Building the European
Energy Union
Proposals and policy recommendations to power
European competitiveness
Building the European
Energy Union
Proposals and policy recommendations to power
European competitiveness
This study was prepared by The European House - Ambrosetti for Enel.
The study included the participation of an Advisory Board whose members are:
>> Francesco Starace (Chief Executive Officer and General Manager, Enel)
>> Simone Mori (Head of European Affairs, Enel)
>> Joaquín Almunia (Visiting Professor, London School of Economics; former Vice President and
Commissioner responsible for Competition, European Commission)
>> Vittorio Grilli (Chairman of the Corporate and Investment Banking EMEA, JP Morgan; Chairman of the Board, the Italian Institute of Technology – IIT; former Minister of Economy and
Finance, Italian government)
>> Wolfgang Schüssel (former Federal Chancellor of Austria)
>> Jorge Vasconcelos (Chairman, NEWES – New Energy Solutions, Portugal; Member of the Administrative Board, Agency for the Cooperation of Energy Regulators – ACER; founder and first
Chairman, the Council of European Energy Regulators – CEER)
>> Jean-Arnold Vinois (Advisor on European Energy Policy, Jacques Delors Institute; Honorary
Director of the European Commission – DG for Energy; former Director of the Internal Energy
Market of the DG Energy, European Commission)
>> Valerio De Molli (Managing Partner, The European House - Ambrosetti)
>> Paolo Borzatta (Senior Partner, The European House - Ambrosetti)
Taking part in Advisory Board activities for Enel were:
>> Giuseppe Montesano (Head of European Energy Policy and Analysis and Project Leader)
>> Fabio Bulgarelli (Head of European Regulation)
>> Davide Puglielli (Senior analyst, European Energy Policy and Analysis and Project Coordinator)
The European House - Ambrosetti working group was comprised of:
>> Lorenzo Tavazzi (Head of Scenarios and Intelligence Division, Project Leader)
>> Pio Parma (Project Coordinator)
>> Umberto Marengo (Analyst)
>> Matteo Zaupa (Analyst)
The European House - Ambrosetti working group benefited from the collaboration of Fabio
Genoese (Research Fellow, Centre for European Policy Studies – CEPS, Belgium; Visiting Professor,
SciencesPo in Paris, France).
2
building the european energy union
We would like to thank for their contributions and suggestions:
>> Ronnie Belmans (Chairman, the European Smart Grid Technology Platform; Full Professor
of Electric Power and Energy Systems, Katholieke Universiteit Leuven; co-founder, KU Leuven
Energy Institute of the European Energy Institute, Belgium)
>> Örjan Brinkman (Chairman, Bureau Européen des Unions de Consommateurs – BEUC; Chairman, Sveriges Konsumenter, Sweden)
>> Nicola Ciniero (General Manager, IBM Italy)
>> Jos Delbeke (Director-General for Climate Action, European Commission)
>> Fabio Fregi (Chief Executive Officer, Google for Work Italy)
>> Dirk Forrister (President & Chief Executive Officer, IETA - the International Emissions Trading
Association)
>> Monica Frassoni (Co-Chair, European Green Party; President, European Alliance to Save Energy - EU-ASE)
>> Sergio Garribba (Advisor on Energy Policies to the Italian Ministry of Foreign Affairs and to
the Italian Ministry of Economic Development; former Director-General for Energy and Mineral
Resources, Ministry of Economic Development; former Professor, Polytechnic of Milan)
>> Simon Hill (Vice President Regulatory Affairs EMEA, Opower) with Giulia Gioffreda (Head of
European Union Affairs, Opower)
>> Giovanni La Via (Chairman of the Committee on the Environment, Public Health and Food
Safety, European Parliament)
>> Stefano Manservisi (Chef de Cabinet of the EU High Representative for Foreign Affairs and
Security Policy, European Commission)
>> Andrei Marcu (Senior Advisor and Head of the Carbon Market Forum, Centre for European
Policy Studies – CEPS, Belgium)
>> Francesco Profumo (Chairman, IREN; former Minister for Education, University and Research,
Italian government; Full Professor and former Dean, Turin Polytechnic)
>> Dominique Ristori (Director-General of DG Energy, European Commission)
>> Carlo Sangalli (Chairman, Confcommercio – the Italian General Confederation of Enterprises)
>> Agostino Santoni (Chief Executive Officer, Cisco Italy)
>> Christof Schoser (Deputy Head of Unit “State Aids - Energy and Environment” – DG Competition, European Commission)
>> Manuel Szapiro (Member of the Cabinet of the Vice President and Commissioner for Energy
Union, Maroš Šefčovič, and Responsible for Relations with Academia and Think Tanks, European Commission)
>> Pierre Tardieu (Deputy Director for Public Affairs, EWEA - the European Wind Energy Association)
>> Federico Testa (Commissioner, the Italian National Agency for New Technologies, Energy - ENEA)
>> Frauke Thies (Chief Policy Officer, EPIA - European Photovoltaic Industry Association)
>> Patrizia Toia (Vice President of the Committee on Industry, Research and Energy, European
Parliament)
>> Flavio Zanonato (Member of the Committee on Industry, Research and Energy, European Parliament; former Minister for Economic Development, Italian government)
The contents of this report refer exclusively to the analysis and research carried out by The European House - Ambrosetti and represent its opinion, which may not coincide with the opinions
and viewpoints of the individuals interviewed.
© Enel S.p.A. and The European House - Ambrosetti S.p.A., 2015
3
Contents
Preface | 7
Remarks by the Scientific Committee | 9
10 key points of the study | 12
Executive Summary | 14
Chapter 1. Why Europe needs a common energy market
and an integrated energy policy | 26
1.1. Energy policy is a key driver for enhancing Europe’s competitiveness and global influence | 28
1.2. The importance of energy policy | 29
1.3. A holistic approach to European energy policy | 34
Chapter 2. Our proposals and policy recommendations for a successful implementation
of the European Energy Union | 36
2.1. Introduction | 38
2.2. Strengthening European governance | 39
2.3. Setting up a decarbonization-proof market design | 47
2.4. Adopting smart regulation for smart investments | 50
Chapter 3. The energy sector scenario in Europe | 56
3.1. The energy scenario and main trends in the world and Europe | 58
3.2. Critical points and open questions in EU energy markets | 73
3.3. The benefits of the European Energy Union | 90
Bibliography | 99
5
Preface
In outlining the future energy system, clear and ambitious objectives help us to define the direction we want to take. Europe
has shown an unprecedented level of purpose and commitment in defining its climate and energy targets. In this respect,
the long term goal of decarbonizing the system by 2050 is straightforward, and interim targets –namely the 2020 and 2030
targets for renewables, energy efficiency and CO2 emissions– have set the necessary milestones.
Decarbonization encompasses several benefits for the European economy: it makes Europe an early mover in the growing global market for energy-related goods and services; it contributes to increasing energy security by reducing import
dependency and exposure to the volatility of fossil fuel prices; and it brings significant air pollution and health co-benefits.
But defining what is the target is just as important as figuring out how to get there, because the latter is what ultimately
determines whether one actually reaches it or not. This is where the Energy Union Framework comes into play.
Launched by the European Commission in February 2015, the Framework is an ambitious step forward in the right direction
of making the European energy system secure, sustainable and competitive. It outlines a clear action plan to deliver a coordinated vision and a deep harmonization of energy and climate policies, and this is what Europe needs.
At this stage, the Energy Union Framework is still just a plan in need of action by all stakeholders involved. The European
Commission has set the groundwork on which Member States and other institutions, the industry and end customers will
build the future European energy system. The framework is the last chance to prove the level of commitment regarding our
shared ambitions, and finally make a leap forward.
As one of the major European energy companies, Enel has always been at the forefront in supporting the European roadmap for energy and climate. From the very outset of our international expansion, we advocated for the full integration of
European energy markets as a means to reach European targets in an efficient and sustainable manner.
Also based on our global experience and leadership, we now see three main challenges for the European energy system and
its decarbonization: the enforcement of truly integrated European governance, the achievement of a future-proof market
design and the development of digital technologies. Such elements are instrumental to shift the sector’s focus and visibility
from short- to long-term, to allow efficient investment plans in both renewable and conventional generation and to effectively integrate renewable energy sources into an eventually European-wide market.
The report “Building the Energy Union. Proposals and policy recommendations to power European competitiveness” by The
European House – Ambrosetti points out the reasons behind these three challenges and provides a set of proposals to effectively address them.
My hope is that this study will provide valuable input to policy-makers and encourage other stakeholders to take concrete
action and contribute to the successful shaping of our common energy future.
Francesco Starace
Chief Executive Officer and General Manager, Enel
7
Energy cooperation has been a driving force of European integration for over sixty years. In fact, the forefather of our European Union was the Coal and Steel Community. Established back in 1951, its goal was to unite formerly-conflicting countries
to pool the most important energy source of the time-coal.
Today, the nexus between energy integration and political integration is just as critical for our common future. Europe is
being called upon to rise to an unprecedented challenge: governing the transition towards energy sustainability and climate
change while preserving and strengthening its global competitive edge.
New energy sources (such as shale oil and gas) are becoming available and new technologies are transforming the way in
which we use and benefit from energy as private individuals and companies, and so we need a European commitment equal
to this unparalleled moment of opportunity. Smart grids and digital technologies are placed to transform traditional energy
business models radically, bringing new players and new products to compete in the market.
Much has been achieved already. Since the 1990s, the European Union has launched three Energy Packages that introduced
sweeping reforms. Energy markets are more liberalized, open, competitive and transparent than ever before.
Yet, the journey is far from complete. Without strong political vision there can be no true integration. The transformations
we face call for a quantum leap in the way we shape our policies. We need a new holistic approach that brings together the
political, technological and economic dimensions of energy to make Europe the most competitive, innovative and dynamic
source of clean power in the world.
As a leading European think tank, The European House - Ambrosetti partnered with Enel to help take this journey forward.
With this research study, we invite European leaders to look at energy policy from a fresh perspective that tackles the nuts
and bolts of regulatory integration, never loosing track of the broader vision and the global arena in which we play. The
Juncker Commission has set an ambitious framework for the creation of a true Energy Union in Europe. This study aims to
contribute to the success of that project by pointing to some of the key societal and economic challenges ahead in the field
of energy.
We need better market regulation to make sure that our investments are based on long-term market considerations and price signals. We need more effective and coherent governance at EU level. And we need more innovation-friendly regulation
to unleash the full potential of digital technologies in this sector.
A more integrated energy market will produce sizable benefits for Europe: lower costs, more efficient investments and a
cleaner environment for us and for future generations.
Finally, this study would not have been possible without the invaluable support and advice of Joaquín Almunia, Vittorio
Grilli, Wolfgang Schüssel, Jorge Vasconcelos and Jean-Arnold Vinois, to whom we extend our deep gratitude.
To quote Robert Schuman, “Europe will not be made all at once, or according to a single plan. It will be built through concrete
achievements which first create a de facto solidarity.” The energy industry, governments and European institutions need to
join in a common effort to make energy, once again, a driver of integration, competitiveness and solidarity.
Valerio De Molli
Managing Partner, The European House – Ambrosetti
8
building the european energy union
Remarks by the Scientific Committee
Climate change is the main global challenge of our times. As President Obama recently said, “we are the first generation to
feel the consequences of climate change, and the last one to be able to do something to stop it”. Competitiveness is what
European economies need to overcome the crisis once and for all, setting the ground for a sustained path of growth and the
improvement of employment levels and social standards. Security is a necessary condition to guarantee the stability of our
societies and the support of citizens for democratic institutions.
What the European Union will decide regarding the Energy Union initiative will be crucial to gradually reach these goals in
a coherent way. Regarding climate change, it is imperative to advance towards a decarbonized economy based on renewable sources and an efficient use of energy. To improve competitiveness, we need to achieve the single market for electricity
and gas, through interconnections, common regulations and adequate incentives for investors. And to improve our external
security, the EU must reduce the degree of dependency on foreign suppliers and put into place a common European energy
diplomacy.
The Energy Union is –together with the completion of the Economic and Monetary Union, the achievement of the Digital
Single Market and the agreement around a common strategy vis-à-vis immigration– a milestone in the way towards the
European integration, that our citizens need to reap the benefits of the 21st century.
Joaquín Almunia
Visiting Professor, London School of Economics
former Vice President and Commissioner responsible for Competition,
European Commission
The completion of strategic interconnectors amongst the EU-28 Member States and with neighboring third countries is at the
core of the Energy Union. Infrastructure development and the promotion of energy efficiency initiatives will enhance energy
allocation and security of supply in Europe. This will require in the next few years a major, pan-European investment effort.
As demand for infrastructure in the utilities sector in Europe is expected to continue to increase, the risk appetite investors
for this type of projects remains high. Institutional investor interest in energy related infrastructures has risen significantly
in Europe and at global level: the utilities sector is attracting 65% of the infrastructure funds deployed globally, and 45%
of global infrastructural deals took place in Europe in 2014. The infrastructure investor base is expanding and becoming
increasingly diverse (bank funds, private equity, sovereign wealth funds, pension funds, etc.). Infrastructure funds are exploring more complex and bolder transactions, and infrastructure minority investments have also become more common in the
energy sector.
A significant boost for enhancing energy infrastructure networks in the European Union is offered by the Juncker Investment Plan, aimed at making large-scale infrastructural investments less risky for private investors. Approximately €240 billion out of €315 billion should be activated over the 2015-2017 period in digital, energy and transport grids.
A swift implementation of the Juncker Plan will offer the opportunity to leverage resources for financing big infrastructural
projects and energy efficiency initiatives that are key for Europe’s competitiveness and, thus, for economic growth.
