EU Energy Union

EU Energy Union
A Cicero Group analysis
FOC
E BTOBER
RUARY
2013
2015
1
Foreword
Just a week after the European Commission outlined
its plan for Capital Markets Union (CMU), another key
aspect of the new Commission’s work programme
– Energy Union – has been published. Today’s
communication outlines a broad framework strategy
under which the European Union’s various energy
goals – tackling climate change; improving economic
competitiveness and affordability; and ensuring
security of supply – can be achieved.
But talk of Energy Union isn’t new. The idea of crossborder cooperation, harmonisation and trade in energy
has been discussed in Brussels for many years. So
does the Energy Union package move things forward?
What are its key facets? Is the vision achievable? And
what barriers might prevent progress?
Aims and ‘visions’
The stated goal of Energy Union looks distinctly similar
to that espoused by national governments around
the world: to ensure “secure, sustainable, competitive
and affordable energy”. But as the Commission has
recognised, achieving this goal at a pan-European
level will require a much greater degree of cooperation
and harmonisation. The Commission thus envisages
an arrangement whereby Member States are
increasingly interdependent, relying on the Union as a
whole to deliver a secure supply of energy.
Doing so will require fundamental reforms to allow the
integration of 28 different national energy systems.
Achieving this necessitates the removal of multiple
barriers – legal, commercial and structural; trading
energy across borders requires not just political
resolve, but tangible infrastructure as well.
Five pillars form the foundation on which Energy Union
will be based:
1.
Energy security, solidarity and trust.
Seen by many as the main driving force behind the
move towards Energy Union is a desire to reduce the
EU’s dependency on foreign energy sources, not least
Russian gas. Diversifying energy sources (eg. through
improved infrastructure to support the import of LNG);
greater internal trading of energy; and a new Southern
Gas Corridor between Central Asia and Europe sit at
the heart of this pillar.
2.
A fully integrated European energy market.
Greater energy cooperation can only be achieved
through improved network infrastructure to allow
cross-border trade. The Energy Union package
therefore focuses strongly on interconnection. A
minimum interconnection target for electricity has been
set at 10% by 2020, and in 2016, the Commission
commits to reporting on necessary measures to
reach a 15% target by 2030. Network bottlenecks
– for example between France and Iberia – will be
addressed in order to allow energy surpluses to be
exported more easily: particularly important as the likes
of Spain and Germany increasingly rely on intermittent
renewable generation. Additionally, consumers will
enjoy greater choice and competition, being free to
purchase energy from companies based in other
Member States.
3. Energy efficiency contributing to moderation of
demand.
Whilst recognising that most progress towards
improved energy efficiency will be made at a Member
State level, the communication states that the
Commission will establish further “synergies between
energy efficiency policies, resource efficiency policies
and the circular economy”, with a particular focus
on transport and buildings. A heating and cooling
strategy will be brought forward; the ‘polluter pays’
principle will be promoted in a single European
transport area; and barriers will be removed for low
carbon transport modes including rail. Infrastructure
to support low carbon vehicle usage will also be
supported, and electrification of transport will be
encouraged to reduce dependency on oil.
4.
Decarbonising the economy.
The EU’s commitment to a 40% domestic reduction
in greenhouse gas is reaffirmed in the ‘Road to Paris’
communication published alongside the Energy
Union framework. Reform of the ETS; investment in
alternative fuels including biofuels; and a commitment
to become the world leader in renewables are all
promised, but there is little by way of further progress
to the 2030 Energy and Climate Framework.
2
Foreword (continued)
5.
Research, Innovation and Competitiveness.
A new Research and Innovation strategy will be at the
“very heart” of Energy Union, focused on encouraging
greater coordination on programmes based on
common goals. Ensuring more effective links between
research and industry will also be encouraged. The
new strategy will build on Horizon 2020; and actions
will be grouped around the following four priorities:
· Being the world leader in developing the next
generation of renewable energy technologies,
including environment-friendly production and
use of biomass and biofuels, together with energy
storage
· Facilitating the participation of consumers in the
energy transition through smart grids, smart home
appliances, smart cities, and home automation
systems
· Efficient energy systems, and harnessing
technology to make the building stock energy
neutral
· More sustainable transport systems that develop
and deploy at large scale innovative technologies
and services to increase energy efficiency and
reduce greenhouse gas emissions.
