Image via WikipediaThe market guarantees our energy supply. But the proper regulatory framework is vital for the functioning of the energy market. The third package on the internal energy market has created this new framework at EU level. However, energy supply and technology developments are not just closely linked to our daily life but also to major geopolitical events in the world. Political signals have a direct influence on the decisions of the energy industry.
The need to invest in new energy infrastructure, technologies and sources of energy is enormous. It is estimated that by 2030 up to one trillion euros will have to be invested in the European electricity grids and electricity generation and 150 billion euros in the gas network, excluding import pipelines from third countries.
We must not forget that investments in the energy industry work on a long-term basis. Investments made today date back to decisions made years ago and determine the structures of our energy supplies for the period up to 2030 and 2050. The players in the energy arena thus have a major responsibility vis-à-vis future generations.
As the European Commissioner's new Energy Commissioner, I can confirm that in recent years the EU has succeeded in developing a comprehensive European energy policy. This was a process that was pursued jointly and ambitiously by the Member States (and the German Länder in particular), the industry and the European Institutions.
The EU’s energy policy sets out clear requirements and targets for sustainable, competitive and secure energy. Our main aims are to achieve a 20% reduction in greenhouse gases, to provide EU consumers with a supply that includes a 20% share sourced from renewable energies and a 20% improvement in energy efficiency by 2020.
The January 2008 legislative package for energy and climate binds the Member States to these ambitious objectives in the area of renewables and emission reductions. The EU will not be able to realise its ambitious goals without making important and immediate changes to energy networks and comprehensive investments in new technologies and in a wide energy mix from emission-free and domestic energy resources, including nuclear technology if a Member State has decided in favour of it.
The energy industry plays a significant role in this respect, as it is obliged to undertake and finance projects to secure the energy supply and new initiatives for research and development. The most important condition affecting the private sector's willingness to invest is a clear and stable regulatory framework. One of the main goals of the energy and climate package and the third internal market package for energy to complete the internal market for gas and electricity was to create this framework.
Implementing the third internal market package for energy will involve considerable changes in terms of network planning, including requirements on unbundling, coordinating the regulations through the European Agency for the Cooperation of the Energy Regulators and reorganising how the European networks of transmission system operators (ENTSO-E and ENTSO-G) work together. Another key point is the development of the Community-wide ten-year network development plans and increased transparency to promote an efficient and secure network.
In order to send the right signals to the energy market, we must now begin laying the foundations for a more sustainable Europe. My first priority as Energy Commissioner is to implement the new European regulatory framework promptly and properly. This will also considerably improve the conditions for the security of our energy supply. We must also, however, work together with the Member States and the European Parliament to develop European measures to foster new energy networks and innovations and improve the investment climate. The challenge for us is to attain a low-carbon economy, with the ultimate objective of achieving emission-free energy generation and transport sectors.
I would like to specifically highlight three topics that are of fundamental importance for the proper functioning of the internal market in energy and our future energy supply, namely technology, infrastructure and finances.
Infrastructure
Infrastructure is the circulatory system of the internal market in energy. It is intrinsically linked to the security of the energy supply. It is vital for a successful decarbonisation policy, which requires adjusting the network to more renewable and decentral production.
The European Commission has been examining the security and sustainability of our energy networks since 2006. The new focus in the European Union’s energy strategy is thus on energy networks and transport.
The gas crisis of January 2009 and the power cuts in Italy in 2003 and Germany in 2006 show that Europe's network is too weak to deal with such interruptions. In 2009, many of the new Member States had no alternatives to compensate for the Russian gas supply being cut off. And the situation in Europe will most likely get even worse, as our gas pipelines are antiquated in places and there are inadequate links between the Member States. Domestic resources are also in continual decline.
At the moment, around 61% of the EU’s domestic consumption of natural gas comes from imports. 42% of these imports come from Russia, 24% from Norway, 18% from Algeria and around 16% come from other countries, the latter mainly in the form of liquefied natural gas. At national level, some Member States get their natural gas from a sole supplier for historical reasons. With regard to natural gas, we therefore need to increase import capacities and diversify sources. New gas pipelines are needed, particularly in the new Member States, and the import sources and channels must be diversified. We must consider new possibilities for storing gas and new ‘reverse flow’ projects. The Nabucco pipeline in southeast Europe and the Nord Stream gas pipeline will play an important rule in securing gas supplies for Europe in the future and our policies must support these.