Vittorio Grilli
Chairman of the Corporate and Investment Banking EMEA, JP Morgan
former Minister of Economy and Finance, Italian government
9
A Common Energy Market for the European Union is one of the best ideas to complete our common single market for political, economic and strategic reasons:
>> Political: the EU will remain for the next decades a big importer of fossils-oil, gas, coal (53% of consumption imported).
Most exports are coming from crisis regions affected by war, political unrest and autocratic regimes. Speaking with “one
voice” gives the EU a greater influence on the global scene.
>> Economic: EU energy imports annually are approx. €400 billion. Over the next 10 years, new investment in energy production/transmission of €250 billion is necessary. For important industries affordable energy prices are a precondition for
maintaining their presence in Europe. But major competitors operate with much cheaper tariffs (i.e., US 1/3 gas).
>> Strategic: a “sea change” in the future energy sector is coming. Fracking, rise of renewables, e-mobility, prosumers, smart
grids & homes, etc.: this requires excellent regulation, standardization, open markets, comparable tariffs, prices and subsidies.
The consequences are clear: less national sovereignty, no solo initiatives (such as the German “Energiewende”), more transparency, investment-friendly framework, public discussion and acceptance.
Wolfgang Schüssel
Former Federal Chancellor of Austria
Regulation of electricity and natural gas markets in the European Union needs to be urgently redesigned for two major
reasons: one quantitative and one qualitative. Accomplishing this task means facing two major obstacles – one institutional
and one conceptual.
Liberalization and regulation of energy markets in Europe were designed under the assumption of increasing energy
demand. In fact, in the decade previous to liberalization, i.e., between 1980 and 1990, total primary energy consumption
in Europe increased 10.6% (IEA). In the following decades demand in the EU-28 increased just 3.6% (1990-2000) and 2.0%
(2000-2010). Since 2006, EU energy demand has been decreasing: in 2013 it was 0.9% below the 2006 level (Eurostat). This
is indeed in line with the EU “objective of saving 20% of total primary energy consumption by 2020”, established in 2007.
Regulating energy infrastructures in order to incentivize further reduction of energy demand is not the same as regulating
these infrastructures under stable or growing energy demand scenarios.
In the meantime, the structure of both electricity generation and demand has changed considerably and is expected
to change even faster in the near future. Incentivizing the transition towards new electricity systems based on massive
deployment of intermittent generation, flexible demand, different kinds of storage and new modes of operation requires a
completely different regulatory toolkit.
Without a proper regulatory authority at EU level the internal energy market cannot be achieved. Institutional reform is
needed to allow for the transformation of the existing “Agency for the Cooperation of Energy Regulators” into a new “Agency
for the Regulation of Energy Markets”. Transforming a club of national regulators managed by the European Commission
into a regulatory authority “above” national regulatory authorities and independent from the European Commission
requires strong political will.
Finally, innovative thinking is needed to reinvent, simultaneously, the multi-level governance of energy markets and energy
systems, the corresponding multi-level institutional architecture of energy regulation and the conceptual and instrumental
toolkit of energy regulators. Given the growing sophistication of energy markets, the rising convolution of EU policies and
the increasing complexity of the interfaces among them, this will not be an easy task. In this context, it is worth recalling
what President Theodore Roosevelt wrote to the U.S. Congress in December 1905, asking for the establishment of effective
and independent regulation: “The opponents of government regulation dwell upon the difficulties to be encountered and the
intricate and involved nature of the problem. Their contention is true. […] But while I fully admit the difficulties in the way, I do
not for a moment admit that these difficulties warrant us in stopping in our effort to secure a wise and just system.”
Jorge Vasconcelos
Chairman, NEWES
Founder and first Chairman, CEER
10
building the european energy union
The Energy Union is a single and necessary project based on a holistic approach to energy and climate for the benefit of all
citizens and the whole economy.
After fifty years of Member States’ reluctance to consider a European energy policy, in spite of the Steel and Coal and the
Euratom treaties of the 1950s, a decisive breakthrough occurred in March 2007 with an Energy Policy for Europe decided by
the European Council. This policy was based on security of supply, sustainability and competitiveness, and translated into
three 20% targets for 2020: reduction of greenhouse gas emissions compared to 1990, promotion of renewable sources
of energy in the energy mix and improvement of energy efficiency. In 2010, the Treaty on the Functioning of the European
Union included a new Article 194 that became the legal basis for an extensive energy policy, built on the internal market,
interconnections, security of supply and renewable and energy efficiency-all this in a spirit of solidarity. However, Member
States retain sovereignty in deciding their energy mix, the exploitation of natural resources and energy taxation.
The last five years have been rich in developments, some positive and some others disturbing regarding the integration of
the European energy market, with some trends to renationalize the energy policy in the name of a narrow and nationalistic
approach to security of supply, revealing a lack of trust between Member States and aversion to competition. The Energy
Union, launched in 2014 by the new Commission, led by President Juncker and supported by the European Council, intends
to counter these challenges by advocating a decisive step towards a genuine European energy and climate policy, breaking
the silo mentalities and ensuring the best use of all the resources and infrastructures within the European Union, for the
satisfaction of the customers, households and business alike.
Solidarity should mean combining the strengths to eliminate or mitigate the weaknesses of each Member State for the
benefit of all. The internal market remains the best tool to achieve such optimization of resources and infrastructures. Its
full completion requires enhanced governance and fewer contradictions between national and European objectives and
measures. Unquestionably, more cooperation at all levels is needed as well as an effective empowerment of actors, like the
transmission system operators and the European Agency for the cooperation of Energy Regulators, and last but not least, of
customers to optimize their demand management. Long distance transmission of electricity produced from the best sources
of renewable energy and decentralized production will have to develop in a smarter system to match supply and demand
and to deliver the new targets set for 2030 and in the framework of the December 2015 Paris Conference on climate.
A silent revolution is underway and a clear and dynamic European framework should make it a success for all citizens and
our economy. This report is therefore a timely and useful contribution for all those concerned.
Jean-Arnold Vinois
Advisor on European Energy Policy, Jacques Delors Institute
Honorary Director of the European Commission
11
10 key points of the study
>> Energy efficiency: improvements on energy efficiency
1
financing initiatives (such as risk sharing, dedicated
credit lines and on bill repayment) are needed, in particular to promote efficiency in high potential sectors.
Energy has been at the heart of the European Commis-
Moreover, the energy efficiency incentive framework
sion’s legislative action over the last 20 years. The three
should avoid excessive impacts on electricity bill.
Energy Packages of the Commission (1996-2009) focused
>> Environmental protection: reforming the EU Emissions
their intervention especially on EU energy market inte-
Trading System (EU-ETS) and an appropriate compe-
gration and liberalization, while since the 2009 Climate
titive framework for renewables are preconditions
and Energy Package, the European Union has also integra-
for the success of the EU’s decarbonization strategy in
ted the pillars of energy and environmental protection.
the long-term. Plus, the lack of a clear European framework for RES incentives has produced inefficien-
2
cies among Member States.
>> Research and innovation: the EU lags behind in the deployment of key enabling technologies.
The efforts made by the European Commission and by
the European Member States in the past have resulted in
significant accomplishments. The European Union is diversifying away from conventional sources towards renewables and low-carbon energy generation and it is also
on-track to reach its 2020-2030 targets on energy.
3
Some critical issues have remained unaddressed in the
European energy sector. Among these:
>> Security of energy supply: the EU remains highly dependent on petroleum and natural gas imports and on
countries at high geopolitical risk. Completing market
integration, as well as strengthening and better planning interconnections –including with neighboring
countries– can improve security.
12
4
The European Commission has renewed its political
commitment towards an integrated energy strategy. In
February 2015 it published the “Framework strategy for
a resilient Energy Union with a forward-looking climate
change policy” which outlines a more comprehensive
approach, setting the vision and integrating a series of
policy areas (security of supply, internal energy market,
energy efficiency, environmental protection and research
and innovation) into a cohesive strategy.
5
>> Internal energy market: on the wholesale market, the
To build the European Energy Union a holistic approach is
lack of long-term price signals has produced ineffi-
needed. This must consider all the aspects affected directly
cient investment decisions, resulting in unbalanced
and indirectly by energy and their relations (i.e., the external
installed generation capacity in several European
dimension of competitiveness, foreign policy, industry value
countries. Moreover, energy retail prices are not cost-
chains development, etc.). Including the key issues related
reflective and in line with the decarbonization objec-
to energy into the EU-28 energy policy, understanding how
tive, due to significant differences in national policy
these affect each other, and balancing the various inte-
choices, tax schemes and weight of system costs that
rests and trade-offs (Member States, European institutions,
generate market distortions among the Member Sta-
consumers, energy players and new entrants) are, today, the
tes.
main challenge for the success of the European Energy Union.
building the european energy union
6
8
On the basis of the analysis of the critical issues in the five
In order to define a decarbonization-proof market de-
aspects identified by the EU, we have identified eight pro-
sign, we propose to:
posals and policy recommendations for a successful im-
>> Set a wholesale market design that is coherent with the
plementation of the European Energy Union. These include
EU’s decarbonization goals and the development of re-
both governance and regulatory recommendations and
newables, including through the adoption of long-term
market-oriented tools, and require action on three-levels
contracts that provide adequate price signals for in-
(strong European governance; decarbonization-proof mar-
vestment and disinvestment choices over the long-term.
ket design; and smart regulation for smart investments).
>> Adopt transparent and cost-reflective criteria for the
formation of retail electricity prices in order to foster
7
In order to strengthen governance of a truly European
energy policy and markets, we propose to:
>> Harmonize, widen the scope and enforce top-down re-
customer engagement and promote comparable price
structures across Europe.
9
gulation at European level. In order to complete the in-
In order to adopt smart regulation for smart investments,
ternal energy market a core of European rules and bodies
we propose to:
is needed. In fact, as of today, the European Union lacks
>> Promote new regulation for the digitalization of the
strong political guidance and binding decision-making
European power system using smart grids as a key dri-
powers in the energy sector.
>> Speed up market integration also through regional cooperation mechanisms on several aspects of the EU ener-
ver of this process.
>> Enhance access to finance for energy efficiency
projects.
gy markets, ranging from regional auctioning of renew-
>> Make Europe the world pioneer in the application
able sources, to system operation and TSOs cooperation.
and market diffusion and export of innovative energy
>> Rationalize and streamline the process to complete EU
technologies.
interconnectors on the basis of cost-benefit analyses.
This would allow for more efficient allocation and system
security since the lack of strategic infrastructures causes
problems both internally and externally.
10
Completing the Energy Union can provide significant benefits for the European Union, its firms and citizens at several levels: competitiveness (technological leadership in
the European energy industry and related sectors; and lower imports of fossil fuels and energy dependence), environmental protection (lower carbon emissions and related
savings), energy efficiency (development of technological
innovation and competitiveness of EU energy-efficient industries) and geopolitics (increased EU geopolitical influence
and “soft power” on the global energy and climate change
agenda).
13
Executive summary
Why Europe needs a common energy market and
an integrated energy policy
1. The European Union is moving towards the completion
2. Energy has been at the heart of the European Commis-
of an integrated energy market and the development of a
sion’s legislative action over the last 20 years:
common energy strategy. A common framework on ener-
>> The three Energy Packages of the Commission (1996-
gy will allow Europe to take advantage on different levels –
2009) focused their intervention especially on EU energy
geo-politics, environmental protection, competitiveness
market integration and liberalization.
and market integration. In particular, the benefits of achie-
>> Since the 2009 Climate and Energy Package, the Europe-
ving the Energy Union are mainly related to:
an Union has also integrated the pillars of energy and
>> Promoting the shift from national markets to a single
environmental protection.
energy market.
Following the “20-20-20 Plan”, in 2014 the European Council
>> Strengthening security of energy supply and prioritizing
the strategic interconnections needed.
adopted a new policy framework with ambitious decarbonization targets to be met by 2030: at least 40% reduction
>> Integrating energy and climate change policies and ta-
of greenhouse gas emissions compared to 1990 levels; at le-
king a leadership position in the global negotiations on
ast a 27% share of renewable energy sources (RES) in gross
climate change (i.e., in the forthcoming COP 21 in Paris).
final energy consumption; and at least a 27% reduction in
>> Maintaining and enhancing the competitiveness of European industrial value chains.
final energy consumption compared to estimates. The 2030
framework also proposes a new governance framework ba-
>> Protecting energy consumers and encouraging them to a
more active and aware role.
sed on national plans and a set of key indicators to assess
progress over time.
Figure 1. Key headline indicators and targets concerning EU energy and climate policy.
Note: current status based on 2013 or latest available data.
EU Target
Current status
2020
2030
2040
2050
GHG emissions reduction
(% vs. 1990 levels)
-18%
-20%
-40%
-60%
-80%
Renewables share
(% in the overall energy supply)
15%
20%
27%
Energy efficiency (maximum Mtoe
primary energy consumption)
1,567
1,483
1,424
Source: The European House - Ambrosetti elaboration on European Commission and Eurostat data, 2015
3. With the “Framework strategy for a resilient Energy Union
a. Energy security, solidarity and trust.
with a forward-looking climate change policy” (February
b. A fully-integrated internal energy market.
2015), the European Commission outlined an action plan for
c.Energy efficiency as a contribution to moderation of
its energy strategy based on five mutually-reinforcing and
closely-interrelated dimensions:
14
building the european energy union
energy demand.
d. Decarbonization of the economy.
e. Research, innovation and competitiveness.
5. Starting from the five key areas identified by the European
The goals and guidelines contained in the Energy Union fra-
Union, we have formulated a set of proposals and policy
mework strategy provide a solid foundation and have the
recommendations that address the key future challenges
merit of integrating the cornerstones of energy and envi-
of the Energy Union regarding the following aspects:
ronmental protection.
