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    Energy union becomes a reality: Commission suggests practical steps  

    Diversity of participants gathering at the European energy union conference organised within Latvian Presidency in the Council of Ministers in Riga (6 February 2015) have shown great interest in the new European energy policy. Maroš Šefčovič, Vice-President for Energy Union and Miguel Arias Cañete, Commissioner for Climate Action and Energy expressed the views of European Commission.

    Energy Union is one of the highest priorities in the new Commission. Hosting this event, the Latvian capital has already come into EU’s history as kick-off of what many in Brussels already now call „the Riga-process“ in a new wave of European energy policy. Numerous representatives of trade unions, consumer organisations, think tanks and energy associations took part in the historic event.

    For the first time since in power from November 2014, several Commissioners have had an „orientation debate“ on the EU „energy Union“ in the beginning of February 2015.

    Energy union’s importance

    The EU energy union is about several aspects: ensuring that European businesses can buy their energy at competitive prices and continue to be a driver for jobs and growth; ensuring that European consumers can heat their houses without the fear of prices skyrocketing or the supply running out because of geopolitical instabilities around the world. According to the Commission estimates, said Maroš Šefčovič, Vice-President for Energy Union about 10 per cent of EU households are energy-poor.

    The energy cooperation is also about ensuring that the leading cutting edge research in renewable energy is European; it’s often not: in global top ten solar companies none is European.
    The energy union is about building a sustainable future for the next generation.

    Besides, there is a certain danger in the lack of such policy: several EU member states still greatly depend on energy import.

    At a time when oil prices are twice less than just half a year ago, some doubt the need of having a specific Union’s energy policy, argued vise-president. However, the Commission is of the opinion that in the current context of lower oil and gas prices, the EU member states shall use „present breathing space“ as a golden opportunity to reset energy policy in the right direction and to take the necessary investments now. It is good time for the EU institutions to encourage the states to reduce costly public financial support to fossil fuels, invest in renewables and low-carbon technologies and put an end to European dependence on external sources of oil and gas.

    The EU has a unique opportunity to bring all players concerned to the same table: this is why it is called a union. It is about countries, industries, local governments, European institutions and people working together, each at their own level and in respect of their own competences.

    Five practical steps in creating the energy union

    First: security of supply; European Union is the biggest energy importer in the world, importing more than €1 billion per day, i.e. 3,2 per cent of Union’s GDP. Every year, the member states import more than €300 billion of crude oil and oil products alone, of which one third from Russia.

    For electricity, three EU states, including Latvia, are dependent on one external operator for the operation of their electricity network. About 27 per cent of gas the EU consumes is imported from Russia, and some of EU states bear high price for this, also literally.

    Solidarity is important in this sense, as some member states are more vulnerable than others, but in the end energy security of supply concerns every EU country. „We need an Energy Union with a solidarity clause“, underlined Commission’s vice-president.

    Energy efficiency is one of the ways to solve the problem: if member states increase energy efficiency by only one percent, the gas imports will fall by an additional 2.6%. There are other means too: e.g. through diversifying supply routes and sources; through creating real transparency in long-term gas contracts, to name a few.

    The second dimension is building a single internal energy market, in which energy flows freely and in which prices should give the right market signals.

    The member states have to bring down the technical and regulatory barriers among themselves and strengthen the regulatory framework. As a first step, the Commission suggested building stronger regional cooperation arrangements, within a European framework.

    Latvia, as a member of the Baltic Energy Market Interconnection Plan, is the best place to discuss regional cooperation; it is a prime example of a successful regional cooperation arrangement, argued Commission’s vice-president.

    The third dimension is energy efficiency. The EU needs both effective legislation in this field (to make sure that there are enough financial means) and that energy projects are where they mostly needed, including at the local level.

    The statistics is such that by using energy efficient products under the current framework for energy labeling and eco-design, for instance, consumers could save €465 on their energy bills per household per year.

    From the business side, only by fostering energy efficiency in products business can deliver €55 billion per year extra revenue with the knock on impact on much-needed jobs and wages.
    Energy savings are needed in all sectors of European economy, e.g. in particular, in the buildings sector. There are plenty of private investors eager to invest in bringing more energy efficiency to the building sector. At the same time, buildings’ energy efficiency has been increasing at only 1.4% per year, a relatively limited rate largely due to low renovation rates, argued Maroš Šefčovič, Vice-President for Energy Union.

