Energy and Climate

Energy supply is an extraordinarily important topic in all of the Eastern European transition countries, and consulting requirements go far beyond purely economic questions of ideal sourcing mixes and market models.

The high degree of dependence on gas imports from Russia in particular renders energy policy a matter of foreign and security policy. For the EU, the transit routes through Ukraine, Belarus, and Moldova are of particular interest.

Because of the traditional subsidies for energy prices, energy supply also has a strong social political and fiscal dimension. This massive distribution of government funding also makes the energy sector particularly susceptible to corruption, even at the highest levels of state authority.

Stabilizing Reforms

Without profound reform in the energy sector, the Eastern European transition countries are not in a position to develop their economies towards stability, prosperity, and foreign-policy independence. Both the success of their economic transformations and the stability of European energy supplies depend on the development of the energy sector in these countries.

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The lack of investment in supply systems and energy saving measures, as well as prices well beneath cost recovery levels, cause an unnecessarily high energy consumption. Thus energy consumption when measured in terms of economic output (as well as per capita) is much higher in Eastern Europe than in Western countries. A comprehensive modernization and restructuring of Eastern European supply systems would not only achieve an important contribution for sustainable economic and ecological development, but would also offer companies in the EU export possibilities.

Market Interventions and Incentives for Investment

Up until now, incentives to invest in the chronically in need of modernization capital stock (including pipelines, power grids, and power plants) were often eliminated by state interventions in the market. Energy subsidies, both in terms of production and consumption, distorted efficient pricing mechanisms, and thus minimize the expected gains of investors.

Transparency, Stability and Predictability

Aside from the introduction of cost-covering prices, the most important energy policy task is the establishment of credibility and predictability – otherwise, it will remain impossible to attract the necessary investments. Our consultation on efficient energy sector organization focuses on the establishment of a credible framework to enable long-term planning, and thus investment.

Membership in the Energy Community could serve as an anchor of credibility and an incentive to invest, as it would mean the assumption of Energy Community Aquis and thus European energy legislation.

Georgia, Moldova and Ukraine have taken this step, and must now be supported with the implementation of European regulations as they apply to the countries’ respective circumstances.

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No Premature Deregulation

Berlin Economics does not recommend a hasty process of deregulation, but instead the well-thought out winding down of long-term, disadvantageous market interventions. Stable structures can only be established by considering the conditions and possibilities of each country – not only its geographical position, but also its individual energy mix and the internal political climate.

The signing of association agreements with the EU has won significant momentum for energy policy reform – a fact manifested in the common and specific inquiries regarding specific regulatory issues.