>> Governance (allocation of responsibilities and powers
for rule-making and goal-setting between the EU and
4. The future challenges of the Energy Union need to be
addressed adopting a holistic approach. In fact, EU ini-
Member States).
>> Market design (definition of the technical rules and cri-
tiatives on energy have followed an incremental logic but
have lacked a comprehensive and coherent approach open
teria under which market participants interact).
>> Infrastructures (definition and development of key in-
to the external aspect of competitiveness and capable of
including all the perspectives related to energy and other
frastructure, as enabler of markets development).
>> R&D (schemes to promote and finance energy-related
connected policy areas (i.e., foreign policy, industrial policy,
etc.). This has brought about some distortions and imba-
technological development and R&D).
>> Investments and financing, which cuts across all the
lances in the internal energy market.
above-mentioned areas.
Our proposals and policy recommendations for a successful
implementation of the European Energy Union
6. Successful implementation of the European Energy Union
(Member States, European institutions, consumers, energy
requires the balancing of different interests and trade-offs
players and new entrants).
Figure 2. Overview of the various players and interests impacting on EU Energy Union implementation.
Energy Union Strategy
EU policy, regulation and targets
Consumers
Utilities
Member States
EU Institutions
Empowerment and
freedom of choice
Long-term price
signals to incentivize
investments
Freedom of choice in
energy mix
Energy security
New entrants
Integrated market
ICT companies
Autonomy in
suppliers’ choice
Energy efficiency
Possibility to sell
self-produced energy
on the market
Stronger ETS and
adequate CO2 prices
Stability of regulation
Framework favourable
to Smart Grids
development
Energy security
and efficiency
Decarbonization
of economy
Leadership in R&D
New service
providers
Aggregators
Source: The European House - Ambrosetti elaboration, 2015
7. Our proposals and policy recommendations indicate
III.Adopting smart regulation for smart investments.
three main priorities that should guide Europe’s energy
These actions include governance, regulatory recommen-
agenda:
dations and market-oriented tools, and could help the EU
I.Strengthening European governance.
to solve the current problems for an efficient functioning
II. Setting up a decarbonization-proof market design.
of its energy market.
15
Figure 3. Europe’s main problems on the five aspects of the EU Energy Union.
SECURITY
OF SUPPLY
Insufficient market
integration and
interconnections
High dependency
on gas and oil
imports
High share of
energy imports
from countries at
high geopolitical
risk
High differences in
energy dependency
levels among EU
countries
INTERNAL ENERGY
MARKET
Depressed
wholesale prices
and lack of long term
price signals
for investors
Prices are not
cost-reflective due
to differences
among national
tax schemes and
price structures
Significant
differences in
retail energy
prices
ENERGY
EFFICIENCY
ENVIRONMENT
PROTECTION
RESEARCH AND
INNOVATION
Lack of adequate
metrics (absolute
consumption)
ETS failed in
delivering
adequate price
signals for low-carbon
investments
Quantitative
targets tend to
incentivize
deployment rather
than cost-efficiency
and innovation
Low energy
efficiency in
buildings and
transport
EU financing
schemes
tend to support
large-scale
investments and
barriers to
investment are still
relevant
Decentralized and
uncoordinated
policy
implementation for
RES deployment
among Member
States
Overcapacity and
lower industry
margins
discourage
investments in
new technologies
Limited overall
efficiency, with
differences at
geographical level
across the EU
Source: The European House - Ambrosetti elaboration, 2015
Strengthening European governance
Proposal 1. Harmonizing, widening the scope and enforcing top-down regulation
Proposal 2. Speeding up market integration,
by also leveraging on regional cooperation
10. The EU should speed up market integration. In achieving this goal, regional and European cooperation is a
8. As of today, the European Union lacks strong political
fundamental tool that the EU should take advantage of,
guidance and binding decision-making powers in the ener-
on several aspects of the EU energy markets, ranging from
gy sector. Therefore, the EU should harmonize, widen the
regional deployment of renewable sources to system ope-
scope and enforce top-down regulation by assigning a
ration.
strong guidance role to the European Commission, and
by harmonizing national regulations and adopting a top-
11. The institutionalization of forms of cooperation betwe-
down approach on future regulations and decisions on
en neighboring countries and regional clusters can serve as
cross-border energy issues.
an interim step towards gradual progress in the European
Energy Union agenda, including through the sharing of best
16
9. In this context –to have enhanced certainty and uni-
practices and the creation of common standards. The sug-
formity in EU regulatory framework, greater coordina-
gested actions should include: promoting the integration
tion and reliability– the powers currently granted to the
of regional Transmission System Operators (TSOs), or
Agency for the Cooperation of Energy Regulators (ACER)
forms of close cooperation on a regional basis of the diffe-
should be reinforced to guarantee coordination of markets
rent national TSOs, to provide coordinated network mana-
and the operational capabilities of energy systems in the EU.
gement and in real time; instituting regional auctions for
The European Network of Transmission System Operators
the development of renewable energy sources to allow
(ENTSO-E) and the European Network of Transmission Sy-
their development across Europe based on the resource
stem Operators for Gas (ENTSOG) could also be granted ad-
availability and lack of grid congestions; creating regional
ditional responsibilities and powers. This should match with
electrical power exchanges; and defining regionally-based
an increasingly integrated management of operations at
infrastructure initiatives and projects in collaboration with
European level (for instance, in network codes definition).
third countries.
building the european energy union
Proposal 3. Streamlining the completion
of EU interconnectors on the basis of costbenefit analyses
tural priorities; involving in the decision-making process of
third countries (e.g., Switzerland, Norway or North African
countries) critical to reaching the interconnection goals of
the European network; adopting shared and uniform cri-
12. Today, the internal European energy market faces pro-
teria for evaluation of secure sources of supply and actual
blems related to efficient allocation and system security
interconnection needs.
since a sub-optimal level of cross-border infrastructures does not allow markets with over-capacity to interface with those with more limited energy resources. On one
side, some interconnection projects have low return on investment and long amortization times, and this situation
Setting up a decarbonization-proof
market design
will or even government opposition to specific projects.
Proposal 4. Setting a wholesale market design that is coherent with the EU’s decarbonization goals
13. Currently, each country of the EU-28 has defined its own
15. Over the last 10 years in Europe, substantial investment
national energy strategy. What is lacking is EU-wide coordi-
decisions have been made in the energy market that are
nation, including by the TSOs, that would be able to organize
not correlated to the long-term needs of electrical power
the individual national plans within a systemic and coherent
systems, but rather to short-term price signals. This has cau-
whole. In addition, the decision-making process for the iden-
sed, in several Member States, conditions of over-capacity
tification and selection of the Projects of Common Interest
or under-capacity. The adoption of long-term price signals
(PCIs) has led to a great number of infrastructural projects
would have made it possible to prevent this situation.
hinders investments. On the other, there is a lack of political
(as of today, 248 initiatives without a clear prioritization).
16. Furthermore, the growth of renewable sources in the va14. Therefore, the EU should rationalize and streamline the
rious Member States has occurred within a context of major
completion of EU interconnectors, on the basis of cost-
fragmentation of incentive systems created on a national
benefit analyses, by: assessing Europe’s energy needs and
level. This contributes to making their integration into the
the ways to meet them, in order to define clear infrastruc-
market on a European level particularly complex.
Figure 4. Investments in the electricity sector in the EU, 2000-2006 and 2007-2013.
120
100
80
60
40
20
0
2000-2006
Other renewables
Solar and wind
2007-2013
Hydro
Nuclear
Fossil fuels
Source: International Energy Agency (IEA), “World Energy Outlook – Investment Report 2014”
17
17. The EU should set a wholesale market structure cohe-
market design solutions, this requires integrated liquid
rent with the goal of decarbonization through:
intraday markets with harmonized gate closure time near
>> Adopting long-term contracting that provides adequa-
real time and integrated balancing markets.
te price signals for investment and disinvestment choices
Proposal 5. Adopting transparent and costreflective criteria for the formation of
electricity retail prices
over the long-term, including also through the adoption
of suitable mechanisms (introduction of well-defined reliability options and implementation of regional tenders
for new RES).
>> Introducing mechanisms to lower the cost of guarante-
18. There are currently significant differences in the structu-
es for counter parties that could be quite significant, in
re of retail prices for electrical power in the various Europe-
particular regarding longer-term deliveries.
an countries. The setting of retail electrical power prices is
>> Effectively integrating RES into the market through
influenced, in particular, by the tax and system costs com-
the definition of markets which can provide long-term
ponents. These discrepancies generate market distortion
signals and properly value flexibility. Besides other new
across the EU.
Figure 5. The different components of electricity prices among the European Member States (%, for average household consumers in capital cities), 2013.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Network
Taxes (VAT incl.)
DK
SE
NO
RO
IT
DE
LV
EE
PT
LT
ES
BE
CZ
FR
NL
AT
SL
SK
FI
PL
HU
LU
BG
Energy
HR
GR
CY
UK
IE
MT
0%
Subsidies to RES
Source: The European House - Ambrosetti re-elaboration on ACER data, 2014
19. In order to foster customer engagement and promote
comparable price structures across Europe, the EU should
adopt, on a European scale, uniform and transparent criteria, and best practices, for the structuring of electricity
bills, especially in terms of grid fees and taxes and tax-related fees. In addition, an “operation transparency” should
be launched in all Member States, to make more transparent
18
Adopting smart regulation for smart
investments
Proposal 6. Promoting new regulation for
the digitalization of the European power system
and cost-reflective end-user electricity prices (i.e., tied to the
20. The entry of digital technologies into the energy sector
actual costs of generation, transmission and distribution, mi-
is radically changing models of energy production and con-
nimizing fees not connected with the service).
sumption. Digitalization is already underway in the energy
building the european energy union
sector, but it is progressing slowly, in particular as a result of
the digital transformation of the European electric system, but
significant investment in the state-of-the-art ICTs requested of
initiatives involving smart grids require significant investments
consumers and grid operators, and of the lack of regulatory in-
from sector companies (to build and/or redesign extensive
struments. In particular, smart grids will be a key tool in driving
electrical power grids often dating from 40-50 years ago).
Figure 6. Smart metering in Europe up to 2020 (meters installed, confirmed plans and forecast 2020 - number of
thousands of meters).
4,650*
2,600*
1,760*
680*
720*
960*
10,400*
1,920*
1,800*
27,000
5,840*
32,000*
3,600*
Implemented
35,000*
Confirmed plans
3,440 1,360*
2,880*
5,920*
560*
3,040
2,320*
Forecast total 2020
3,040*
23,000*
*- Total AMI Market
32,000*
3,440*
245*
Source: GTM Research, “The Smart Grid in Europe 2012-2016: Technologies, Market Forecasts and Utility Profiles”, 2011.
21. The EU should go beyond the current regulatory system
tee communication and interoperability among the va-
mainly based on costs reduction, and instead promote, on
rious solutions proposed on a European level.
a European-wide level, a regulatory system that provides
incentive for digitalization of the power system. The
suggested actions should include: defining guidelines by
Proposal 7. Enhancing access to finance for
energy efficiency projects
the European Commission aimed at national regulators
for the development of innovation incentive schemes and
22. To reach the target of a 20% increase in energy effi-
funds; harmonizing the regulatory framework of incen-
ciency by 2020 and a 27% increase by 2030, Europe re-
tive schemes and providing measures in support of digita-
quires significant investment, in particular in the areas of
lization and electrification (e.g., tax breaks, low-interest and
buildings and mobility. Buildings are responsible for the
unsecured loans); streamlining and eliminating bureaucratic
largest share of European final energy consumption in the
red-tape; defining common technical standards to guaran-
EU-28 (40% in 2012).
Figure 7. Share of final energy consumption in different sectors in the EU-28 (%), 1990 and 2012.
40%
35%
34%
32%
26%
26%
4%
Buildings
Transport
Industry
1990
3%
Agriculture
2012
Source: The European House – Ambrosetti re-elaboration on Energy Efficiency Financial Institutions Group and Eurostat data, 2015.
19
23. The EU should promote instruments and mechanisms
competitive position in the global market and its share
aimed at making European energy efficiency projects
of energy-related technology export. In particular, the
fundable, such as: transparency, scalability and standardiza-
European Union must focus attention on those technolo-
tion of financing in the private sector to create a secondary
gies most coherent with the goals of decarbonization and
market of energy efficiency financial products; improvement
those “closest” to the market, in order to: be able to im-
of the role of dedicated credit lines (and in particular con-
plement them on a large scale; capitalize on the R&D
cessional loans), through public banks in order to increase
expertise of individual Member States and consolidate it
the bankability of projects; sharing best practices regarding
on a European level; and create a bridge for competitive-
“On-Bill Repayment” mechanisms; better use of risk-sharing
ness (exports on foreign markets).
facilities by public banks and multilateral development
banks; allocation of incentives to service and product provi-
25. Therefore, the EU should focus investments on the
ders rather than only to customers, in order to benefit from
most innovative energy technologies and those cohe-
economies of scale and learning; standardization and pro-
rent with the goals of decarbonization and European ener-
motion of Energy Performance Contracting (EPC) programs.
gy transition with a greater level of maturity and greater
market potential by: identifying and selecting a limited
Proposal 8. Making Europe the world pioneer
in the application and market diffusion and
export of innovative energy technologies
number of key technologies; pooling all available instruments; and identifying a limited number of high-impact
driver-projects on the basis of a regional approach. The
EU should also create partnerships with emerging econo-
24. The energy sector is undergoing a profound transfor-
mies to promote the digital energy transition and secure a
mation. Europe needs to stay ahead of the curve to keep its
growing market share for its technological exports.
