share of approved investments. About 17 billion euros will be directed towards energy projects with a vast majority of projects targeting renewables, energy efficiency and smart meters deployment.

Still, when you consider that in 2015, the EU saved $27bn dollars in energy imports thanks to energy efficiencies, it is pretty clear that we can and should do more.

That is why on energy efficiency, now, we will focus on the sectors that have the biggest potential, such as the building sector which accounts for an inefficient 40% of our energy consumption.

Just consider this: two thirds of our buildings were built before energy performance standards even existed. When you put that next to renovation rates of around 1% you see how big the challenge is.

That is why we will shortly propose an update to the Energy Performance of Buildings Directive. To go alongside that, the Smart Financing for Smart Buildings will help speed up renovation rates to above 2% annually.

We want to tackle that head on because we know this is a significant opportunity to create growth and jobs. After all, the sector accounts for 9% of GDP in Europe and employs 18 million people.

In essence the new package is therefore about tapping our green growth potential across the board:

• - 

  The new Renewables Directive will focus on creating the right conditions for renewables to thrive and make the EU world leader again as we promised. The sector already employs 1.2 million people and accounts for 138bn EUR every year. That's good, but if we want to maintain and hopefully improve that level we need a more stable investment and regulatory framework. That is what we want to do with the revised Directive for example by clarifying some of the principles that support schemes have to comply with.
• - 

  The new electricity market design that I will talk about in a minute will help to improve market integration, competition, and investment signals.
• - 

  And the proposal on governance will provide the predictability and accountability needed to stimulate investment.

All of that might sound abstract, but it will have a tangible impact on our economy.

If we get this right, our modelling shows that this could unlock a 1% increase in GDP by 2030, pumping up to 190bn EUR into the economy and creating as many as 900,000 new jobs. ^[1]

And it will stimulate further investment. To meet our 2030 energy targets, it is estimated that an extra 177bn EUR euros per year of investment would be needed from 2021.

Now this is, of course, a challenge. Investment on that scale does not just happen.

Thanks to the new funding mechanisms I just mentioned we can - and will - help speed that up.

But ultimately, the internal energy market has to be the main driver of that change. That is why our proposals for a new market design focus on making the energy system more flexible, more participative, more integrated and with proper price signals that reflect market needs.

A new Market Design

Let me try and map out our thinking on this:

The vision we have is ofelectricity markets themselves sending the right price signals for the investment needed to ensure secure supplies and drive the energy transition. We have already done part of our homework by making proposals how to strengthen the carbon price signal by revising the ETS.

But we now need to reform the way the market functions so adapt to a new world dominated more and more by variable production. Here we need, in my view, four elements:

• - 

  Better pricing systems
• - 

  More flexible markets and in particular more participative demand
• - 

  Better market integration
• - 

  And a clear framework for market interventions where still necessary

First, on pricing, everybody agrees that in theory prices must be able to rise when demand is high or generation scarce, and constraints on pricing have to be removed.

In practice it will take courage to take the necessary steps.

It will take courage to remove price caps on wholesale and retail markets and allow consumers to be exposed to price fluctuations.

It will take courage to let the market decide when there is over-capacity and allow operators to leave the market.

And it will take courage to accept that price zones cannot only be political but also have to reflect real system constraints.

But all of these are preconditions for the market to start indicating again where and when new capacity might be needed.

And all of this would even be needed in a traditional system of demand dictating generation. However this is no longer appropriate under the conditions of the energy transition.

That is why we need to go further and create a much more flexible system than we have today.

Flexible demand will be an essential part of the future electricity market. Demand will need to react to changes in the generation if we want to avoid enormous costs for back-up generation.

But to really empower consumers we need to increase retail competition and improve consumer engagement. This is essential to keep consumer costs low and ensure all consumers have access to these new services.

This includes various models, from consumers reacting directly to price variations changes in demand at the request of system operators or aggregators for which consumers receive money.

To improve consumer engagement in this way we need to really empower consumers and increase retail competition and. And we also need to be clear about removing obstacles for new market actors such as aggregators to offer their services. No traditional supplier should be in a position to block this in the future.