Liquefied Natural Gas is particularly important. It promotes not only the liquidity of the gas market, but also competition on the internal market in energy.
As far as the electricity industry is concerned, we need new, modernised and smart grids to achieve our climate objectives. Our current network is not geared towards decentral electricity production at a remove from the user. This is an opportunity to develop sustainable and flexible smart grids. Increased use of renewable energy sources requires cross-border solutions. Wind, water, solar and geothermal energy are dependent on local conditions. The lack of suitable grid connections is an obstacle to investments in renewable energies and decentral production.
In the electricity sector we need a greater diversification of production and more flexibility in consumption. For this we need to be able to feed offshore wind energy and renewable energies into the European network to a greater extent. The European network must be flexible enough to allow this. We need a plan for creating a European smart and high-performance grid system. We must also discuss and decide how to finance it (though subsidies or transit charges).
We must also exploit the potential of the smart grid in combination with smart electricity meters. By better managing demand, network operators could better manage peaks and troughs in production and reduce the need for considerable surplus capacities (often from coal, gas or oil) by up to 50%. By better controlling electricity use, consumers could reduce their energy consumption by 20% and thus contribute to reducing the total demand, energy costs and CO2 emissions. An electricity network with more information and communication technology will be important for this transformation. The convergence between information and communication technology and energy production is a central element of a smart grid.
Thus, it is critical to address the challenges (such as the need for financing, technical uncertainties with regard to data protection and standardisation) for using smart grids at European level.
Technology
We must develop a new generation of technologies with regard to achieving the '20-20-20' goals and a C02-free energy sector by 2050. Even if some of these technologies cannot be used in the medium term, it is very important to launch them as soon as possible. It often takes decades before new technologies become established and achieve a significant market presence. It is estimated that the global market for renewable energies will generate over $500 billion (or €418 billion) in the next four years. It is clear why investors from all areas want to profit from this market.
Energy technologies and services that are low in CO2 will undoubtedly be the biggest growth sectors in the coming decades. The best way to grow this market is through European cooperation. The European Strategic Energy Technology Plan (SET Plan) has paved the way for this. European policy must make it easier to introduce new and proven technologies. Many technologies, such as photovoltaics, offshore wind, network technologies or carbon capture and sequestration, are still too expensive and not yet efficient enough. At present, research and development are chronically underfunded in the EU. We risk missing the boat if there is a boom in the markets for new energy technologies. The Commission is assuming that in the next ten years another €50 billion must be invested in energy research. This would almost triple the annual volume of investment in the EU, by increasing it from three to eight billion euros.
It is clear that the Member States, companies and research centres must combine their efforts to advance the technologies required for future energy supplies by the year 2020. The Commission’s new EU2020 strategy will be highly relevant for this.
Despite – or perhaps because of - the economic crisis, there is a greater need than ever for both public and private-sector investment in energy technologies.
Finances
Strategic goals and political commitment alone will not build any infrastructures or place any new technologies on the market. Money is needed for that, but that is a significant obstacle in the current economic crisis. The International Atomic Energy Agency has established that following the financial and economic crisis, in 2009 investments in the oil and gas infrastructure decreased by around 21% worldwide in comparison with the previous year. This means that the amount globally invested fell by around 100 billion US dollars (83 billion euros).
In their economic recovery plan, the Commission and the Member States committed themselves to boosting infrastructure investment in the European economy in 2009 and 2010. In May 2009 the European Parliament and the Council adopted an energy financial package of €3.98 billion as part of the European Economic Recovery Programme. Never before has the EU made such a contribution to the energy sector. This stimulus financing boosts investment projects in the gas and electricity connections sector (€2 365 million), offshore wind farms (€565 million) and carbon capture and sequestration (€1 050 million). In this way, the economic recovery package will contribute to regenerating the European economy, improving the security of the energy supply and reducing greenhouse gases.
In spring 2010 the Commission produced an initial report on the European economic recovery package and reported on the progress in energy interconnections, carbon capture and sequestration and offshore wind farms. Some of the package's projects are also priority projects in the Trans-European Energy Network (TEN-E) programme.
