1. EU ENERGY POLICY GREEN PAPER
A EUROPEAN STRATEGY FOR SUSTAINABLE COMPETITIVE AND SECURE ENERGY
RESPONSE FROM SCOTTISHPOWER
ScottishPower is an international energy business providing electricity transmission and
distribution services in the UK, supplying over 5 million electricity and gas services to homes
and businesses across the UK and operating electricity generation, gas storage facilities and
associated energy management activities in the UK, Ireland, the US and western Canada. We
welcome the publication of the Green Paper at this important time in the development of
competitive European energy markets and the opportunity to give our views.
We fully support the Commission’s emphasis on open energy markets, cost-effective policy
options and impact assessments for major proposals. We agree that a debate is needed on the
role of EU institutions in meeting energy policy objectives (e.g. energy efficiency,
interconnection, diversification of energy sources) and we welcome the development of the
Strategic EU Energy Review.
Our key points are:
• the existing liberalisation package contains the measures necessary for a fully
competitive EU energy market provided these are implemented by Member States
• full functional and legal unbundling has delivered fully competitive energy markets in
the UK and demonstrates there is no policy logic or legal need for ownership
unbundling
• appropriate regulation at Member State level is essential to ensure effective
implementation of measures such as non discriminatory network access, more effective
market functioning and legal separation of competitive and monopoly areas
• there is no need at this stage for a single European Regulator, but some co-ordination
between individual areas may be necessary as regional markets develop
• the market can deliver security of supply without the need for intervention at Member
State or European level – we strongly support the frameworks set out via RES and the
ETS to reduce carbon emissions and enhance security of supply however we do not
believe a prescribed energy source mix is necessary
• gas storage should be constructed and operated on a commercial basis
• market mechanisms, such as the Renewables Obligation in the UK, can deliver
environmental targets efficiently
• it is essential that future phases of the Emissions Trading Scheme have a longer term
horizon, are based on transparent benchmark allocation and methodology, include all
relevant greenhouse gases and include real reduction targets for all sectors consistent
with Member State international obligations. Energy market distortions arising from
ETS implementation must be avoided
In managing policy development it is important for the Commission to send a clear signal on the
relative importance of promoting energy security, meeting our sustainable energy challenges
and delivering competitive energy supplies. Policies to meet objectives in these areas are often
complimentary but can also sometimes be in conflict. When such conflict arises, it is important
that market participants have a clear understanding of policy priority.
The paper proposes a large number of new institutions whose practical role in meeting energy
policy objectives is unclear. In some cases, these appear to cut across existing national or
supranational arrangements.
In relation to the six priority areas identified by the Commission our detailed comments are set
out below.

2. 1. Completing the internal European electricity and gas markets
As a participant in the fully competitive UK energy wholesale and retail markets we support the
development of a fully competitive EU energy market through the implementation of the
existing liberalisation package by all Member States. We believe that particular priority should
be given to ensuring non-discriminatory access to networks and to creating more liquid gas
markets.
European Regulator
We believe that at this stage in the development of a competitive EU energy market closer
alignment of the powers of national regulators and greater convergence of regulatory
approaches in the various Member States is required rather than the introduction of an
additional regulatory layer through the appointment of a single European energy regulator.
Greater consistency in regulatory powers across Member States would enable cross border
issues to be dealt with to ensure that electricity and gas can be more readily traded across
borders. Some co-ordination for development of regional energy markets would be appropriate.
Centre for Energy Networks
The Commission proposes the creation of a number of new institutions such as a Centre for
Energy Networks. We do not believe that a case has been made for another new body in this
field reporting to energy regulators and implementing schemes approved by the relevant
regulatory institutions. Regulators already have two representative bodies and TSOs have an
association in ETSO which advises on transmission network issues. A new body could be too
interventionist and would run the risk of blurring the roles of TSOs and regulators.
European Grid Code
While there would be some merit in a common market access code which would make it easier
to trade electricity and gas across Europe, full harmonisation of the technical rules set out in
national grid codes is unnecessary.
Interconnection
We do not believe that arbitrary targets for electricity interconnection are necessary. New
interconnection should be justified primarily through cost-benefit analysis undertaken by TSOs
or other developers or where there is clear evidence of constraints on competition due to the
absence of interconnection. The Commission should concentrate its efforts on creating the right
conditions to enable investment in new cross-border infrastructure and helping to tackle
planning barriers.
Importance of Unbundling
In the UK, fully competitive markets are operating in an environment which relies upon full
functional and legal unbundling between competitive energy businesses and monopoly
transmission and distribution organisations. A priority for the Commission must be to ensure
that functional and legal unbundling is undertaken in all EU Member States by 2007. We see
no policy logic or legal need for additional measures such as “ownership unbundling”.