The energy sector scenario in Europe
26. In the last 20 years, primary energy consumption has
in 2013: this trend is related, in part, to the effects of the
grown in every global area except the EU (CAGR: -0.1%
economic crisis.
between 1994 and 2014). Gross inland consumption in the
European Union has steadily decreased since 2006 (-9.1%
27. EU energy consumption is expected to decline, while
between 2006 and 2013), reaching a value of 1,666 Mtoe
the share of renewables in final consumption will grow.
Figure 8. Energy mix in gross inland consumption in the EU-28 (% share), 1990 and 2013 (left graph).
EU Member States energy mix (% share), 2013 (right graph).
12%
14%
1%
2013
4%
12%
1990
38%
33%
27%
18%
17%
23%
Total petroleum products
Gas
Solid fuels
Nuclear heat
Renewable energies
Waste (non RES)
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
20
building the european energy union
EU-28
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
HR
IT
LV
LT
LU
HU
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
0%
20%
40%
60%
80%
100%
In fact, the European Union is diversifying away from con-
>> The EU remains highly dependent on energy imports:
ventional sources towards renewables and low-carbon
between 1995 and 2012, the import share of consumption
energy generation. At global level, despite the key role
of petroleum and natural gas increased more than 12 per-
of oil and coal in energy consumption, renewable sources
centage points (from 74% to 86.4%) and more than 22
have experienced the fastest growth in the past two dec-
percentage points (from 43.4% to 65.8%), respectively. In
ades. As of today, the energy mix varies greatly among EU-
addition, the EU imports about half of its natural gas sup-
28 Member States: 11 European countries have a share of
ply from countries at high geopolitical risk.
renewables in total gross inland consumption higher than
>> Cross-country interconnectors are insufficient and not
15%, but Eastern countries still rely greatly on solid fuels
adequately planned: in 2014, 12 European countries out
and 12 countries have a share of petroleum products still
of 28, mainly in the periphery of the EU, remain below
higher than 35%.
the 10% electricity interconnection target and are thus
isolated from the internal electricity market. Plus, a more
28. The EU is the largest energy importer in the world: in
2013, it imported 53% of its energy, for a value of €400 bil-
efficient metric for the interconnection target should be
considered.
lion. Six European Member States depend on a single exter-
>> Liberalization of the wholesale market has increased sec-
nal supplier for their entire natural gas imports and therefo-
tor competition and depressed wholesale electricity pri-
re they show a high level of vulnerability.
ces, but the lack of adequate long-term price signals
has produced inefficient investment decisions. This re-
29. Some key trends are revolutionizing the European energy
sulted in overcapacity in the majority of countries –mainly
sector and will affect the implementation and development
due to over-investment and deployment of RES with high
of the Energy Union and that of its industrial players:
costs– and under-capacity in other countries (where the
>> A shift towards electricity for heating and cooling (hi-
risk of electricity disruptions remains considerable).
gher demand for air conditioning, spread of electric heat
>> Electricity retail prices are often burdened by other
pumps) and an increasing use of electric appliances in re-
costs related to different national policy choices, tax
sidential and tertiary sectors.
schemes and system costs, which differ among Member
>> The entrance of new competitors from different sectors (e.g., telecommunications, computing and ICT, etc.)
States, creating biases and artificially rising the price of
electricity, penalizing its consumption.
into the energy market, providing customers with inno-
>> There is a lack of adequate metrics for measuring ener-
vative services and solutions, disintermediating traditio-
gy efficiency, and an increased focus on energy effi-
nal players.
ciency investments in the transport and building sec-
>> The empowerment of energy consumers, also thanks
tors is needed.
to smart technologies and new ICT solutions – such as
>> The EU is currently on-track to meet its 20% greenhouse
smart metering systems that provide customers with
reduction target but carbon prices have fallen to a histo-
complete and real-time information. New devices and
ric low: reforming the EU Emissions Trading System
applications promote a more active role of customers in
(EU-ETS) and an appropriate competitive framework
the production system and will also allow them to bet-
for renewables are preconditions for the success of the
ter understand and manage their energy usage, getting
EU’s decarbonization strategy in the long-term.
control over their energy consumption.
>> Further development of renewable energy sources and
widespread diffusion of decentralized generation.
>> The lack of a clear European framework for RES incentives has produced inefficiencies. In fact, in order to
meet the target of 20% gross final energy consumption
from renewable energy sources, EU Member States
30. Europe is progressing towards 2020 and 2030 targets and
have introduced a wide range of incentive schemes.
focused on how to adapt the EU regulatory and incentive sy-
>> The EU lags behind in the deployment of key enabling
stem to create a more competitive and decarbonized ener-
technologies. The European Commission set deve-
gy market. However, some critical issues have remained
lopment policies only for RES deployment and not for key
unaddressed in each of the five aspects of the Energy Union
technological transformation (such as digitalization and
identified by the European Commission. Among these:
energy storage).
21
Figure 9. Spare electricity capacity in European countries, January 2015.
≥ 20%
≥ 10% & < 20%
≥ 0% & < 10%
< 0%
Source: The European House - Ambrosetti elaboration on ENTSO-E, “Scenario outlook and adequacy forecast 2014-2030”, 2015. Note: Spare Capacity is the ratio (Remaining
Available Capacity – Adequacy Reference Margin)/Adequacy Reference Margin. The Adequacy Reference Margin includes Margin Against Seasonal Peak Load. As seasonal
peak load does not occur simultaneously, this map shall not be understood as a European-level assessment of adequacy.
Figure 10. Types of support schemes for new RES capacity in selected EU countries.
Auctions
Feed-in Tariff
Feed-in Premium (including fixed, sliding)
Green Certificates
Minimum return on invested capital
Retroactive changes
Other legal changes
Source: The European House - Ambrosetti re-elaboration on Ecofys, Eurelectric and Enel data, 2015
31. Completing the Energy Union will provide relevant be-
key aspects: competitiveness, environmental protection,
nefits for the European Union, its citizens and companies
energy efficiency and geopolitics.
at different levels. In particular, our analyses focus on four
22
building the european energy union
32. European companies have a share of 40% of all pa-
the market share of its environmental technologies firms
tents for renewable technologies and a significant
despite growing international competition. In doing so, EU
market share in environmental technologies. Through
environmental technologies firms could generate €1,452
a consistent energy strategy focusing on competitiveness
billion by 2025. The cumulated value will be equal to
and research and innovation financing, Europe can keep
about €12 trillion between 2015 and 2025.
Figure 11. Value of Environmental Technology market at global and European level (€ billion), 2015(e)-2025(e).
4,400
4,500
4,000
3,500
3,000
2,500
2,399
2,000
1,452
1,500
1,000
792
Cumulated Value:
€12,012 bln.
500
2015
2016
2017
2018
2019
2020
2021
World
2022
2023
2024
2025
EU-28
Source: The European House - Ambrosetti elaboration on European Commission data and various sources, 2015
33. Furthermore, increasing the share of RES in gross inland
RES deployment, the EU would save about €767 billion in
consumption would improve the EU balance of payments
the period 2015-2030 (at 2013 prices) compared to a scena-
and reduce the amount of energy imports currently at
rio where renewables share of gross consumption remains
over €400 billion per year. By reaching the 2030 target on
constant.
Figure 12. RES production and extra-EU imports in the EU-28 (Mtoe), 2015(e)-2030(e).
900
850
800
750
700
650
600
2015
2016
2017
2018
2019
2020
2021
2022
2023
Imports reduction thanks to RES increase
2024
2025
2026
2027
2028
2029
2030
Imports with no RES increase
Source: The European House - Ambrosetti elaboration on Eurostat and BP data, 2015
23
34. Considering the current CO2 price delivered by the EU-
and energy policies) would result in €66.3 billion cumula-
ETS (€8/CO2 per ton, as of July 2015), it has been evaluated
ted savings between 2012 and 2030 for European com-
that reducing Green House Gas (GHG) emissions by 60% (vs.
panies.
1990 levels, as decided in the 2030 framework for climate
Figure 13. GHG emissions levels in the EU-28 (% reduction to 1990 levels and € billion savings), 2004-2030.
93.8%
82.1%
Target 2020: 80%
Savings (2012-2020)
€4,4 bln
Target 2030: 60%
Savings (2012-2030):
€66.3 bln
1990 = 5,696 million
tonnes of CO2-equivalents
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
35. In terms of energy efficiency, the European Commis-
binding target agreed by the European Council in October
sion estimates that energy efficiency will have significant
2014) would produce a reduction of 14% of net energy
positive spillover effects on environmental policy and EU
imports (from a 2010 baseline) and would reduce ETS allo-
balance of payments. An increase in energy efficiency by
wance costs to €39/ton by 2030.
27% on the baseline scenario (which is the EU-wide non-
Figure 14. The impact of energy efficiency targets on Green House Gas reduction (GHG) and imports.
EU-wide impacts
Energy efficiency target options
(in%)
Additional annual energy system
costs, relative to 40% GHG target
in 2030 (in EUR billion)
ETS Carbon Price in 2030 (in EUR)
Net energy imports
100=2010 levels
25
-
42
87
27 (EU Target 2030)
-
39
85
28
5
35
85
29
13
30
83
30
20
25
82
35
55
13
78
40
112
6
74
Source: European Commission, 2014
24
building the european energy union
36. Finally, a strong and ambitious Energy Union will streng-
>> In the past, the EU’s timely delivery of the EU Energy and
then the geopolitical role and “soft power” of the EU in
Climate Change Package (2008) allowed the EU to “lead
international relations:
by example” at the 2009 Copenhagen Climate Change
>> Europe has a strong economic and geopolitical interest in
Conference, setting a model for other countries. Full
the successful completion of an ambitious decarboniza-
ownership by developing countries of an ambitious de-
tion policy at the global level. This would prompt a pro-
carbonization agenda is a key priority for Europe in order
cess of de-investment from energy inefficient industries,
to prevent “carbon leakages” from carbon-efficient econ-
boost the competitiveness of the EU’s energy-efficient
omies to less-efficient developing countries.
industries and support the EU’s export of state-of-the-art
energy-related technologies.
25
CHAPTER 1
Why Europe needs a common energy market
and an integrated energy policy
26
building the european energy union
Key messages
Energy is a horizontal policy issue cutting across foreign policy,
environmental/climate change policy and competitiveness.
The European Union is moving towards the completion of an
integrated energy market and the development of a common energy
strategy. In particular, a common framework on energy will allow
Europe to:
– Strengthen security of energy supply (geo-politics).
– Integrate energy and climate change policies (environmental
protection).
– Maintain and enhance EU industrial value chains and protect
energy consumers (competitiveness).
– Promote the shift from national markets to a single energy market
(EU integration).
Energy has been at the heart of the European Commission’s legislative
action over the last 20 years.
– The three Energy Packages of the Commission (1996-2009) focused
their intervention especially on EU energy market integration and
liberalization.
– Since the 2009 Climate and Energy Package, the European
Union has also integrated the pillars of energy and environmental
protection.
The lack of a comprehensive and coherent approach capable of
including all the perspectives related to energy and other connected
policy areas (foreign policy, industrial policy, etc.) has brought about
some distortions and imbalances in the internal energy market.
Today, the main challenge for the success of the European Energy
Union is to adopt a holistic approach that takes into consideration both
internal and external aspects, while implementing governance and
regulation mechanisms and market-oriented tools.
The definition and adoption of common rules will help European
industry to reduce costs and increase its global competitiveness.
27
1.1 Energy policy is a key driver for enhancing Europe’s
competitiveness and global influence
1. The European Union is moving towards the completion
>> The conflict in Ukraine, together with the fact that Libya
of an integrated energy market and the development of
and other Mediterranean countries are experiencing pe-
a common energy strategy. In fact, energy is a horizontal
riods of extended political crisis, further heighten con-
policy issue that cuts across foreign policy, environmental/
cerns about European energy supply security.
climate change policy and competitiveness.
5. The close interrelation of energy policies with economic
and security issues, therefore, requires a comprehensive and
The EU is the largest energy
importer in the world
coordinated strategy at a European level.
More than half of European energy comes from countries outside the EU and the level has been generally
rising over the last decade, costing around €400 billion in 2013.
The integration of energy and
climate change security aspects in
the EU foreign and security policy
responses
2. A common energy policy, in particular, is regarded as pi-
On July 20, 2015, the European Council reaffirmed
votal to ensure European consumers access to secure, su-
that policy objectives defined in the EU Energy Union
stainable, competitive and affordable energy. This will also
should be supported by coherent action in EU fo-
allow Europe to better manage the changes occurring in the
reign and energy policy that takes into account ge-
global energy scenario, to address more efficiently some of
opolitical developments. It welcomed, as a basis for
its current issues and to achieve substantial benefits from
further work, the EU Energy Diplomacy Action Plan
the geo-strategic and competitive standpoint.
presented jointly by the High Representative and the
Commission.
3. A common energy strategy could help to address the
The Council also underlined the importance of the se-
problems related to energy supply at the European-level,
curity aspect of climate change, including building up
considering also the aspects related to foreign policy and
EU climate diplomacy as an inherent part of its foreign
security.
policy. It also emphasized the need to further intensify
the joint efforts in EU climate diplomacy and welcomed the role of the EU Green Diplomacy Network and
A common energy policy
is pivotal to ensure secure,
competitive and affordable
energy and to strenghten
European global influence
close collaboration of all EU actors to contribute to
strengthening Europe’s voice and efforts internationally in the fight against climate change.