As far as the financial framework for energy technologies is concerned, demonstrating and marketing carbon capture and sequestration (CCS) will continue to be a high priority. Demonstration of the technology at an early stage is an important prerequisite for its commercial use. In recent years, we have seen a lot of positive developments in this area, particularly in the business sector. Some CCS projects also received support from the economic recovery package. Other financial incentives for demonstrating CCS will be provided by the new European emissions allowance trading scheme.
Without considerable funds, we will not improve the security of supply and reach our climate and energy targets. Securing the energy supply has a price and the earlier we invest in it, the lower this price will be. It is, therefore, particularly important not to allow the recession to restrict our efforts to invest. The European measures will not just stimulate the economy. They will also decrease our dependency on fluctuating oil prices in the future.
New European Energy Infrastructure Instrument
We can also use the experience from the economic recovery package for the development of the new infrastructure package requested by the European Council.
By the end of the year the Commission will present a package showing the challenges and specific requirements for developing new electricity networks to facilitate the integration and extension of renewable energy sources.
We must proceed with a broad scope and, for example, also include the promotion of storage capacities, of smart European high-performance grids and networks and low-carbon energy sources (renewable energy sources and CCS). The public sector will not be able to pay for everything, but it will be able to offer an incentive. New financing possibilities must also be fully utilised in the future, for example through a combination of financing with grants and low-interest loans (calls for tender: EIB).
Nuclear energy
We note a growing increase in nuclear energy worldwide. Around 60 States have asked the International Atomic Energy Agency for help in developing this technology. Within the EU, most countries already use nuclear energy. Other Member States are taking concrete steps to start nuclear energy programmes, resume them or develop them further.
With around 150 reactors, which produce around a third of Europe’s electricity, the EU has the greatest park of nuclear power plants worldwide. The nuclear companies in the EU are world leaders. This goes for all stages of the fuel cycle: from the construction and operation of nuclear power plants to enrichment and reprocessing. Nuclear energy can thus be an answer to both climate change and securing the energy supply, and also help make the EU more competitive. As an important source of low-carbon electricity, it is now a key technology in Europe’s energy mix. While public opinion in Europe does recognise its advantages, it is also aware of the risks of nuclear energy. This calls for a continuing policy to ensure that maximum standards are set and kept with regard to safety and security requirements. And this is the challenge that the EU is setting itself.
The EU is therefore trying to stimulate a public debate on nuclear energy and the possible actual contribution to the EU’s energy policy goals, while leaving the Member States free to choose their own energy mix. Keen to ensure transparency, the Commission has set up a 'European nuclear energy forum' with the support of the European Council, to discuss the advantages and disadvantages of nuclear energy with all stakeholders and with no holds barred.
The EU is also prepared to use the instruments of the Euratom treaty to ensure the best framework for radiation protection, safety and non-proliferation. Last year in the Council the Member States unanimously adopted a Directive on the safety of nuclear installations. And we remain ambitious.
Showing that we can dispose safely of the waste produced by nuclear power plants or resulting from medical procedures is vital to ensure a higher level of acceptance of this source of energy. This is particularly evident in Germany, where on the one hand, the Asse nuclear waste storage facility shows what should not be done and, on the other hand, valuable time was wasted by halting the exploratory work in Gorleben. In this light, I intend to present a Directive on nuclear waste later on this year. The aim is a common framework for the safe disposal of radioactive waste and spent fuel rods throughout the Community. If we use nuclear energy, we must also develop a plausible solution for its final storage. With an effective legal framework for safety and non-proliferation, nuclear energy in Europe can make a long-term contribution to securing the energy supply, competitiveness and climate protection.
Ambitious but realistic
Our vision of achieving a carbon-free energy and transport system by 2050 is indeed ambitious but entirely realistic. Besides a considerable increase in energy efficiency, we want to produce electricity exclusively from sources with the lowest possible CO2 emissions. We are talking about a future energy mix produced predominantly from renewable and nuclear sources, but also fossil fuels with carbon capture and storage.
For these reasons, the EU must above all create the necessary energy policy stimuli and incentives for investment to boost investments in infrastructure, technology and energy efficiency. The above-mentioned smart grids and networks and alternative fuels play a major role in this regard. Ultimately it comes down to the energy mix and market players’ behaviour.
The internal market in energy, energy supply security, energy efficiency, renewable energies, infrastructure and low-emission energy networks for tomorrow: there are the main issues for Europe's energy policy. Together with the development of an external European policy for energy, they are also my priorities as Energy Commissioner for the coming years.