Challenges ahead
As with CMU, Energy Union will not happen overnight.
The communication is very much just a starting point,
arguably little more than a catalyst for debate. The
language deployed is that of ‘vision’ not ‘policy’, and
‘goal’, not ‘target’.
One reason for this is that realising the vision entails
multiple challenges. For starters, delivering major
infrastructure on this scale is no simple task. The
foundation of Energy Union is a network that works
effectively across a huge geographic area, home to
half a billion people. The practical challenges are
enormous.
Then there are financial challenges. The IEA
estimates that some $2.2 trillion of investment is
needed between now and 2050 to replace ageing
infrastructure. Sourcing this level of capital will be
a significant challenge. Energy Union will likely be
contingent not just on significant amounts of public
finance, but on a revolution in institutional investment,
and on CMU coming to fruition.
And as ever with Europe, there are considerable
political hurdles to pass. Energy Union will require
negotiation and compromise between Member States:
the process will take several years. The Commission
often talks of a common European position, but the
reality – in the energy sector in particular – is that
significant divisions exist, most notably between
Western Europe and the Eastern bloc (see below).
Investing in renewables, reducing reliance on fossil
fuels and establishing carbon reduction targets may
sound appealing in Germany, but it is unlikely to
receive a warm reception in neighbouring Poland –
even if the communication’s central tenet is to lessen
European reliance on Russian gas.
Finally, there is the issue of sovereignty. Some
Members States have expressed concern that
Energy Union centralises power in Brussels, at a
time when the European project is deeply unpopular
in their respective countries. Making the case for
Energy Union will therefore require the expenditure of
significant political capital, not least in the UK.
Whether or not Member States deem it to be
worthwhile remains to be seen. The success or
otherwise of Energy Union may not be contingent
on technological advances or innovative practical
solutions, so much as public opinion and, as ever in
Europe, political will.
Ewan Livingston
Energy Sector Lead
Cicero Group
3
Energy Union - In Actions
Action
Type of
proposal
Pillar
1
Propose a resilience and diversification package for gas in 2015-16
by revising the existing security of gas supply Regulation.
Revision
Security of
Supply
2
Prepare a comprehensive strategy for liquid natural gas (LNG).
New
Security of
Supply
3
Work with Member States to develop access to alternative
suppliers, including from the Southern Gas Corridor route, the
Mediterranean and Algeria.
Preexisting
Security of
Supply
4
Propose legislation on security of supply for electricity in 2016.
New
Security of
Supply
5
Revitalise the EU’s energy and climate diplomacy.
Preexisting
Security of
Supply
6
Use all instruments to ensure Member States fully implement
existing energy legislation, in particular the 3rd Internal Energy
Market Package, and strict enforcement of competition rules.
Preexisting
Internal Energy
Market
7
Propose a revision of the Decision on Intergovernmental
Agreements in 2016.
Revision
Internal Energy
Market
8
Support the implementation of major infrastructure projects,
particularly the Projects of Common Interest, eg. the Connecting
Europe Facility, the European Structural and Investment Funds and
the future European Fund for Strategic Investments.
Preexisting
Internal Energy
Market
9
Bring together information on EU-funded infrastructure projects to
bring more coherence and to maximise impact.
Preexisting
Internal Energy
Market
10
Create a dedicated Energy Infrastructure Forum to discuss progress
on major infrastructure projects, to meet for the first time in 2015.
New
Internal Energy
Market
11
Propose a new European electricity market design in 2015, followed
by legislative proposals in 2016.
New
Internal Energy
Market
12
Review the regulatory framework, including ACER and the ENTSOs,
in 2015-16 and propose appropriate actions to reinforce the
European framework.