Source: European Council, “Council conclusions on energy diplomacy” and
“Council conclusions on climate diplomacy”, July 20, 2015
6. An EU “single voice” on energy will also help Europe to
take a leadership position in the global negotiations
on climate change. Europe is already a key player in the
United Nations Framework Convention on Climate Change
28
4. European energy dependence is growing:
and can “lead by example”, thanks to its efforts in redu-
>> 6 Member States out of 28 depend on a single external
cing carbon emissions, increasing use of renewable energy
supplier for their entire natural gas imports, remaining
sources and improving energy efficiency. In addition, with
extremely vulnerable to supply shocks.
a common energy strategy, Europe could take the leader-
building the european energy union
ship in the global environmental agenda, ensuring the
8. To improve its competitiveness, Europe needs a compre-
success of the forthcoming Paris Conference on Climate
hensive energy strategy, coherent with foreign and indus-
Change (COP21)1 and achieving a binding carbon reduc-
trial policies, capable of sustaining investments in R&D and
tion target for developed and developing countries. This
innovation and identifying strategic priorities at European
will allow Europe to indicate the direction for future deve-
level, while overcoming the growing competition in green
lopments.
technologies. In fact, the integration of energy and climate
change policies would contribute to putting in motion a
“green growth” pattern, helping the development of industries related to clean energy and energy efficiency.
The key role of EU leadership at
COP21 in Paris
9. On the internal side, a coordinated European approach on
The Paris Conference in late 2015 could offer the EU
to foster investments in innovative and environmental tech-
the chance to have a “single voice” on climate change
nologies, while at the same time preserving the competitive-
negotiations. Therefore, the full commitment of the
ness of the EU-28 economy, including its energy-intensive
European Union and its Member States is a vital con-
industries.2 In this regard, the ongoing process of review of
dition for the success of COP21.
the Emissions Trading Scheme (EU-ETS) should also consider
energy will allow strengthening of the price signals needed
the expected impacts on manufacturing firms, in order to
prevent, in the future, that industrial investments be shifted
from Europe to United States or Asia due to higher carbon
7. A single energy policy will have an impact on the com-
costs (the so-called risk of “carbon leakage”)3 – with signifi-
petitiveness of European firms and on market efficiency
cant impact on employment levels in these sectors.
(including, in the medium-long term, prices). Europe is world
leader in environmental technologies, a market that is
10. Finally, a common EU strategy on energy will also facili-
worth today over €2 trillion (see also Chapter 3). A global
tate the reaching of 2020 and 2030 targets on energy effi-
process of de-investment in energy inefficient technologies
ciency, renewables and carbon emissions reduction and will
will also allow European enterprises to exploit the first-mover
help to identify and prioritize the strategic interconnections
advantage and gain market share in developing markets. This
needed, in order to sustain an integrated European market,
will happen especially if Europe is able to take a leading role
with benefits for households and firms.
in development and deployment of electrification and environmental technologies in emerging economies.
1.2 The importance of energy policy
11. Energy has been an element of particular importance
markets. The adoption of the 2009 Climate and Energy le-
for the European Commission since the beginning of its
gislative package marked a paradigm shift in the EU from
legislative action. The first initiatives of the Commission,
the predominance of market consideration to a more cli-
between 1996 and 2009, were aimed especially at the
mate-centered energy policy.
integration and liberalization of the European energy
(1) The 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21/CMP11), otherwise known as “Paris 2015”
(November 30-December 11, 2015), will be a crucial conference because it needs to achieve a new international agreement on climate that is applicable to all countries,
with the aim of keeping global warming below 2°C.
(2) Energy-intensive industries included in the European Emissions Trading Scheme (EU-ETS) involve the following products: cement, lime and plaster; iron and steel; oven
products; refined petroleum products; pulp, paper and paperboard; basic chemicals and other chemical products; basic precious and non-ferrous metals; non-refractory
ceramic goods and manufacture of refractory ceramic products; other products (glass and glass products, ceramic tiles and flags, bricks, tiles and construction products,
first processing of iron and steel).
(3) The term “carbon leakage” describes the situation that may occur if, for reasons of costs related to climate policies, businesses (and, in particular, certain energy-intensive industries) were to transfer production to other countries which have laxer constraints on greenhouse gas emissions. This could lead to an increase in their total
emissions.
29
Figure 1. Legislative framework of the EU energy and climate policy, 1996-2050.
50
20
20
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
1st Liberalization Package
Market regulation
3rd Liberalization Package
2nd Liberalization Package
1st RES Directive
Renewable
Energy Sources
(RES)
2nd RES Directive
RES Financing Comm.
CO2 emissions
reduction
ETS I
1st EE Action Plan
Energy efficiency
ETS II
2nd EE Action Plan
ETS III
3rd EE Action Plan
Infrastructure Package
Energy strategy
EU Energy Strategy
EU 2050 Roadmap
R&D
and Innovation
5th Framework Prog.
6th Framework Prog.
7th Framework Prog.
H2020
Electricity Directive
Security
of supply
Gas Directive
Gas Regulation
50
20
20
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
12. The first Liberalization Directives –the so called “First
sible for implementing the third party access systems. It
Energy Package”– were adopted in 1996 (for electricity)
also defined mechanisms for cross-border transit of elec-
4
and in 1998 (for natural gas). The first Energy Package was
tricity, transmission charges and capacity allocation. It set
aimed at opening the electricity and gas market and gra-
two deadlines for liberalization of energy retail markets
dually introducing competition:
(July 2004 for industrial customers and July 2007 for private
>> It set non-discrimination principles and measures to im-
households).
prove interconnection and interoperability.
>> It also imposed on integrated companies broad
14. The shortcomings still existing in progress towards a
unbundling requirements for generation and sale activi-
truly open electricity and natural gas market led to a third
ties from transmission operations.
legislative package adopted in September 2009 –the “Third
>> Member States were also required to create efficient me-
Energy Package”– aimed at introducing common rules
chanisms to regulate and monitor the market to prevent
for the generation, transmission, distribution and supply
abusive behavior.
of electricity and gas.6 It established a new unbundling regime,7 improved consumers’ rights and set a target on smart
13. In 2003, the so called “Second Energy Package”5 set
metering: 80% of customers should have access to more in-
further unbundling requirements, while Member States
telligent metering systems by 2020. The Third Energy Pack-
were required to protect final customers and were respon-
age also provided a number of measures for the functioning
(4) Directive 96/92/EC for electricity and Directive 98/30/EC for natural gas.
(5) Directive 2003/54/EC, Regulation (EC) 1228/2003 and Directive 2005/89/EC.
(6) The Third Energy Package consists of two Directives and three Regulations: Directive 2009/72/EC concerning common rules for the internal market in electricity; Directive 2009/73/EC concerning common rules for the internal market in gas; Regulation (EC) No 713/2009 on the establishment of the Agency for the Cooperation
of Energy Regulators (ACER), Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchange of electricity; and Regulation (EC) No
715/2009 on conditions for access to the natural gas transmission networks.
(7) Member States can choose between three different unbundling options to separate generation and supply activities from networks operations: full ownership
unbundling (integrated energy companies sell off their electricity grids establishing separate TSOs); Independent System Operator (ISO - the energy company maintains
the ownership of its transmission networks but hands over operations to a separate entity); Independent Transmission Operator (ITO - the energy company keeps the
ownership of its transmission network but must abide by specific rules).
30
building the european energy union
of the internal electricity and gas market and promoted re-
complementary legislation: a comprehensive revision and
gional solidarity and national emergency measures in the
strengthening of the Emission Trading System Directive,
event of severe disruptions of gas supply. In particular, Eu-
national targets for non-EU ETS emissions, the Renewa-
ropean Member States were asked to designate a single Na-
ble Energy Directive and a directive creating the legal fra-
tional Regulatory Authority (NRA), while a single Agency for
mework for environmentally safe use of carbon capture and
Cooperation of Energy Regulators (ACER) was established
storage (CCS) technologies.
to coordinate and assist the NRAs of the Member States.
16. In 2011, the European Commission issued the “Ro15. Toward the end of the first decade of the 2000s, the sco-
admap for moving to a competitive low-carbon eco-
pe of the Commission action was extended to environmen-
nomy in 2050”. This document looks beyond short-term
tal sustainability. In 2007, European leaders committed to
objectives and sets out a cost-effective pathway for achie-
put Europe on the path toward an energy-efficient and
ving much deeper emissions cuts by 2050:
low-carbon economy and agreed on three targets to be
>> The Roadmap suggests that, by 2050, the EU should cut
reached by 2020 (“20-20-20 Plan”):
its emissions to 80% below 1990 levels through domestic
>> A 20% reduction in EU greenhouse gas emissions from
reductions alone.
1990 levels.
>> It sets out middle-term milestones to reach this goal in a
>> Raising the share of EU energy consumption produced
from renewable resources to 20%.
cost-effective way (reductions of 40% by 2030 and 60%
by 2040).
>> A 20% improvement in the EU’s energy efficiency.
>> It shows how the main sectors responsible for Europe’s
These targets were enacted through the Climate and Ener-
emissions can make the transition to a low-carbon eco-
gy Package in 2009, which contained four elements of
nomy most cost-effectively.
Figure 2. Key headline indicators and targets concerning EU energy and climate policy.
Note: current status based on 2013 or latest available data.
EU Target
Current status
2020
2030
2040
2050
GHG emissions reduction
(% vs. 1990 levels)
-18%
-20%
-40%
-60%
-80%
Renewables share
(% in the overall energy supply)
15%
20%
27%
Energy efficiency (maximum Mtoe
primary energy consumption)
1,567
1,483
1,424
Source: The European House - Ambrosetti elaboration on European Commission and Eurostat data, 2015
17. As proposed by the European Commission in Janua-
>> The 2030 framework also proposed a new governance
ry 2014, the European Council adopted a new policy fra-
framework based on national plans and a set of key in-
mework (October 2014) which introduced a new deadline
dicators to assess progress over time. The Commission
(2030) and set new targets:
also proposed to establish a Market Stability Reserve
>> At least 40% reduction of greenhouse gas emissions
(MSR) to address the surplus of emission allowances in
8
compared to 1990 levels.
>> At least 27% share of renewables in gross final energy
consumption.
>> At least 27% reduction in final energy consumption compared to estimates.
the EU-ETS, improving the system’s resilience and incentivizing low-carbon investment. As of September 2015,
the European Council and the Parliament have reached
an agreement which enables unallocated allowances to
be transferred to the MSR in 2020.
(8) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, “A
policy framework for climate and energy in the period from 2020 to 2030”, COM (2014) 15 final.
31
2004
2003
2002
2001
2000
1999
1998
1997
1996
Figure 3. The policy path of the European Union towards Energy Union.
Internal Market Regulation
1996 and 1998
1st Energy Package
2003
2nd Energy Package
Sets broad unbundling
requirements for generation/
sale activities from transmission
operations
Sets further unbundling
requirements
Member States are required to
protect final customers and are
responsible for implementation of
the 3rd party access systems
Member States are required to
create efficient mechanisms to
regulate and monitor the market
to prevent abusive behaviors
Defines mechanisms for crossborder transit of electricity,
transmission charges and capacity
allocation
Sets measures to improve
interconnection and
interoperability
Sets 2 deadlines for liberalization
of energy retail markets (July 2004
for industrial customers and July
2007 for households)
Sets non discrimination principles
between users
Main objectives of the initiatives
Internal Market Regulation (1996-2009)
Internal market liberalization and harmonization
Increase of energy market competitiveness
Improve customers’ rights
Creation of trans-European grids
Solidarity and security of supply
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
32
building the european energy union
2009
3nd Energy Package
Unbundling regime: separation
of generation and supply activities
from transmission-related
operations
Improves customers’ rights and
sets a target: 80% of customers
should have access to more
intelligent metering systems by
2020
Member States have to designate
a single National Regulatory
Authority (NRA)
Institution of ACER - the Agency
for Cooperation of Energy
Regulators to coordinate and
assist NRAs
2011
Roadmap 2050
2012
2030 Energy Framework
Climate and energy
policy developed
through binding targets
to be reached by 2020
Analyzes the roadmap to
reach long-term goal of
reducing greenhouse
gas emissions by 8095% (vs. 1990 levels) by
2050
New framework of
targets with common
deadline at 2030:
1. -40% in greenhouse
gas emissions
(vs.1990 levels) binding
2. 27% of renewable
energy share binding
3. +27% energy
efficiency (possible
rise to 30%)
4. Electricity
interconnection of
15% between EU
countries
Sets out 4 main routes
to reach a more
sustainable, competitive
and secure energy
system in 2050: energy
efficiency, renewable
energy, nuclear energy
and carbon capture and
storage
2015
Energy Union
2010
2020 Energy Strategy
Targets:
1. -20% of EU
greenhouse gas
emissions from 1990
levels
2. 20% in the share of
energy consumption
produced from
renewable resources
3. +20% in the EU’s
energy efficiency
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Climate and Energy Strategy
Combines these routes
to create and analyze
7 scenarios for 2050 to
set out a cost-effective
pathway
2015
Energy Union Communication
A framework strategy to
achieve a resilient Energy
Union
Sets goals in five policy
dimensions and details the
steps to achieve Energy
Union
Defines the measures
required to achieve the
target of 10% electricity
interconnection by 2020
Defines EU’s vision for new
global climate change
agreement (due to be
adopted in December 2015)
First initiatives have been
released in the “Summer
Package“ (July 2015)
Main objectives of the initiatives
Climate and Energy Strategy (2010-2012)
Sustainable energy consumption
Energy Union (2015)
Energy security, solidarity
and trust
Secure energy supply
Full integration of internal
energy market
Generate a competitive environment which ensures affordable prices
for homes, business and industry
Energy efficiency and moderation of energy demand
Decarbonization of the
economy
Research, innovation and
competitiveness
33
18. Since 1996, European policy makers have promoted
merit of integrating the cornerstones of energy and envi-
various legislative initiatives which have followed an incre-
ronmental protection.
mental logic, focusing first on internal market regulation,
and then adding environment to the legislative scope. However, some argue that the European energy policy has lacked a comprehensive and coherent approach and this has
brought about some distortions and imbalances in the
internal energy market. A strategy capable of including all
the aspects related to energy and other connected policy
areas (such as foreign policy, industrial policy, etc.) would
have been more effective.
