Europe's energy giants are facing the threat of new competition and tougher regulation, after last week's Brussels summit gave unexpectedly strong backing to a shake-up of the sector.

Jos¨¦ Manuel Barroso, European Commission president, said the summit communiqu¨¦

gave him the green light to bring forward legislation in the summer or autumn to loosen the grip of incumbent suppliers on national markets. France and Germany joined forces to block the most radical option proposed by Mr Barroso - the forced break-up of vertically integrated companies, which generate power and own the supply networks, known as "ownership unbundling".

But Mr Barroso will press ahead with a package of alternative measures, which he believes will inject competition into the sector and command the support of member states.

They are expected to include laws allowing companies such as Eon and EDF to continue to own their power grids but forcing them to hive off management to a genuinely independent operator.

Separate legislation would provide for national regulators to co-operate on a European level, taking binding decisions on cross-border issues, including the development of the EU's feeble international power connections.

"The status quo is not an option," Mr Barroso said. "We have been given a mandate to come forward with unbundling - that is very clear."

He was encouraged by surprisingly tough language in the EU summit conclusions on Friday, which spoke of the need to have the "effective separation of supply and production activities from network operations".

Europe's leaders agreed the new system should be based on "independently run and adequately regulated network operation systems which guarantee equal and open access to transport infrastructure and independence of decisions on investment in infrastructure".

Mr Barroso believes that national incumbents use their ownership of grids to deter rivals from coming on to the market, and to deny them relevant market information.

He hopes a new breed of "independent systems operators" would have the incentive to encourage new suppliers to use their services and to build cross-border interconnectors to import power from other countries.

Mr Barroso said no European leader spoke out against the idea; indeed the language in the final communiqu¨¦ became tougher during the two-day climate and energy summit.

Instead of simply "inviting" the Commission to come up with proposals to open up the energy market, as stated in an earlier draft, the final text spoke of the "need" for firm action. Mr Barroso's aides say that an additional push from the bloc's 27 leaders could help the process of legislation when it is presented to ministerial council meetings later in the year. Increased liberalisation of the energy market is seen as vital in attracting new entrants to the market, particularly producers of renewable energies.

Last week's summit agreed ambitious targets for the use of renewables, increasing to 20 per cent of all EU energy use by 2020.