And even if we remove those obstacles, there will also have to be a business case for this type of new services. And this requires market structures that properly reward flexibility. That is why we are keen to promote short-term markets, notably, integrated EU-wide intraday and cross-border balancing markets.

These new liquid and well-integrated short-term markets will also require all market participants to play by the same rulebook. That means renewables will also have to take on their own responsibilities for balancing the system and in turn help strengthen the price signal.

Better Integrated Markets

Third, we will also need a more integrated energy market which will require us to find new ways of deepening our cooperation across borders on all levels. That means fully exploiting the benefits of increased regional cooperation, of which we have already seen great progress in some parts of Europe.

The regional groups we have created must continue to deliver on the missing links in our physical infrastructure. Be it to end energy isolation of the Baltic States; be it to better interconnect the Iberian Peninsula with the rest of Europe; or be it to properly integrate the wind offshore potential in the North Sea region into our market.

Likewise there is huge potential in using the existing interconnectors more efficiently than today. We will no longer tolerate a situation where bottlenecks are artificially pushed to the border, as is still the reality. This will enhance trade and reduce costs.

But full market integration will also require seamless cooperation of TSOs on operational level and we will need to look at ways of strengthening regional TSO cooperation based on existing approaches. Likewise, more cooperation between regulators will be needed to match closer TSO cooperation, and this includes reviewing the role of ACER.

Capacity Remuneration Mechanisms

The point of all of this is to strengthen the market and make it fit for the energy transition.

This should help to reduce the need for public policy interventions. However, it's not plausible to expect that they will disappear entirely any time soon.

Nevertheless, that doesn't mean that we can't improve the way they work.

For too long we have seen a patchwork of measures in different countries that did not take into account the bigger European market picture.

For an effective market, we have to change the focus from the national to the European.

The most urgent issue here is dealing with the generation adequacy policies that we see emerging in a number of countries.

In many cases these are about remunerating national generation capacities, without taking account of the benefits of market integration.

This ends up distorting the internal energy market. That is why we will propose a European or regional framework for capacity remuneration mechanisms.

And let me be clear: it's not about Brussels making a final call on the need for any mechanism.

It will simply be about ensuring coherence. That means:

• - 

  Avoiding mechanisms that reward exclusively national generation capacity, at the expense of cross-border generation and demand response;
• - 

  Avoiding that any mechanisms lock out clean energy generation;
• - 

  And of course it's important to ensure that highly concentrated markets remain level playing fields.

We need a common approach to assess the adequacy of the system taking into account the advantages of market integration. And this assessment should inform all decisions on whether to introduce such mechanisms.

Likewise, we will need to get more prescriptive on the design of such mechanisms and ensure that they can be opened up across borders.

Opportunities and Challenges for Business

Ladies and Gentlemen,

That is just a quick snapshot of some of the ideas you will see later this year.

But let me finish by looking at the opportunities and challenges for businesses to adapt to the energy transition and the change in the regulatory framework.

Firstly, if we want to truly mobilise consumers we need to provide services and technologies that can act as a bridge between the consumer and the market. Smart meters come to mind first, but that is only the tip of the iceberg.

Secondly, the decentralisation of our power market presents increased opportunities for generation at distribution level of medium and small size.

Businesses that are not primarily in the energy-generation field may start thinking about integrating generation opportunities into their revenue mix, for example.

Thirdly, businesses have a lot to gain through better demand-side management. The more the market will reward demand-side flexibility, the more opportunities there will be to exploit that and drive down their energy bills

And lastly, it's clear that a more integrated and liberalised market will allow a more efficient allocation of market resources. And this is the best guarantee that energy prices business will have to pay are competitive.

Conclusion

That is by no means an exhaustive list of how businesses stand to gain from the energy transition.

Ultimately, the biggest barometer for success will be how many jobs we can create and how much investment we can unlock as we make good on our energy and climate targets.

As far as we are concerned, there is no tension between large-scale decarbonisation and a macroeconomic boost to our industry. In fact, as far as I am concerned they go hand in hand.

Our job is to provide the enabling framework to make that happen. I count on your support to make it work.

Thank you

[1] EE Impact Assessment

SPEECH/16/3526