FAQ on European Strategic Energy Technology Plan

December 7, 2007 // Published as a news service by IHS

The SET Plan also aims to help the European Union (EU) develop the technologies it needs to meet its political objectives and ensure European companies can benefit from the opportunities that will result from a new approach to energy.

This document answers commonly asked questions about the SET Plan.

What are the main actions proposed in the SET Plan?
The SET Plan outlines a number of concrete actions to develop a more coherent energy research landscape in Europe. These include:

• Creating European industrial initiatives - These initiatives will strengthen energy research and innovation by bringing together appropriate resources and actors in a particular industrial sector.

  They will have measurable objectives in terms of cost reduction or improved performance, as well as bring together the efforts of the EU, individual member states and industry.
  
  They will be focused on technologies for which the barriers, scale of investment and risk can best be tackled collectively. Areas for this approach include wind power; solar energy; biofuels; CO2 capture, transport and storage; electricity grids; and nuclear fission.

• Creating a European Energy Research Alliance - This alliance will enable greater cooperation across Europe of the research work going on in universities, research institutes and specialised centres. The alliance will be able to cover the multitude of scientific disciplines that have an impact on the development of energy technologies (such as physics, chemistry, materials science and engineering). Area for focus could include basic energy science, breakthrough technologies and advanced energy efficiency.

• Planning the transition of European energy infrastructure networks and systems - A sustainable, interconnected European energy system will require massive change to infrastructures and systems. Not only will this process require significant investment and take time - perhaps decades - it will also affect many different sectors. Therefore, a clear view is needed of how this is done in order to make the most of an integrated low-carbon energy system across Europe. The EC will develop its ideas in this area in 2008.

• Establishing a European energy technology system - One of the weaknesses of the current system is the lack of reliable data on energy technologies. The EC will establish and run a regularly updated information system, open to all, which will "map" technologies by providing information on the latest situation, barriers to technological uptake and the potential of existing technologies.
  
  This system will also provide up-to-date information on financial and human resources. Such a system will allow rigorous monitoring of the progress in the development of European energy technologies and provide useful support to policy-making.

• Creating a European Community steering group on strategic energy technologies - This group will allow member states and the EC to plan joint actions and coordinate policies and programmes. A European Energy Technology Summit in 2009 will provide an opportunity to review progress and make achievements known within the wider energy technology sector.

How much money does Europe invest in the development of energy technologies?
At this time, it is difficult to quantify the exact amount of investment in energy technologies. The EU's Seventh Framework Programme (FP7) for research, which covers the period 2007-2013, has an average annual budget of about €886 million devoted directly to energy research. The budgets of member states vary.

Will more money go to energy research from the EU budget?
First, we need to use resources that are more available. The implementation of the SET Plan will help overcome the fragmentation of the European innovation base, leading to a better overall balance between cooperation and competition. Encouraging more focus and coordination between different funding schemes and sources will help to optimise investment, build capacity and ensure a continuity of funding for technologies in different phases of development.

However, the challenge of mobilising additional financial resources has to be addressed.The resources needed to accelerate the development of new energy technologies are difficult to estimate, as they depend on the evolution of the market price of current resources and the results of on-going and future research. But they are certainly larger than the current level of investment.

Recent studies (such as the Stern Report, the Intergovernmental Panel on Climate Change reports and the International Energy Agency reports) confirm that increased energy research investment, to at least double the current levels, will deliver substantial benefits. Equally, the Stern Report recommends an increase in deployment incentives by two to five times, to realise learning benefits (leading to cost reductions of new technologies).

The EC intends to present a communication on financing low-carbon technologies at the end of 2008. The communication will address resource needs and sources by examining all potential avenues to leverage private investment, including private equity and venture capital, enhance coordination between funding sources and raise additional funds.

In particular, it will examine the opportunity of creating a new European mechanism/fund for the industrial-scale demonstration and market replication of advanced low-carbon technologies as well as the introduction of a tax reduction mechanism on low-carbon energy innovation.

What is the difference between European industrial initiatives and FP7's joint technology initiatives?
The European industrial initiatives will be implemented in different ways, depending on the nature and needs of the sector and the technologies. For technologies with a sufficient industrial base across Europe, they may take the form of public-private partnerships, while for other technologies that are prioritised by a few countries, they may take the form of joint programming by coalitions of those interested member states. Where appropriate, a combination of "technology push" and "market pull" instruments may be used.