3. 2. Security of supply
The Commission recognises that liberalised and competitive markets can deliver security of
supply by sending the right investment signals to industry participants.
The Commission should be careful in setting up an EU Energy Supply Observatory not to
duplicate existing arrangements that monitor energy security at Member State level. In
addition, we do not believe that the Commission should intervene in the market in the name of
security of supply. To do so would distort the market and potentially cut across existing
mechanisms at the Member State level.
We do not think it is appropriate for the Commission to intervene in the gas storage market, nor
do we see the need for revising the recently introduced Electricity and Gas Security of Supply
Directives.
3. Sustainability and energy mix
EU energy policy should facilitate but not limit or prescribe Member States’ fuel and
technology choices allowing each energy company to choose its own energy mix.
EU Directives on renewables and emissions trading already provide a stimulus to a more
sustainable fuel mix reflecting environmental concerns. We do not believe that an additional
low-carbon target as proposed by the Commission would be helpful. It would be difficult to
define a benchmark of “secure and low-carbon” energy sources as this combines two separate
policy objectives.
A Strategic EU Energy Review is welcome and could provide a clearer EU context for national
and company decision making. It is, however, important that such an approach is not used as a
means of restricting energy options. Fuel diversity is an important element in ensuring security
of supply and EU policies should seek to promote it.
4. Integrated approach to tackling climate change
We agree that effective action to address climate change is urgent and that the EU should
continue to work towards the widest possible international action.
Emissions Trading Scheme
The EU Emissions Trading Scheme is the key instrument for delivering carbon reductions in the
EU. It is important that the EU clarifies, as soon as possible, the long term framework well
beyond 2012 so that electricity generators have greater certainty in relation to major investment
decisions.
The current three to five year phases are too short and should be at least fifteen years in
duration. The allocation methodology for the power sector must be aligned across Member
States to avoid distortions in energy markets – preferably using benchmarking arrangements.
This is important as we move towards regional and pan EU energy markets. In addition
aviation and land based transportation should form part of the ETS as early as possible. It is
vital that fully transparent emissions reductions targets are set for all sectors of the EU economy
consistent with international obligations and that no Member State is able to develop National
Allocation Plans designed with the allocation of surplus emissions.
Initiatives on Energy Efficiency & Renewables
EU wide initiatives on energy efficiency and the promotion of renewable energy are welcome to
ensure a level playing field across the EU and contribute to a sustainable energy policy. We
look forward to the publication of the Action Plan on Energy Efficiency and support the

4. development of a renewables road map that will help renewable energy fulfil its potential. The
energy sector in the UK, and particularly in Scotland, has amongst the greatest renewable
energy resources bases in the whole of Europe.
We are not yet convinced, however, that the benefits of an EU wide White Certificate scheme
outweigh the costs and we see a need for much more analysis before it is introduced. There are
also concerns about the interaction between a new downstream certification scheme and existing
certification schemes for carbon, renewables and CHP.
We agree that energy efficiency needs to become a global priority and that the EU should
propose and promote an international agreement on energy efficiency involving both developed
and developing countries.
5. Encouraging innovation
We agree that Europe must ensure that its industries are world leaders in energy efficient and
low carbon technologies including making clean coal and carbon capture and sequestration an
industrial reality.
The EU has an important role to play in strengthening the European research effort to accelerate
the development of promising energy technologies and helping to create the conditions to bring
such technologies efficiently and effectively to the EU and the world markets.
The UK, in partnership with other Member States, has an important role to play in energy
research – especially in respect to new and renewable energy and the commercial development
of carbon capture and sequestration techniques.
6. A coherent external energy policy
We are in favour of more co-operation at European level and the development of a clearly
defined external energy policy to be pursued at national and Community level. We welcome
energy becoming an integral part of EU external relations policy. However, given that EU
external policy is governed by unanimity, i.e. the EU can only adopt a common standpoint if all
twenty five Member States agree, then action at EU level will be limited.
Recognising this we believe that Commission negotiations with energy producing countries
should concentrate on facilitating security and diversity of supplies and should not attempt to
limit Member States’ and individual companies’ freedom to choose which countries they wish
to trade with.