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Draft Plan Reveals EU Energy Infrastructure Priorities to 2020

Published: 10/7/2010
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In a draft of an upcoming Energy 2020 report by the European Commission, the EC sets out how infrastructure would contribute to climate change and security aims.

IHS Global Insight Perspective

 

Significance

A draft communication of the long-planned proposals on energy infrastructure priorities has revealed that the European Commission (EC) expects Europe to spend 1 trillion euro (US$1.4 trillion) over the next decade to meet environmental and security targets.

Implications

The upcoming strategy document will not mandate specific infrastructure construction, and from the excerpts of the draft communication published on newswires, it highlights general areas of investment rather than giving details on how strategy can be married to infrastructure development at a cross-border or even national level.

Outlook

The EC's existing Trans-European Energy Networks (TEN-E) instrument for providing funding to projects of European interest has needed overhauling since the European Union (EU) became 27 members. The new proposals tie up the two European energy axes of the environment and the internal market, and also promote security of supply through infrastructure, but the aim of affordability for energy has taken a knock as the EC has admitted bills will rise to pay for infrastructure, yet at the same time any potential savings through efficiency/demand-side measures have been left vague.

Draft of a Draft

Widely reported on newswires, Gunther Oettinger, the European Union (EU) energy commissioner, has revealed a draft plan highlighting the bloc's energy infrastructure priorities out to 2020 and 2030. The actual draft communication will be released in mid-November, and the European Commission (EC) looks to have issued an initial summary of the plan to the press as a forewarning to the industry either for indicative planning purposes, or possibly to dilute the shock that could follow the announcement that the industry will need to spend 1 trillion euro (US$1.4 trillion) over the next decade on infrastructure alone.

The draft states that Europe's energy demand is set to be increasingly met with electricity, while in 2020, 16% of overall electricity generation will come from variable energy sources such as solar and wind power. To that end, it estimates 50,000 km of electricity transmission lines will either have to be built or upgraded from now to 2020 to meet EU targets in terms of security of supply, renewables integration, or market development. The EC has moved smart grids even further up the list of priorities, with the large-scale roll-out of smart meters to about 200 million EU households possibly being supported through cohesion policy funds, which means in practice that the structural funds provided for the EU regions could be called upon for this purpose. Gas is likely to be the primary back-up fuel for variable generation of electricity from renewable sources, which requires more flexibility from the gas system, giving an increasingly important role to storage and LNG. The EC's main focus is on north-south interconnections in central eastern and south-eastern Europe, and better interconnections from Spain towards the rest of the continent, which would allow the EU to benefit from the well-developed Spanish LNG infrastructure. The EC has recognised the delays in planning for infrastructure could have an impact on the twin goals of security and climate change mitigation, and has suggested a "declaration of European interest" regime that would trigger simplified procedures. For cross-border and regional projects, all involved countries should co-ordinate, the preferred option being a "one-stop shop" approach for permit applications.

The draft paper acknowledges that costs will rise to fund this infrastructure, but argues that average energy savings for a household can amount to 1,000 euro per year through energy efficiency measures. The EC said the EU is set to cut energy consumption by about 10% by 2020—only halfway towards its stated target. However, there are no mandatory energy efficiency targets in place, and the draft plan appears to do little towards specifying how savings could be made in the face of expected growing demand.

These proposals will eventually form part of the new EU Energy Security and Infrastructure Instrument. These infrastructure priorities will be designed to replace the Trans-European Energy Networks (TEN-E) projects of European importance. This will not be a legislative package; rather it will function as a means of prioritising funding and securing high-level political support for certain projects. At present, the TEN-E list determines the allocation of a yearly budget of about 25 million euro, mainly for supporting feasibility studies. Most of the projects cross national borders or have an influence on several member states. The main problem with the TEN-E instrument is that it does not take account of the enlarged EU.

Outlook and Implications

Through this new policy, the EC is aiming to weave in the objective of completing the internal market to the other strategic aims of EU energy policy. The EC has said it wants the new instrument to ensure development of the grid to "permit the achievement of the EU's renewable energy objectives and guaranteeing EU security of supply, through infrastructure projects within and outside the EU". It is a financial instrument, and the expected investment is huge. The EC could also be hinting that the EU's structural funds could be tapped for support for companies looking to integrate their networks, and perhaps energy could receive a bigger slice of the EU's overall budget in future years. Given one of the aims of EU energy strategy has been affordability, additional public funding would help mitigate the effect on bills of this level of investment. More detail will doubtless emerge when the EC publishes the official draft in one month's time, but for now there appear to be few specifics on cross-border co-operation, and no mention of the role of the new Europe-wide transmissions system operators' groups ENTSO-G and ENTSO-E. This proposal has been two years in the making, but it remains to be seen how different it will be from TEN-E and how it will take account of the new architecture of European-wide industry bodies created by the third energy liberalisation package.
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