Europe must deepen its energy market reform as the origin of energy is now just as important as the price

Dr Mario Draghi, recent recipient of the Princess of Asturias Award and former Italian prime minister and president of the European Central Bank, led a special event from Energy Prospectives, the high-level conference series organised by the Naturgy Foundation and IESE Business School on the economic, regulatory and technological conditions that lie ahead in the future of the energy sector.

The event, which took place on the first anniversary of the presentation of the Draghi Report, analysed progress on objectives, whether the recommendations have been implemented and where the European Union stands in relation to other world powers.

The Draghi Report set out an ambitious roadmap to make Europe more competitive and autonomous in terms of sustainability and energy. Twelve months after its publication, the continent is currently in an even more fragile position, with only 11.2% of the 383 recommendations having been fully implemented.

In this sense, the former Italian prime minister stated that Europe is in a more complicated situation than one year ago given its dependence on raw materials and technology. He also highlighted that the geopolitical situation, security and the supply chain resilience are gaining importance. Draghi suggested that the most urgent priorities based on his recommendations are making the necessary reforms, increasing investment and tackling current regulations to become stronger internally.

Since the publication of the report, the international situation has changed significantly. Industrial policies are being implemented faster and more effectively in the United States, China and even Japan than in Europe. In response to this, Draghi mentioned that after the report was published, there was criticism of protectionism in the industrial policy, which is now losing momentum as more and more powers adopt these strategies. In this respect, he stated that the US and China both have industrial policies, albeit with different models. In addition, he mentioned the need to reverse the weight of private investment in R&D in Europe and bring it into line with the US model, where public investment is minimal and the bulk comes from the private sector.

Speaking about the role of SMEs, which account for 70% of total employment in Europe, and how governments can help them become more competitive, Draghi pointed out that this is a crucial issue due to Europe’s industrial structure. He spoke about how when preparing the report, it became clear that although the funding was there, the major obstacle for small and medium-sized businesses in Europe was scalability, which shows that Europe is not creating the right conditions for local businesses to scale up.

Moreover, energy continues to be one of Europe’s major challenges. European companies face higher gas and electricity prices than in the United States, for example, and this has a direct impact on the competitiveness of European industry. In order to address this situation, Draghi calls for urgent reform to make energy costs in Europe more competitive. For the former ECB president, Europe must deepen its energy market reform as the trilemma and objectives have shifted in importance and now the origin of energy is just as important as the price. In Europe, infrastructure permits can take up to nine years to be granted, mainly due to highly fragmented governance. The report proposes linking prices to long-term contracts and renegotiating contracts for difference, streamlining permits and making common public funding the norm for projects of European interest, reducing bottlenecks, improving costs and safety and opting for technological neutrality.

Finally, and as also mentioned in his report, he stressed the urgent need for greater coordination at the European level in the management of public goods, such as grid infrastructures. In doing so, he highlighted the efforts of the private sector, which is already moving forward and exploring different ways to achieve objectives. However, he stressed that the greatest effort must come from the public sector, which must simplify regulations and legislation. He pointed out that a common framework is urgently needed and the private sector must help change public opinion to push this forward, using its voice to make itself heard and bring about regulatory reform.

In conclusion, Dr Mario Draghi reflected on how Europe can achieve the desired success over the next 10 years, looking forward to 2035. For Draghi, the solution lies in accelerating growth while also decarbonising. The ultimate goal is an energy-independent, competitive and high-growth continent, with this idea being the focus of the report — decarbonisation and competitiveness — understanding decarbonisation as a springboard for competitiveness.

At the start of the event, Francisco Reynés, chairman & CEO of Naturgy, stressed that “these sessions have far exceeded our initial expectations, and today’s session confirms this in two ways: the success of the conference and the presence of Dr Draghi”. Reynés stated that the strength of Draghi’s ideas and his precise diagnosis, as well as his Europeanism, are difficult to match. “We are particularly interested in his proposals regarding energy and economics and how they can be translated into concrete solutions. Ultimately, we want to bring science and thought closer to the reality of business and the economy, which must be aligned with the needs of society,” he concluded.

In this new Energy Prospectives session, Franz Heukamp, Director General of IESE, said that “Today we will discuss a crucial topic: energy. We are fortunate to welcome Dr Mario Draghi, whose ‘whatever it takes’ speech exemplified decisive leadership at the right time, and whose report set milestones that helped Europe to be better off than in the past”. Heukamp concluded by stressing that energy plays a vital role in people’s lives and that “we must ensure a stable and affordable energy supply, within a predictable regulatory environment”.

Energy Prospectives, high-level talks

 Energy Prospectives, organised by the Naturgy Foundation and IESE Business School, is a series of high-level talks that bring together nationally and internationally renowned figures for their expertise, vision and knowledge of the energy sector. The event also welcomes entrepreneurs, regulators, executives and academics. This initiative is part of the Naturgy Foundation’s commitment to energy and environmental issues, aiming to encourage rational use of energy resources and promote sustainable development through thoughtful and rigorous discussions.

The lines of action of the Naturgy Foundation, created in 1992 by the energy company, are to transfer specialised knowledge on new energy technologies and the keys to the transition towards a more sustainable energy system, as well as to disseminate values of environmental preservation and responsible energy consumption. In addition, it has a leading educational programme in the field of energy and also offers vocational training courses to improve employability in the sector and help promote green employment. It also develops social action programmes, with special emphasis on actions aimed at alleviating energy vulnerability.