19. Recently (February 2015), a more comprehensive approach was used in the “Framework strategy for a resilient
A “New Deal” for energy
consumers
The July 2015 Communication presents a three-pillar
consumer energy strategy: 1. Helping consumers save
money and energy through better information; 2. Giving consumers a wider choice of action when choosing their participation in energy markets; 3. Maintaining the highest level of consumer protection.
Energy Union with a forward-looking climate change
policy” published by the European Commission. This framework sets the vision and integrates a series of policy areas
21. This framework will be deployed in initiatives at natio-
into a cohesive strategy. It is based on five mutually-rein-
nal and European level to implement a coherent energy
forcing and closely-interrelated areas:
strategy. The first initiatives have been recently released
a. Energy security, solidarity and trust.
(July 2015) under the so called “Summer Package” which
b. A fully-integrated internal energy market.
includes: a Communication on electricity market design, a
c.Energy efficiency as a contribution to moderation of
Communication on retail markets, a review of the Energy
energy demand.
Labelling Framework, a review of the EU-ETS Directive and
d. Decarbonization of the economy.
best practices on self-consumption of renewable energy.
e. Research, innovation and competitiveness.
Specifically, the Commission’s proposals give prominence
to a new electricity market design9 and put households
20. The goals and guidelines contained in the Energy Union
and business consumers at the core of the European
framework strategy provide a solid foundation and have the
energy market.
1.3 A holistic approach to European energy policy
22. The efforts made by the European Commission and by
the European Member States in the past years have resulted
in significant accomplishments. The combined effect of
ambitious EU energy policies and the economic crisis have
resulted in a 11% reduction in carbon emissions (against a
global increase of 34%) between 2000 and 2012.
23. Despite the high number of strategic decisions that the
An efficient system of
common rules can lead to
costs reduction and enhance
the global competitiveness
of the EU industry
European Union has to tackle in several fields,10 the Euro-
(9) To achieve the goals of the Energy Union strategy a fundamental transformation of Europe’s electricity system is needed. Therefore, the European Commission has
launched a public consultation on what the new electricity market design should look like in order to meet consumers’ expectations, deliver real benefits from new
technologies and facilitate investments (i.e., in renewables and low carbon generation).
(10) Capital Markets Union, Digital Single Market, Growth and Jobs agenda, immigration policies, security around the EU and the Greek crisis that menaces European
stability.
34
building the european energy union
pean Commission has renewed its political commitment
25. For this reason, a holistic approach is needed. In our re-
towards an integrated energy strategy, as testified by the
search study, we have considered the five areas identified
Energy Union Communication and the following initiatives.
by the European Union (security of supply, internal energy
market, energy efficiency, environmental protection and re-
24. The main challenge for the EU is to consider all the
search and innovation). Starting from these, we have explo-
aspects and relevant issues related to energy. For instance:
red the causes of the critical issues in each area-current im-
>> An integrated market requires the completion of stra-
balances or negative aspects in the European energy market
tegic energy infrastructures and networks, but also the
(see Chapter 3). Given the causes, we have then identified
harmonization of existing national regulations.
several actions on different areas of intervention:
>> Energy efficiency can contribute to reaching envi-
>> Governance (allocation of responsibilities and powers
ronmental sustainability targets, lowering energy de-
for rule-making and goal-setting between the EU and
pendence and thus reinforcing the competitiveness of
Member States).
EU firms.
>> Market design (definition of the technical rules and cri-
>> Energy policy objectives should be supported by a coherent European foreign policy, taking into account geopolitical developments.
teria under which market participants interact).
>> Infrastructures (definition and development of key infrastructural projects at a geographical level and along the
>> Governance instruments must be compatible with the
energy value chain, as enablers of markets development).
right of each European Member State to decide its own
>> R&D (schemes to promote and finance energy-related
energy mix.
technological development and R&D).
>> Competitiveness should be improved through consistent
support for R&D and innovation.
>> Investments and financing, which cuts across all the
above-mentioned areas.
Figure 4. Towards a holistic approach for the European Energy Union.
Governance
1. Strengthening European
governance
Investments
and financing
R&D
Market
design
Infrastructures
2. Setting up a decarbonizationproof market design
3. Adopting smart regulation
for smart investments
Source: The European House - Ambrosetti, 2015
26. The eight proposals and policy recommendations for a
into three clusters (see Chapter 2):
successful implementation of the European Energy Union
I. Strengthening European governance.
include both governance and regulatory recommenda-
II. Setting up a decarbonization-proof market design.
tions and market-oriented tools, and have been grouped
III.Adopting smart regulation for smart investments.
35
CHAPTER 2
Our proposals and policy recommendations
for a successful implementation of the
European Energy Union
36
building the european energy union
Key messages
Following a holistic approach, our proposals and policy recommendations
indicate three main priorities that should guide Europe’s energy agenda:
– Strengthening European governance.
– Setting up a decarbonization-proof market design.
– Adopting smart regulation for smart investments.
In order to strengthen governance of truly European energy policy and
markets, we propose to:
1. Harmonize, widen the scope and enforce top-down regulation at
European level. In order to complete the internal energy market a
core of European rules and bodies is needed. In fact, as of today, the
European Union lacks strong political guidance and binding decision
powers in the energy sector.
2. Speed up market integration by improving regional cooperation
on several aspects of the EU energy markets, ranging from regional
auctioning of renewable sources, to system operation and TSOs
cooperation.
3. Rationalize and streamline the process to complete EU
interconnectors on the basis of cost-benefit analyses. This would allow
for more efficient allocation and system security, since the lack of
strategic infrastructures causes problems both internally and externally.
In order to define a decarbonization-proof market design, we propose to:
4. Set a wholesale market design that is coherent with the EU’s
decarbonization goals, including through the adoption of long-term
contracts that provide adequate price signals for investment and
disinvestment choices over the long-term.
5. Adopt transparent and cost-reflective criteria for the formation of
retail electricity prices, in order to foster customers’ engagement and
promote comparable price structures across Europe.
In order to have smart regulation for smart investments, we propose to:
6. Promote new regulation for the digitalization of the European power
system, using smart grids as a key driver of this process.
7. Enhance access to finance for energy efficiency.
8. Make Europe the world pioneer in the application and market
diffusion and export of innovative energy technologies.
37
2.1 Introduction
1. Successful implementation of the European Energy
trade-offs (Member States, European institutions, consu-
Union requires the balancing of different interests and
mers, energy players and new entrants).
Figure 1. Overview of the various players and interests impacting on EU Energy Union implementation.
Energy Union Strategy
EU policy, regulation and targets
Consumers
Utilities
Member States
EU Institutions
Empowerment and
freedom of choice
Long-term price
signals to incentivize
investments
Freedom of choice in
energy mix
Energy security
New entrants
Integrated market
ICT companies
Autonomy in
suppliers’ choice
Energy efficiency
Possibility to sell
self-produced energy
on the market
Stronger ETS and
adequate CO2 prices
Stability of regulation
Framework favourable
to Smart Grids
development
Decarbonization
of economy
Energy security
and efficiency
Leadership in R&D
New service
providers
Aggregators
Source: The European House - Ambrosetti elaboration, 2015
2. On the basis of our analysis (see also Chapter 3) we have
the current problems for the efficient functioning of its
formulated eight proposals and policy recommendations
energy market. In fact, several problems can be identified for
that address the key future challenges of the Energy Union
each of the five aspects at the core of the EU Energy Union.
from a holistic approach, and could help the EU to solve
Figure 2. Europe’s main problems on the five aspects of the EU Energy Union.
SECURITY
OF SUPPLY
Incomplete market
integration and
insufficient interconnections
High dependency
on gas and oil
imports
High share of
energy imports
from countries at
high geopolitical
risk
High differences in
energy dependency
levels among EU
countries
INTERNAL ENERGY
MARKET
Depressed
wholesale prices
and lack of long-term
price signals
for investors
Prices are not
cost-reflective due
to differences
among national
tax schemes and
price structure
Significant
differences in
retail energy
prices
Source: The European House - Ambrosetti elaboration, 2015
38
building the european energy union
ENERGY
EFFICIENCY
ENVIRONMENT
PROTECTION
RESEARCH AND
INNOVATION
Lack of adequate
metrics (absolute
consumption)
ETS failed in
delivering
adequate price
signals for low-carbon
investments
Quantitative
targets tend to
incentivize
deployment rather
than cost
efficiency and
innovation
Low energy
efficiency in
buildings and
transport
EU financing schemes
tend to support
mainly large-scale
investments and
barriers to investment
are still relevant
Decentralized and
uncoordinated
policy
implementation for
RES deployment
among Member
States
Limited overall
efficiency, with
differences at
geographical level
across the EU
Overcapacity and
lower industry
margins
discourage
investments in
new technologies
3. The proposals indicate three main priorities and policy re-
level; in part, they suggest the introduction and subsequent
commendations that should guide the EU agenda on energy:
adoption of new mechanisms and operating tools into
I. Strengthening European governance.
the European energy market. In addition, each proposal is
II. Setting up a decarbonization-proof market design.
introduced by a section outlining these key elements:
III.Adopting smart regulation for smart investments.
>> The rationale.
>> A detailed description of the proposal.
4. These proposals, in part, are policy recommendations
>> Proposal recipients.
that act on regulation and governance at central or local
>> Potential elements of resistance to the proposal.
2.2 Strengthening European governance
Proposal 1
Harmonizing, widening the scope
and enforcing top-down regulation
Rationale:
5. The current governance structure of the European energy market is not coherent with the objectives of the single
market and the EU Energy Union. As of today, within the
rators, regulatory bodies and the EU Institutions – European
Parliament, Council and Commission), it is responsible for taking binding individual decisions on specific cross-border
issues and can additionally adopt non-binding guidelines.1
Upon request from the European Commission, ACER submits
ACER’s current powers and
responsibilities
European Union, there is no body with strong political gui-
Active since 2011, ACER’s mission is to complement
dance. The various decisions and progress on a European-
and coordinate the work of national regulatory bodies
wide energy strategy have been the result of single initiati-
regarding energy on a European level towards the re-
ves coming from the European Commission or from groups
alization of a single energy market. ACER has been as-
of Member States on specific topics (e.g., energy security,
signed “hybrid” functions and tasks. On one hand, it
climate change, etc.).
has the task of assisting Member States in the event of
regulatory conflict, acting as a coordinating and arbitral
6. As of today, the Juncker Commission has given a new boost
body in any disputes between national regulators, as
towards a comprehensive European energy strategy, but the-
well as assisting the European Commission, Parliament
re is still a lack of a European body with binding powers,
and Council in the event of requests for technical advi-
capable of providing strong political guidance and adopting
ce (technical consulting body). On the other, it makes
a top-down approach on energy-related decisions.
available –together with national regulators– long-term
guidelines for gas and electricity, from which are develo-
7. The European Union also lacks a regulating body that can
ped, together with system operators (representatives of
decide on energy issues at a supranational level. The Third
Transmission System Operators), system codes to regula-
Energy Package of the European Union led to the creation
te on a competitive basis the allocation of cross-border
of the Agency for the Cooperation of Energy Regulators
transport capacity for natural gas and transmission of
(ACER). However, ACER does not have adequate powers to
electrical energy, in order to render the energy market
carry out the role of a true European regulatory body, given
within the EU more flexible, while also guaranteeing
the fact that it can issue non-binding opinions and recom-
adequate profits for transmission system operators.
mendations to different players (Transmission System Ope-
(1) According to Article 4 “Acts of the Agency” of Regulation 713/2009, ACER “has an important role in developing framework guidelines which are non-binding by nature
(framework guidelines) with which network codes must be in line. It is also considered appropriate for the Agency, and consistent with its purpose, to have a role in
reviewing network codes (both when created and upon modification) to ensure that they are in line with the framework guidelines, before it may recommend them to
the Commission for adoption.” As a result, once the network codes have been defined by ENTSO, ACER has no decision-making or veto power, but only advisory powers.
Source: Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators.
In 2011, ACER received additional tasks under Regulation 1227/2011 on Wholesale Energy Market Integrity and Transparency (REMIT) and in 2013 under Regulation
347/2013 on guidelines for trans-European energy infrastructure.
39
draft framework guidelines which serve as the basis for the
drafting of network codes (which become binding after a co-
there must be the corresponding power to enforce their
decisions.
mitology process involving Member States and the European
>> Define a coordinated regulatory framework for the
Commission). Therefore, ACER is not empowered to adopt
European energy market that includes players currently
binding rules. As such, it is not a European regulator but more
excluded (e.g., energy market operators), in conjunction
a platform of cooperation for the national regulators un-
with national regulators and TSOs.
der the close supervision of the Member States (sitting on its
>> Define a regulatory framework for regional TSOs and
Administrative Board) and their National Regulatory Authori-
regional power exchanges (identified in Proposal no.2)
ties (sitting on the Board of Regulators).
and their coordination and control.
2
>> Decision-making and/or veto powers (going beyond
Our proposal:
current advisory powers) in terms of the activity of European networks of transmission system operators for electrici-
8. Harmonize and enforce top-down regulation at European level through:
ty and natural gas transport - ENTSOs (e.g., network codes).
>> Define European regulations for regional energy auctions.
>> Assigning a strong role of guidance to the European
Commission, together with binding regulatory powers
on the definition of a comprehensive European-wide
energy framework.
>> Harmonizing national regulations and adopting a topdown approach on future regulations and decisions on
cross-border energy issues.
>> Developing all the required instruments for an effective
implementation of this proposal.