    Fourth element is decarbonising European economies. Strong energy policy goes hand in hand with a strong climate policy: these are two sides of the same coin. In October 2014, the member states agreed on a binding target of reducing domestic greenhouse gas emissions with at least 40% by 2030; thus the EU became a „climate leader“. The Commission intends to take up this responsibility and, through pro-active climate diplomacy, convince major global players to sign up to a binding global agreement in Paris’ climate conference at the end of 2015.

    The EU’s commitment to becoming a low-carbon economy also means having to step up efforts in the field of renewables, so that the energy union’s program should be the world number one in renewables.

    The fifth dimension of the Energy Union project is research and innovation strategy. Maroš Šefčovič, Vice-President for Energy Union cited the American economist Jeremy Rifkin, who said in May 2012 (in a speech at the Mission Growth Summit): „the second industrial revolution, powered by ever more expensive fossil fuels and organized around an ageing electricity grid and an outmoded transport network, all embedded in a crumbling carbon-based infrastructure, is incapable of spawning thousands of new businesses and millions of new jobs. We need a bold new economic narrative“.

    The EU energy union should contribute to such new economic narrative: by setting the stage for an energy system in which European citizens can produce their own clean energy; by empowering citizens to control their own energy consumption through smart meters, and can share it through flexible, smart grids; by developing better storage and by plugging clean cars into the energy network.

    No other geographical area in the world, argued Maroš Šefčovič, has integrated such an amount of renewables in the grids. The EU has the experience and it must continue to innovate, e.g. through a new industrial strategy, translate this technological lead into European jobs and growth.

    This will require investments: in research, in capital, but also in people, giving them the right skills and making sure that the inevitable transition is just and fair; because sustainable energy union should also be just and fair.

    The EU has a unique opportunity to look beyond energy and climate policy and link it up with other areas such as industrial policy, transport, competition, agriculture, foreign, trade and development policy, or research. This is the only way to transcend the so-called contradiction between ’competitiveness’ and ’decarbonisation’. Maroš Šefčovič underlined that there should not be such contradictions in the member states.

    Maroš Šefčovič concluded in the conviction that the Riga conference would make a set of very practical, very concrete ideas to build the energy union that the member states need, and to which the Commission is ready to contribute.

    Competitiveness, security and sustainability: energy policy’s triangle

    Commissioner for Climate Action and Energy, Miguel Arias Cañete underlined the foundations of the European energy policy, which are oriented in the direction of Europe’s citizens, their right to have secure supplies of affordable, sustainable, competitive energy supplies, an energy policy that would be a driver for jobs and growth in Europe.

    EU citizens continue their strong support for energy-climate connections and climate change; thus, European challenge is to craft an energy policy that will deliver a 40% CO2 reduction by 2030, but does so in a manner that becomes a motor for both competitiveness and energy security.

    This is far from simple, added Miguel Arias Cañete with a believe that with resolute action the competitiveness- security- sustainability triangle can be achieved.

    Energy Security challenges

    Without decisive action, many EU states will remain dependent on a single supplier that does not view the sale of gas as simply a commercial issue. Furthermore, the EU will become more dependent on imports; for example the 10 BCM delivered via the Southern Corridor at the end of the decade will be offset by declining domestic production, unless the EU succeeds in developing shale gas, added Miguel Arias Cañete. Thus, the EU needs concrete action in a form that citizens will immediately understand and appreciate.

    He expressed his believe being serious about reducing energy reliance on Russia and Gazprom company as the only supplier holding a dominant position on EU markets.

    In addition to consolidating the EU’s relationship with the trusted partners (e.g. Norway) the EU should increase imports from other suppliers, and commit to build the infrastructure in the EU to bring this gas to where it is most needed, in particular to ensure the rapid development of a liquid gas market and functioning gas hub in the EU’s eastern states.

