Speech by EVP M. Vestager - Clean Energy Summit - Supporting markets of the energy transition

Supporting markets of the energy transition

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Good afternoon.

Europe is starting one of the busiest election years in a long time. And, at least in some quarters, there seems to be a sense that the Green Deal is going ‘out of fashion'.

But climate change is not an election trend. The climate doesn't care who wins elections. 2023 was the hottest year on record, and unfortunately 2024 has good odds of being record-breaking once again.

So the science is clear and, at this stage, unfortunately so is our lived experience.

We cannot afford the high cost of climate change, but policy choices are needed to decide how and who pays the costs of the fight against it. The good news is that our market economy is a great tool to tackle the challenge and deliver a prosperous and sustainable society.

That's because markets by their nature bring efficiency and innovation.

Already our best minds in universities and the private sector are working on tomorrow's solutions, from better batteries to renewable hydrogen, to cleaner manufacturing processes, to ‘smart cities' that can cut traffic and emissions.

The question we, in Brussels and in national capitals, have to ask ourselves is: how can we support this work?

Let me share some thoughts.

First, boost our market economy by boosting our Single Market.

This means removing barriers, to give companies more scale for efficiencies - and to facilitate the entry and scale-up of startups. It means creating linkages where they are missing: our single energy market has played a crucial role during the energy crisis, thanks to a unified regulatory framework and physical interconnections. Much more can be done – and gained – with deeper market integration.

Second, protect our market economy by protecting competition.

Merger control has a role to play here. Allowing the formation of dominant players or “champions” doesn't give rise to more efficient players. To the contrary, it leads to market power, less innovation and higher prices for consumers. And more profits for shareholders.

Our antitrust rules matter too. Our new Horizontal Guidelines clarify that antitrust rules do not stand in the way of agreements between competitors that pursue a sustainability objective.

Finally, where the market cannot deliver alone, our State aid rules enable effective and efficient public interventions.

Let me say a few words on this topic.

Our role as European Commission is to make sure that State aid measures are targeted to address real market failures and that the aid amount granted by Member States is limited to the minimum necessary. This way, we limit competition distortions.

To support a cost-effective energy transition, we have rules that cover all key aspects of this transition. All these aspects are closely linked to each other.

First, State aid can help the development of renewable and low carbon energy sources. For example, we have recently approved a Romanian scheme to support the production of electricity from onshore wind and solar PV, with a budget of 3 billion euros. The scheme was assessed under the Temporary Crisis and Transition Framework, which sets out simple rules to accelerate the deployment of renewables. Operators will be selected through a competitive bidding process and will conclude two-way contracts for difference. This mechanism guarantees a return on investment, while avoiding that beneficiaries receive support when market prices are high.

Second, the green transition is also about decarbonisation of industrial processes, energy efficiency and carbon capture. Aid measures for the green transition of steelmakers, such as the ones approved for ThyssenKrupp, Stahl-Holding-Saar and ArcelorMittal in several plants across the EU, are good examples. Recently, we also approved a German scheme that applies across industrial sectors. By using two-way Contracts for Differences, the aid will only cover the actual extra costs of the new processes compared to conventional methods. Moving Europe's heavy industry away from fossil fuels is more than just climate action, it makes our industry stronger and more resilient against future energy shocks.

To reach our targets, we will also need Carbon Capture and Storage to tackle in particular emissions in hard-to-abate sectors. One month ago, the Commission published the Industrial Carbon Management Communication and presented its strategy to create a single market for CO2 in Europe. CCS technologies are however still extremely expensive. State aid will be necessary to bridge the gap until lasting carbon price signals make CCS projects commercially viable. So far, only Denmark and the Netherlands have national State aid schemes in place to support these technologies.

Third, with the increase of intermittent renewable sources and gradual electrification, Member States will be increasingly faced with security of supply needs. Capacity mechanisms and flexibility schemes play a key role here. They need to be well designed to provide a cost-efficient response, while maintaining investment incentives and limiting competition distortions. Last year, the Commission approved a modification to the Belgian capacity mechanism. This market-wide mechanism allows for cross-border participation and is open to all technologies, including storage and demand response.

Fourth, massive investments in grids and energy infrastructure are needed to deliver affordable, secure and clean energy to consumers. In November last year, the Commission published an Action Plan for Electricity grids to help guide this process.

As for the financing, investments made within the legal monopoly of Transmission System Operators or Distribution System Operators typically fall outside the remit of State aid control. Also, energy infrastructures are normally financed through network charges paid by consumers, so without State aid. But in certain cases, when there is a market failure, State support may be necessary. For instance, last year, we approved a Greek measure for the construction of an LNG terminal. By diversifying its energy supplies, Greece helped reducing our dependency on Russian fossil fuel.

Fifth, State aid rules have been adapted to support a cost-effective and just transition, and to facilitate the phasing out of fossil fuels. This phase-out cannot come at the expense of Europe's most affected regions and workers: therefore, for example, State aid rules of course make it possible for Member States to support workers affected by the closure of coal mines.

Finally, Important Projects of Common European Interest – IPCEIs in short – have the potential to play a role on many fronts: they enable breakthrough innovation and key infrastructure, through cross-border cooperation and with positive spillover effects for the Union as a whole. In the energy sector, we have approved two IPCEIs for batteries and three IPCEIs for hydrogen, unlocking nearly 23 billion euros of private investments across the value chain. It will allow Europe to be at the forefront of global innovation in those crucial emerging markets.

In conclusion, the green transition remains a ‘must'. The question is how we go about it, and here we must advocate for a market-driven approach, accompanied, where necessary, by targeted and proportionate public support.

Competition policy is part of the solution. It can support a cost-efficient transition, while ensuring that no one is left behind.

Thank you.