Energy sector regulatory authorities
in the U.S. and China
>> In the United States, the Federal Energy Regulatory Commission (FERC) is the independent agency in
charge of regulation on the interstate transmission of
electricity, natural gas, and oil. FERC also reviews proposals to build liquefied natural gas (LNG) terminals
9. In this context, the powers currently granted to ACER
should be reinforced, to guarantee coordination of markets
and the operational capabilities of energy systems in the EU.
In particular, ACER should have the following characteristics:
>> Adoption of decisions that are binding and directly applicable to initiatives on an EU and/or regional level,
and interstate natural gas pipelines as well as licensing
hydropower projects. As part of its responsibility, FERC
protects the reliability of the high voltage interstate
transmission system through mandatory reliability
standards, monitors and investigates energy markets
and enforces FERC regulatory requirements through
imposition of civil penalties and other means.
leaving to the responsibility of national regulators –on
>> In China, the National Energy Administration (NEA)
the basis of a principle of subsidiarity– the decisions bet-
has a comprehensive role in the national energy sec-
ter faced at that level. For instance:
tor. This institution, established in March 2008, is re-
-- Decisional powers on energy policies attributed to the
sponsible for formulating and implementing energy
Director together with the Board of Regulators (e.g.,
development plans and industrial policies, promoting
implementation of the Third Energy Package; imple-
institutional reform in the energy sector, administering
mentation of the Regulation on Wholesale Energy
energy sectors, guiding scientific and technological
Market Integrity and Transparency - REMIT; grids; etc.).
advancement, conducting energy forecasting, taking
-- Decisional powers attributed only to the Director in
the lead in launching international energy coopera-
disputes among Member States and in technical que-
tion, participating in the formulation of policies related
stions.
to energy and addressing climate change. NEA is also
3
>> Role of arbitrator in disputes on a regional and European level and for cross-border issues; for this function
entitled to make recommendations on energy price
adjustment and imports and exports aggregates.
(2) See: Sami Andoura, Jean-Arnold Vinois, “From the European Energy Community to the Energy Union. A policy proposal for the short and the long term”, Jacques Delors
Institute, January 2015.
(3) Regulation on Energy Market Integrity and Transparency (REMIT) requires market participants to report wholesale energy market contracts within the EU to a Registered
Reporting Mechanism (RRM). ACER is asked to monitor the reporting regime and to ensure greater transparency in markets by helping to reduce the risk of manipulation. REMIT consists of three pillars: (i) the prohibition of market abuse/manipulation and trading on inside information; (ii) the implementation of a transaction and
data reporting framework to allow for EU-wide market monitoring by ACER; (iii) provision to ensure that where market monitoring indicates potential market abuse,
the incidents are investigated and action is taken.
40
building the european energy union
10. At the same time, the other key stakeholders in the
>> Achieve greater coordination among the various Eu-
European energy system could also be granted additio-
ropean bodies (e.g., European Parliament, European
nal responsibilities and powers: 4
Council, ACER, ENTSO-E/ENTSOG) and individual Mem-
>> The European Network of Transmission System Opera-
ber States.
tors (ENTSO-E) with the power to coordinate electricity
5
flows throughout the EU in real time.
>> The European Network of Transmission System Opera-
>> Allow for the operability and efficiency of regional
Transmission System Operators (TSOs) and regional power exchanges (see also Proposal no.2).
tors for Gas (ENTSOG) with the power to fully integrate
By doing so, the European energy market would be equip-
storage and liquid natural gas (LNG) terminals into the
ped with a consistent and common regulatory fra-
transmission network, at least to ensure maximum flexi-
mework, as happened in other sectors in Europe, such as
bility and reliability in case of disruption.
Finance and Air transport (Single European Sky initiative).
6
11. The harmonization of national regulations, together
Proposal recipients:
with the empowerment of the European Commission and
of the other central bodies on energy issues, would allow
12. The proposal is addressed to:
for:
>> National governments, which must adopt the new regu-
>> Enhanced certainty and uniformity within the European
latory framework and accept the stronger guidance of the
regulatory framework, with an acceleration in the com-
European Commission and ACER regulation, also adap-
pletion of the single energy market integration process
ting national regulatory authorities, where necessary.
as well as provide incentive for private investment in this
sector.
>> The European Commission, which should propose the
amendment of regulation establishing ACER.
An example of a common EU legislative framework: the Single European Sky
Aviation makes a vital contribution to the EU’s overall
The “key components” which form the structure of the
economy (€365 billion, about 2.4% of European GDP)
SES are:
and employment (5.1 million jobs). Despite the current
>> Performance Scheme, setting binding performance
economic crisis, global air transport over the long term is
targets in key areas, such as: safety, environment, capa-
expected to grow by around 5% annually until 2030.
city, cost efficiency, etc.
As traffic increases so do concerns about safety: therefore, the common EU aviation policy aims at making Europe
the safest air space in the world.
>> Network Manager (currently Eurocontrol), dealing
with the network function in a centralized manner.
>> Functional Airspace Blocks (FABs) intended to restruc-
As a response to the growth in air traffic in recent de-
ture European airspace according to traffic flows ra-
cades, the European Commission approved two Single
ther than national boundaries.
European Sky (SES) Packages to create a legislative
>> The Single European Sky ATM Research (SESAR) Joint
framework for European aviation, also addressing
Undertaking, set up in 2007, which manages the
the issue of balancing responsibilities and functions
technological and industrial dimension of the SES.
among different bodies. The Single European Sky ini-
According to European Commission estimates, once com-
tiative is aimed at increasing the efficiency of air traffic
pleted around 2030 and compared with 2004 levels, the
management and air navigation services by reducing
SES initiative is expected to triple airspace capacity, halve
the fragmentation of European airspace. It is based on
the costs of Air Traffic Management, improve safety ten-
a pan-European approach and open to neighboring
fold and reduce by 10% the impact of aviation on the en-
countries.
vironment thanks to shorter routes.
(4) See also: Sami Andoura, Jean-Arnold Vinois, “From the European Energy Community to the Energy Union. A policy proposal for the short and the long term”, Jacques
Delors Institute, January 2015.
(5) ENTSO-E, the European Network of Transmission System Operators, represents 41 electricity Transmission System Operators from 34 countries across Europe. It was established and given legal mandates by the EU’s Third Legislative Package for the Internal Energy Market in 2009, which aims at further liberalizing the gas and electricity
markets in the EU.
(6) The role of the European Network of Transmission System Operators for Gas (ENTSOG) is to facilitate and enhance cooperation between national gas Transmission System
Operators across Europe in order to ensure the development of a pan-European transmission system in line with European Union Energy goals. To-date there are 44 TSO
members and 3 associated partners from 26 European countries, plus 4 observers from EU affiliate countries (Macedonia, Norway, Switzerland and Ukraine).
41
Potential resistance to the proposal:
zed by the European Commission to be an important type
of approach in order to proceed towards the goal of crea-
13. The main resistance to the proposal could come from the
ting the European Energy Union.8 The institutionalization
opposition (or a lack of commitment) from some Member
of forms of cooperation between neighboring countries
States (and/or other European entities7) that might want to
and regional clusters can serve as an interim step towards
preserve strong power over energy, which is a strategic area
gradual progress in the European Energy Union agenda,
and also closely tied to national security choices.
including through the sharing of best practices and the creation of common standards.
Proposal 2
Speeding up market integration,
also leveraging on regional
cooperation
Rationale:
14. The swift creation of a fully integrated pan-European
energy market is a fundamental strategic goal for the EU.
Promoting regionally-based forms of cooperation is recogni-
Recent examples of regional
cooperation on energy among
European countries
15. Although examples of regional approaches exist (e.g.,
the Pentalateral Energy Forum), possibility of exchanging
capacity and the problems related to congestion management are still often approached in an autonomous and uncoordinated way by different Member States.
The Pentalateral Energy Forum:
an institutionalized framework
to evaluate security of supply at
regional level
The Pentalateral Energy Forum was created in 2005 by
Energy Ministers from the Netherlands, Belgium, Luxembourg, Austria, Germany, France and Switzerland
The “Political Declaration for Regional Cooperation
(the latter as a permanent observer) to promote col-
on security of electricity supply” has been signed by
laboration on cross-border exchange of electricity.
Germany, Denmark, Poland, the Czech Republic, Aus-
Today it is the framework for regional cooperation in
tria, France, Luxembourg, Belgium, The Netherlands,
Central-Western Europe, accounting for more than
Sweden, Switzerland and Norway and establishes the
one-third of the EU population and covers more than
political commitment by these countries to coordinate
40% of the electricity generation in the EU. It aims to
national energy policies. It also sets a more efficient use
promote open and transparent regional dialog to in-
of existing electric power grids and greater integration
crease secure energy supplies, market integration and
of renewable energy sources in national markets.
promote greater market flexibility.
A “Memorandum of Understanding on the rein-
In particular, a common approach will be developed
forced Baltic Energy Market Interconnection Plan”
for evaluating risks to energy supply on a regional
(BEMIP) has also been signed by Estonia, Finland, Ger-
level and creating favorable conditions for cross-bor-
many, Latvia, Lithuania, Poland, Sweden and Norway
der exchange of electric power.
(Denmark is expected to sign it at a later stage). This
plan sets regional cooperation on issues such as: internal energy markets, interconnections, power generation, energy efficiency, renewables and security of
supply. It aims to overcome the energy isolation of the
Baltic Sea Region and to integrate it into the European
energy market.
16. Moreover, the products traded on the national power
exchanges (day ahead, intra-day and long-term products)
are not standardized on a European level. This makes selling
of these products between the different European power
exchanges and a true cross-border integration of energy
markets difficult.
(7) See, for example: “ENTSO-E response to ACER’s European Energy Regulation – A Bridge to 2025”, June 2014. Specifically, ENTSO-E encourages ACER to concentrate its
efforts more on coordination with national energy regulatory authorities to find solutions on key issues, such as the implementation of network codes, and to accelerate
the development of cross-border infrastructures that could potentially impact on the correct and complete implementation of the internal energy market. Nonetheless,
at the same time, ENTSO-E does not believe that reinforcing regulatory surveillance or control functions over ENTSOs could lead to a positive contribution in carrying
out European energy goals (ENTSOs are not natural monopolies whose profits must be regulated).
(8) See also: European Commission, Press Release “Energy union: secure, sustainable, competitive and affordable energy for Europe”, June 8, 2015.
42
building the european energy union
Our proposal:
-- Define strategies for allocation of infrastructure costs
and integrated transport rates (currently covered by
17. To adopt the regional approach as an interim operating step towards a European-wide energy agenda,
starting from:
agreements between individual national operators).
>> Instituting regional auctions for the development of
renewable energy sources in order to guarantee an ef-
>> Promoting the integration of regional Transmission Sys-
ficient allocation of resources within the European Union:
tem Operators (TSOs), or forms of close cooperation on
-- Define a competitive mechanism based on both tech-
a regional basis of the different national TSOs, to pro-
nology neutrality and technology specific auctions in or-
vide coordinated network management and in real time:
der to allow RES to be developed across Europe.
-- Provide these regional bodies with sufficient coordi-
-- Define regional areas to promote RES development
nating powers that go beyond the definition of 10-
based on the resource availability and lack of grid con-
year energy plans, and with formal competence on key
gestions.
topics, such as: important new investments, dispatch-
-- Ensure the achievement of the 2030 European target
ing centers, management of bottlenecks, reserve ca-
based on a governance system able to monitor the RES
pacity, etc.
development.
-- Define a shared model between the various TSOs for the
>> Creating regional electrical power exchanges and/or
evaluation of energy security (resource adequacy assess-
standardization of products exchanged in the various na-
ment), shared metrics for measuring interconnection
requirements and priority infrastructures on a regional
basis.
tional exchanges.
>> Defining regionally-based infrastructure initiatives
and projects in collaboration with third countries out-
-- Advance identification of a shared, regionally-based
side the European Union (such as Switzerland, Norway or
strateg y to take on potential energy shortages and
North African countries) if and when their contribution is
for efficient management of cross-border congestion
indispensable or would mean improved output and ef-
problems.
ficiency of the initiatives.
CASC.EU, CAO and CORESO: existing regional approaches to coordinate energy
transmission in Europe
>CASC.EU
>
(Capacity Allocating Service Company) is the
central auction office for cross-border transmission
process with auction algorithm for allocation of available
capacity based on maximization of social welfare.
capacity for Central Western Europe (including the bor-
>> In June 2015 the General Assemblies of CAO and CASC.EU
ders of Italy, Northern Switzerland and parts of Scandina-
approved the merger agreement to create, by 2016, the
via). It was established in 2008 by a number of national
Joint Allocation Office (JAO) for cross-border electricity
TSOs to facilitate the purchasing and selling of transmis-
transmission capacities. JAO will be a joint service com-
sion capacity by providing a single auction platform and
pany of 20 TSOs from 27 countries, open for other TSOs’
point of contact to furnish cross-market services through
participation. It will perform the yearly, monthly and daily
promoting integration of local markets within an integra-
auctions of transmission rights on 27 borders. The aim is
ted regional European market. CASC.EU is the sole auctio-
to increase the efficiency and transparency of the Europe-
neer that implements and organizes long-term auctions
an electricity market creating the single point of contact
(monthly and annual) of cross-border transmission capa-
for market participants.
city, utilizing standardized systems and rules to facilitate cross-border energy exchange.
>CORESO
>
(Coordination of Electricity System Operators) is
the first regional center of technical coordination cre-
>Created
>
in 2008 by 8 TSOs, CAO is the Common Auction
ated on the initiative of a number of TSOs to increment
Office in charge of the allocation of cross-border electricity
operational security of the grid in Central-Western Europe
transmission capacity for the TSOs of the CEE region (Au-
(since November 2010, Terna and 50Hertz have also ta-
stria, Czech Republic, Germany, Hungary, Poland, Slovakia,
ken part). Among other services, CORESO provides daily
Slovenia and Croatia). It supports the participating TSOs
estimates of energy flows and constant monitoring and
in common capacity determination assessment and
analysis of grid security, thus contributing more secure
operates the regional NTC coordinated capacity allocation
management of cross-border flows.