    New European Energy Security Strategy

    The EU energy security is not just about more diverse gas supplies; therefore Miguel Arias Cañete, Commissioner for Climate Action and Energy proposed a 10-point plan to deliver on a new European Energy Security Strategy:

    1. Revision of the regulations on security of supply of gas and electricity. The EU has already had a solid base to work on, as has been shown in the way the EU reacted to the Ukrainian crisis through stress tests, committing for example to rapidly ensuring reverse flow to assist the most vulnerable countries; the EU can use the experience gained to make further progress for the future.
    2. Acceleration of the PCIs and connecting Europe facility using the Commission’s Investment Plan and Regional and Structural Funds. The EU has to make progress in ensuring that no part of the EU remains isolated or vulnerable, and that all citizens benefit from a competitive market. The EU has all necessary tools in place to make this happen.
    3. A new EU LNG Strategy, ensuring that existing terminals and those under construction provide the greatest possible benefit in terms of security and diversity of supplies – and thus competition – not just to the country where they are situated, but across the entire EU.
    4. Accelerating progress on a Mediterranean Gas Hub, and developing a Strategic Energy Partnership with Algeria; and at the same time committing to the infrastructure that will connect this new liquid market to the rest of the EU.
    5. A new strategic alliance with Turkey: this is central to the EU’s energy objectives, as Turkey will be a key gas transit route in the future.
    6. Strengthening the Energy Community: the EU has made great progress bringing these countries into the heart of the EU’s energy market; but there is a need to do more to the benefit of all.
    7. A new strategic energy relationship with Ukraine, helping to modernise its energy industry and become a source of investment for EU companies.
    8. A new approach to speaking with one voice, with a greater level of ex-ante coordination on international energy issues.
    9. Ensuring that the member states’ agreements are compatible with EU law, with a revision of the Decision requiring their notification.
    10. A Communication on promoting domestic resources: including progress on shale gas based on a European science and technology network on unconventional hydrocarbon extraction.
    Miguel Arias Cañete underlined that achieving all these priorities would not be simple; but they are all vital components of a policy that guarantee security and at the same time promoting greater EU competiveness through improved competition.

    Creating EU’s internal energy market: four main aspects

    And it is these same objectives that will drive the next stage of development of the internal energy market, where much remains to be done.

    A citizen in one member state must be able to buy his or her electricity freely and simply from a company in another; locally produced renewable energy must be incorporated easily and efficiently into the grid; prices for citizens must be affordable and competitive, and efficient long-term investment signals that will encourage sustainable and competitive supplies must be allowed to develop.

    Miguel Arias Cañete outlined some foundations of an Internal Energy Market, which that member states are committed to create. There are four main aspects in the plan:

    — The first priority is to fully implement the third energy package, to adopt and implement all grid codes and to put in place the necessary energy infrastructure. There is no justification for continued delay, and the Commission will bring all EU instruments to quickly finalise this.
    — Second, all citizens must have a wider choice of suppliers, the chance of generating their own power, and robust consumer protection. In contemporary Europe, energy poverty is quite unacceptable: member states should address it, with the Commission helping to identify best practice. The Commission will adopt a strategy for this later in 2015. Recent falls in oil prices will have an effect on gas prices, and the energy competitiveness gap with the US is already falling. These benefits must be passed on into citizens in terms of lower prices, jobs and growth.
    — Third, regional initiatives can produce very quick results, acting as a stepping-stone to a real EU market characterised by deep harmonisation, deep inter-operability and deep inter-connectivity. These initiatives must develop in parallel, and demonstrate important results by the end of 2016, with the Commission helping to promote common approaches, best practice and transparency.
    — Fourth, regional progress needs to be reflected in EU-wide progress; the member states have to reassess the current institutional set-up, including the powers and independence of the ACER energy regulatory authority, ENTSO-E and ENTSO-G, along with the market design rules. The Commission will consult publicly and examine regional progress before proposing the necessary changes. The Commission will issue a Communication on market design in 2015.

    Renewable energy

    Commission President Juncker has set us the goal of becoming and remaining a world leader in this field; this means becoming a global hub for developing and manufacturing the next generation of renewable energy technologies, and putting into place the policies that will be the example of how to catalyse an extraordinary expansion of investment in new, highly competitive clean energy. Besides, in the EU energy goals there is the 27% target to be reached by 2030.

    The EU has made great progress towards meeting 20% target by 2020; however, the member states have also learned a great deal. It is time to create a single EU market for renewable energy that is fully integrated with the overall electricity market.

    The member states need a renewable energy market that rewards innovation and promotes efficiency; it must be a driver of jobs, growth, innovation and affordable and competitive electricity prices for citizens and it must make an important contribution to improving energy security.