Revision
Internal Energy
Market
13
Develop guidance on regional cooperation and engage actively in
regional cooperation bodies.
New
Internal Energy
Market
14
Produce biennial reports on energy prices, analyse in depth the role
of taxes, levies and subsidies and seek the phasing out of regulated
prices below cost.
Encourage Member States to protect vulnerable consumers through
social policies at national and local levels.
New
Internal Energy
Market
Preexisting
Internal Energy
Market
Review all relevant energy efficiency legislation and propose
revisions, in 2015 and 2016, to achieve 2030 targets.
Revision
Energy
Efficiency
15
16
4
Energy Union - In Actions (continued)
Action
Type of
proposal
Pillar
17
Encourage Member States and regions to make better use of
European funds for renovation of housing.
Preexisting
Energy Efficiency
18
Develop a ‘Smart Financing for Smart Buildings’ initiative to make
existing buildings more energy-efficient, facilitating access to
existing funding instruments.
Propose a strategy to facilitate investment in heating and cooling.
New
Energy Efficiency
New
Energy Efficiency
20
Propose a comprehensive road transport package promoting more
efficient pricing of infrastructure, the roll-out of intelligent transport
solutions and enhancing energy efficiency.
New
Energy Efficiency
21
Take further action to create the right market conditions for
increased deployment of alternative fuels and to further promote
procurement of clean vehicles.
Preexisting
Energy Efficiency
22
Propose legislation to achieve the greenhouse gas reduction target
agreed at the October 2014 European Council in the Emissions
Trading Scheme (ETS) and non-ETS sectors.
New
Decarbonisation
23
Propose a new Renewable Energy Package in 2016-17, including
a new policy for sustainable biomass and biofuels as well as
legislation to ensure that the 2030 EU target is met cost-effectively.
New
Decarbonisation
24
Develop an active agenda to strengthen EU energy cooperation
with third countries, including on renewable energy and energy
efficiency.
Propose an European energy R&I approach, comprising an
upgraded Strategic Energy Technology Plan and a strategic
transport R&I agenda, in 2015-16.
New
Decarbonisation
New
Research &
Innovation
19
25
26
Develop an initiative on global technology and innovation leadership
on energy and climate to boost jobs and growth.
New
Research &
Innovation
27
Make full use of the EU’s external trade policy to promote access
to energy resources and to foreign markets for European energy
technology and services.
Preexisting
Research &
Innovation
5
Energy Union - In Numbers
EU: West vs East
European reliance on imported gas
75%
22%
EU15
VS
A8 + BG & RO
Average of 22% of EU15 gas imported by Russia vs
Average of 75% of A8 + BG & RO gas imported by Russia
Source: Eurogas
Average cost of domestic household gas
€0.05
VS
EU15
€0.04
A8 + BG & RO
Average natural gas price for EU15 household consumers in second half 2014 (EUR per kWh) (Finland data not available)
Average natural gas price for A8 + BG & RO household consumers in second half 2014 (EUR per kWh)
Source: Eurostat
Average cost of state intervention in energy industries
€6,539m
€567m
VS
EU15
A8 + BG & RO
Average cost of energy interventions and subsidies in EU15 in 2012
Average cost of energy interventions and subsidies in A8 + BG & RO in 2012
Source: European Commission
Energy Union - Key figures
53%
€400 bn
Cost of EU energy
imported in 2014,
according to the
European
Commission
Percentage of EU
energy imported in
2014,according to the
European
Commission
40%
Amount by which
European leaders
committed to reducing
GHG emmissions by
2030
5
Number of pillars creating
the Energy Union: Security
of Supply, Integrated Energy
Market, Energy Efficiency,
Decarbonisation and
Research & Innovation
27
13
Number of DGs
involved in the
strategy’s actions,
ranging from ENER
to MARE
Number of actions
outlined in the
framework, 14 of
which are new
initiatives
6
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7
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