The joint technology initiatives are one form that could be used to implement a European industrial initiative. The fuel cell and hydrogen joint technology initiative recently proposed by the EC provides an excellent example in this respect.

What criteria have been used to select the suggested industrial initiatives?
Accelerating a process inevitably leads to making choices and focusing efforts. However, Europe has a strong scientific and industrial basis that allows us to pursue the broad portfolio of technologies needed.

Different technologies are in different stages of development and, therefore, require different support schemes. In assessing the need for EU-level initiatives, the most fundamental criteria applied are:

• The EU added value.
• The willingness of actors to join forces.
• The potential market penetration of the technology in different time horizons.
• The potential contribution to CO2 reduction, security of energy supply and competitiveness.

This is explained and further developed in the impact assessment and the technology map prepared in support of the SET Plan.

Why doesn't energy efficiency have a higher profile in the SET Plan?
The SET Plan is one piece of a comprehensive mosaic of actions proposed by the EC in the energy policy for Europe.

To tackle our energy and climate change challenges, the EC advocates first and foremost, for a step change in efficiency in energy conversion, supply and, of course, end use. We need to use public policy and market-based instruments (see COM(2007)140 of 28.3.2007, Green Paper on Market-Based Instruments) to raise minimum standards and encourage new markets, as well as to fully harness the potential for information and communication technologies, demand management and organisational innovation.

Returns from energy efficiency improvements and switching to cheaper fuels normally pay back by themselves, but they usually have a high up-front investment that can be dissuasive, leading to market failures.

Several policies and measures are already in place to drive this process, notably the Energy Efficiency Action Plan and the Freight Logistics Action Plan, as well as the directives on eco-design and on energy labelling of energy-using products, on energy services and on building performance.

Other measures are in the pipeline, for example on CO2 emissions from cars, the Action Plan on Urban Mobility, a new phase of the EU Emissions Trading Scheme and the initiatives on lead markets, sustainable production and consumption, and a sustainable industrial policy.

Through these policies, member states will put in motion a broad range of "market pull" instruments in accordance with their preferences and constraints.

The subject of the SET Plan is low-carbon technology, for which there is no market appetite (neither on the supply side nor the demand side) due to the commodity nature of energy. These technologies are needed to reach the EU's CO2 reduction targets in the short term and even more so in the longer term.

When assessing the need for European-level support for technology innovation, the supply side action appears prominently. This is because demand-side action is more appropriate at the national, regional or even local level (such as with building insulation materials), as it is better adapted to these specific conditions.

But by no means should it be interpreted that the EC does not attach importance to demand-side action and energy efficiency. It is just the opposite.

High oil prices and the Emission Trading Scheme should be enough to stimulate innovation in the market, so why a SET Plan as well?
Investment in the development of energy technologies in general has followed closely the same trends as oil prices over the last decades. Currently, higher oil prices are starting to have an effect on public investment. We do not have information regarding the private side, but it is most likely following the same trend.

However, what is not yet factored in, regarding the level of investment, are the new targets set by the European Council (since they come a year after the adoption of FP7), the increased investment in other parts of the world, the need to anticipate (precautionary principle) due to the long lead time to market and the irreversibility of high concentrations of CO2 in the atmosphere. The new carbon-constrained paradigm means that oil price signals no longer lead to an efficient level of investment. What worked in a market with no external constraints will not work in the future.

What is the role of basic science in the SET Plan?
Basic science will be crucial in generating the breakthroughs needed to bring new generations of technologies to the market. We need to create the conditions in which a truly multi-disciplinary approach can be fostered, including materials, nano-sciences, bio-sciences, and information and communication technologies. By bringing together researchers from different fields, we can maximise the opportunities for exploiting synergies and generating completely new ideas.

The proposed European Energy Research Alliance will play a key role in implementing a European basic research programme for energy.

Where can I get more information?
For more information, see:

• Why Europe needs a Strategic Energy Plan (MEMO/07/469)
• European Commission proposes a plan to accelerate energy technologies for a low-carbon future (IP/07/1750)
• Towards a low carbon future: European Strategic Energy Technology Plan (MEMO/07/493)

Source: European Commission.