    The Commission will consult member states on the proposal for a new Renewable Energy Package.

    The emission trading system, ETS will remain the major instrument helping the energy sector to decarbonise. The EU heads of state underlined the central role that ETS should continue to play as part of the 2030 package they adopted in October 2014. The Commission must redress the imbalance on the carbon market urgently, so as to have again price levels that make a difference to investors.

    The Commission’s short term target is to adopt the Market Stability Reserve, which will happen in the coming months. The long term target is to review the ETS, for which the DG make a proposal later in 2015; good and solid prices on the carbon market will improve the market position of renewables.

    Besides, the support for carbon pricing is growing across the world: it impressing what China is already doing and planning in this regard. The same goes for Korea or California in the US. An international climate agreement in Paris later in 2015, should only increase the spread of carbon pricing around the world.

    Moderation of demand and energy efficiency

    This issue merits the Commission’s greatest determination at national, regional and individual level. The EU is already a world leader here; going forward, the EU energy policy should take «efficiency first» as its abiding motto. Before importing more gas or generating more power, the member states should ask: «can we take cost-effective measures to reduce our energy use that will also increase our competitiveness?»

    The EU’s framework of product standards, labeling and buildings codes has become the global gold standard in energy efficiency, and must remain so.

    Here the Commission sees the need for a three-point initiative:

    · first: a revision of the eco-design, labeling, buildings and energy efficiency directives, a new strategy on heating and cooling, and continuing leadership on efficient vehicles, including promoting electro-mobility;
    · second: greater and more effective use of available funds, including the Juncker Investment Initiative and regional and structural funds. In this respect the Commission will promote a Smart Cities and Communities initiative and use the Covenant of Majors to its full potential; and
    · third: the EU could do more to deliver all the potential benefits of improving the efficiency of buildings. Investments in insulation are amongst the most profitable for citizens and industry today. Most of the work here has to be done at national, regional and local level, but the Commission can play a strong role creating the ideal framework for progress, with a particular focus on the poorest citizens in rented accommodation and those in energy poverty.

    Research in energy spheres: three decisive actions

    Integral to achieving all the energy union’s objectives is the success in research. Without a leading edge in research and technology, the EU will not be the world leader in renewable energy, and, furthermore, it will not deliver the energy efficient homes that will empower citizens as energy consumers, build truly smart cities or maintain a leading position on more traditional energy technologies and efficient vehicles.

    The Commission needs decisive actions on three fronts:

    · First, efforts should be renewed to build further on the successful Strategic Energy Technology Plan, with a limited number of essential priorities and clear objectives to be achieved. It must deliver more results in bringing together EU and the member state research along common goals, together with industry. In this respect the Commission will propose an upgraded Strategic Energy Technology Plan.
    · Second, the member states need to make up lost ground on energy storage, which is a vital element of European tomorrow’s energy system.
    · Third, EU industry consistently points out that it has more difficulty than its competitors in accessing risk capital, particularly in areas like PV development. The member states cannot afford to lose this race and the EIB, through the Juncker Investment Initiative, accepting levels of risk greater than the commercial banking sector will bear, must support industry and turn the EU’s leading position in renewable energy into growth and jobs.

    These are both simple solutions to achieve in practice and the boldest and most important solutions rarely existed.

    Miguel Arias Cañete concluded on the EU’s actions on governance. The EU’s leaders have clearly recognised the need for a new governance system as the very foundation stone on which the energy union will stand. Achieving the energy union will require committed action at all levels of society, and a robust mechanism to bring together this action, ensuring that collectively the member states will deliver on the EU’s goals.

    Miguel Arias Cañete added that the energy union could not be a mere reformatting of what the EU has already done, or a mere work program for the next five years; it is a commitment to fundamental and lasting change. Thus, the EU, the member states, regional and local communities must fundamentally change and improve how their work together if they are to meet the ever more pressing challenges that citizens and industry want to address. „Solidarity and collective action are principles that have underpinned the European project from the very outset; the same principles must guide us as we build our energy union together“, Miguel Arias Cañete concluded.

    Eugene Eteris baltic-course.com

    Articles »  Energy union becomes a reality: Commission suggests practical steps »  Views: 18812   Diplomatic Club

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