43
18. A regional energy approach would allow for:
>> Institutionalizing cooperation between Member Sta-
tion of their own national TSOs in order to facilitate and
create more interest for cooperation and integration.
tes with incremental improvements on a regional scale in
>> European Commission, ACER and national energy regu-
terms of enhanced energy security and efficiency in sup-
latory authorities: they should provide guidelines, sup-
ply and distribution.
port and coordination to ensure the most effective go-
9
>> Obtaining greater coordination in decisions related
to infrastructure and investments on a regional scale, with greater efficiency in resource allocation, shared
vernance.
Potential resistance to the proposal:
prioritization and the potential for network design on a
Community-wide scale, to have emerge common stan-
20. The main constraint to the application of this proposal
dards (including energy products on a regional level and
comes from the potential lack of commitment from the
their harmonization and promoting cross-border tra-
various players involved in working together from a regio-
ding) and best practices of reference.
nal standpoint. This type of resistance could be overcome
thanks to the benefits to be obtained in the area of ener-
PJM Interconnection: a case of
regional transmission planning in
the U.S.
PJM Interconnection is a Regional Transmission Organization (RTO) that coordinates the electric transmission system serving 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North
gy efficiency and security and related cost savings, as well
as from the positive experience and results of the existing
examples of cooperation.
Proposal 3
Streamlining the completion of EU
interconnectors on the basis of costbenefit analyses
Carolina, Ohio, Pennsylvania, Tennessee, Virginia and
West Virginia) and the District of Columbia in the Uni-
Rationale:
ted States.
It is part of the Eastern Interconnection Grid, coordina-
21. Today, the internal European energy market has problems
ting about 1,400 electric generators and 62,566 miles
of efficient allocation and system security, since sub-optimal
of high-voltage transmission lines. It represents appro-
level of cross-border infrastructures does not allow markets
ximately one-fifth of electrical power distribution
with over-capacity to interface with those with more limited
in the U.S. and serves over 61 million people. Among
energy resources (e.g., critical areas in the Iberian peninsula,
the other roles, PJM monitors and manages the future
the Baltic region and the United Kingdom/Ireland). On one
needs of the electric system, conducting the long-ran-
side, some interconnection projects have low return on in-
ge Regional Transmission Expansion Planning process.
It is aimed to identify needed changes and additions to
the grid to ensure reliability and successful operation
of the wholesale markets. It also conducts a review process, ensuring that all interested parties (including state
regulatory agencies) participate in the planning of future electricity supply and reliability needs.
Towards a pan-European
approach for developing energy
infrastructures
The infrastructural connection of EU “energy islands”
(Spain/Portugal, Italy, United Kingdom/Ireland and
the Baltic countries) to Central and Western Europe
Proposal recipients:
will be the major challenge for grid development over
the next decades: a key driver for this goal is the de-
19. This proposal is addressed to:
velopment of renewable energy generation and the
>> European Member States and national energy regulatory
integration of RES generation plants into the grid.
authorities: they must take action to modify the regula-
(9) Among these: optimizing the management of excess energy capacity transmission on a regional level; managing congestion problems from an integrated cross-border
standpoint that makes it possible to respond to crises rapidly and in the most cost-efficient way possible; etc.
44
building the european energy union
vestment and long amortization times, and this situation hinders investments. On the other, there is a lack of political will
The case of the Santa Llogaia –
Baixàs power line between Spain
and France
or government opposition to specific projects (such as in the
case of the interconnector between France and Spain).
22. The European Union has set as a target the reaching of
In February 2015, the Santa Llogaia – Baixàs power
an interconnection level of at least 10% of the installed ge-
line was completed. This interconnector is expected
neration capacity. This is a flat target that does not make it
to double the existing electricity interconnection
possible to define the actual needs of the various specific
capacity between France and Spain and to help
European situations.
connecting the power system of the Iberian Penin-
10
sula to other European energy markets. The project,
23. From an external perspective, the creation of further
identified as a Project of Common Interest, received
interconnectors with neighboring third countries to the
€255 million support from the European Union un-
South (the Mediterranean area) and the East (the Balkans
der the European Energy Programme for Recovery
and former Soviet Union countries) would benefit long-
(on an overall cost of €700 million). The aim was to
term decarbonization targets and secure supplies for the
boost Spain’s interconnection capacity to 10% of its
European Union. In particular, in the Mediterranean area,
power generation capacity by 2020 (in 2014 its level
two-way flows should be fostered as opportunities for ge-
of interconnection was <3%). In fact, the low level of
nerating and exchanging energy in an efficient way, in order
interconnection capacity in Spain is a major obstacle
to promote the creation of a Mediterranean energy hub.
for the creation of a regional electricity market in
South-West Europe and it has prevented the energy
24. Currently, each European country has defined its own
companies of the Iberian Peninsula from participa-
national energy strategy. What is lacking is European-wide
ting in the European internal electricity market. The
coordination, including by the TSOs, that would be able to
project, proposed in 2007, faced diverging positions
organize the individual national plans within a systemic and
between the two governments.
coherent whole.
Figure 3. Interconnection levels for electricity in the EU-28 (% of installed production capacity), 2014.
245%
250%
200%
11%
11%
10%
10%
9%
7%
7%
7%
6%
4%
4%
4%
3%
2%
0%
0%
Greece
Germany
France
Ireland
Italy
Romania
Portugal
United
Kingdom
Estonia
Lithuania
Latvia
Spain
Poland
Cyprus
Malta
17%
The Netherlands
Bulgaria
17%
26%
Sweden
Czech Rep.
29%
Hungary
17%
29%
Austria
Belgium
30%
61%
Slovakia
Finland
65%
Slovenia
50%
44%
69%
100%
Croatia
150%
Denmark
Luxembourg
0%
Source: The European House - Ambrosetti elaboration on ENTSO-E, “Scenario Outlook and Adequacy Forecast 2014”, 2015
(10) In addition, it would be more appropriate to define the target in terms of peak demand, rather than installed capacity.
45
25. Included within the Ten-Year Network Development
approaches and the needs of individual member countri-
designed to identify the needs of the Euro-
es12 or groups of countries. In addition, the decision-making
pean infrastructural grid in a coordinated way among all
process for the identification and selection of the PCIs (see
TSOs), were the Projects of Common Interest (PCIs), adop-
Chapter 3) has led to a great number of projects (as of to-
ted as a short-term instrument, often following political
day, 248 initiatives without a clear prioritization).
Plan (TYNDP,
11
The Projects of Common Interest in Europe
The first Union list of Projects of Common Interest (adopted in 2013) consists of 248 projects, of which 137 are in electricity, including 52 electricity interconnections and one project with anticipatory investments enabling future interconnections, out of which 37 projects involve Member States currently with an interconnection level below 10%.
Figure 4. Projects of Common Interest (PCIs) for electricity and smart grids in the EU-28, 2014.
Source: European Commission, 2015
Our proposal:
>> Adoption of shared and uniform criteria for evaluation
of secure sources of supply and actual interconnection
26. Streamline the completion of European interconnectors
needs,13 and according to a cost-benefit analysis (that
based on cost-benefit analyses, through:
should shape interconnection goals to avoid inefficient
>> Assessment of Europe’s energy needs and the ways to
investments).
meet them, in order to define clear infrastructural priorities.
Proposal recipients:
>> Involvement in the decision-making process of third
countries (e.g., Switzerland, Norway or North African
27. The proposal is addressed to: the European Commission,
countries) critical to reaching the interconnection goals
national energy regulators and Transmission System Opera-
of the European network.
tors, ENTSOs and Member States.
(11) The pan-European requirements for developing transmission systems are forecast mainly in the Ten-Year Network Development Plan conducted by ENTSO-E.
(12) Some of the Member States are too small or not yet sufficiently liberalized (due to the incomplete implementation of the Third Energy Package) to attract demand
and interconnection projects.
(13) If adoption of preset, fixed targets is confirmed, the definition of these targets in terms of energy used overall in a country over a given period of time, or the peak of
capacity actually utilized over the year (instead of productive capacity which, in many countries, is underutilized).
46
building the european energy union
Potential resistance to the proposal:
tegy, starting from national strategies. In addition, the failure to meet deadlines for strategic infrastructure projects in
28. Main resistance to the proposal comes from the lack of
respect to the official deadline of the European Commission
political commitment or inability to define a common stra-
mandate would prejudice the realization of this proposal.
2.3 Setting up a decarbonization-proof market design
Proposal 4
Setting a wholesale market design
that is coherent with the EU’s
decarbonization goals
(e.g., Italy) or under-capacity (e.g., the United Kingdom) –
Rationale:
wer sector, primarily from renewable sources (such as so-
29. Over the last 10 years in Europe, substantial investment
the energy sector. The development of renewable sources
decisions have been made in the energy market that are
in the various Member States has occurred within a context
not correlated to the long-term needs of electrical power
of major fragmentation of incentive systems created on a
systems, but rather to short-term price signals. This has
national level. This contributes to making their integration
caused, in some Member States, conditions of over-capacity
into the market on a European level particularly complex.
see also Chapter 3. The adoption of long-term price signals
would have made it possible to prevent this situation.
30. Significant growth in investments in the electrical polar and wind) have contributed to major transformation in
Figure 5. Investments in the electricity sector in the EU, 2000-2006 and 2007-2013.
120
100
80
60
40
20
0
2000-2006
Other renewables
Solar and wind
2007-2013
Hydro
Nuclear
Fossil fuels
Source: International Energy Agency (IEA), “World Energy Outlook – Investment Report 2014”
31. A key component of the integration of European elec-
together. In addition, the Czech Republic, Hungary, Slovakia
tricity markets is the cross-border trading of electricity
and Romania have been integrated as part of the 4M Mar-
As of 2015, 15
ket Coupling. In addition, in February 2015, Italy was inte-
within the market coupling framework.
14
European countries have their electricity markets coupled
grated into the existing market coupling framework.
(14)“Market coupling” a is mechanism for the integration of power markets which, through the definition of the electricity value in the different areas of the European
market, allocates the available transportation capacity between such areas, maximizing their use.
47
Figure 6. European electricity market integration: status of market coupling in Europe, as of June 2015.
MARKET COUPLING STATUS
North Western Europe
(NEW) and South Western
Europe (SWE)
Price coupling
Poland
Poland price coupled
within NWE through
SwePol-link
Ireland and Northern Ireland
All Island market,
single price zone
Czech - Slovak - Hungary
Romania (4M Market
Coupling)
Price coupling
Source: The European House – Ambrosetti re-elaboration on International Energy Agency (IEA) and APEX data, 2015
Our proposal:
-- Characteristics and antitrust conditions of bilateral
long-term contracts should also be better clarified. In
32. Set a wholesale market structure coherent with the goal
particular, it should be made clear that these agree-
of decarbonization by:
ments between consumers, retailers and producers are
>> Adopting long-term contracting (even longer than
allowed when they are based on competitive proces-
5 years) that provides adequate price signals for in-
ses, they allow for the participation of different opera-
vestment and disinvestment choices over the long-term,
tors, and when they are not deployed to limit compe-
including also through the introduction of suitable ca-
tition (e.g., reduce the contestable market in an unfair
pacity remuneration mechanisms. The introduction of
>> Introducing mechanisms to lower the cost of guaran-
differences between generators and the TSO) –especial-
tees for counterparties that could be quite significant, in
ly for conventional power plants– could be an effective
particular regarding longer-term deliveries.
solution for promoting long-term contracts and provi-
>> Integrating renewable energy sources into the mar-
ding competitive long-term price signals to the market,
ket through the definition of well functioning fit for RES
thus minimizing decarbonization costs and defining
markets which can provide long-term signals and are also
efficient investment/divestment plans in conventional
able to assign the right value to flexibility.
capacity.
-- The market design shall enhance flexibilty in order
-- Long-term contracts also reduce risk-premia for renew-
to allow the most efficient use of variable renewable
able sources which are and will always be more suscep-
sources. Flexibility is granted by liquid and integrated
tible given their infra-marginal nature in the economic
intraday markets (based on continuous trading and
ranking of energy sources. In order to support the de-
harmonized gate closure time near real time), imba-
velopment of RES and to reduce their risk, renewable
lance settlement periods that are set out accordingly,
capacity should be able to sign long-term contracts
and balancing markets which are integrated delivering
that can completely hedge all the volatility related to
larger balancing zones and offer balancing products
spot prices. These contracts could be signed through
48
way).
well-defined reliability options (one-way contracts for
appropriate to enable RES participation.
competitive mechanisms –such as regional tenders
-- Until a market design is defined which enables a level-
for new RES– for the full price of energy (and not just
playing-field where all generators are equally respon-
for the incentive).
sible for balancing the system and can fairly compete,
building the european energy union
Proposal 5
Adopting transparent and costreflective criteria for the formation
of electricity retail prices
some measures may be envisaged to facilitate a smooth transition.
There are many benefits to be derived from the introduction
of these instruments:
>> Make it possible to achieve decarbonization targets,
with a more balanced development of renewable sources
Rationale:
(including through long-term agreements).
>> Make it possible for energy companies to make effective,
35. There are currently significant differences in the struc-
long-term investments.
ture of retail prices in the various European countries,
>> Greater price stability.
particularly as a result of the political choices of national
>> Greater electrical system security and flexibility.
governments which have preferred to maintain (direct or
indirect) control over the price of electrical power.
Proposal recipients:
36. Retail prices for electrical power vary significantly from
33. The proposal is addressed to: European Commis-
country to country and, unlike wholesale prices, have incre-
sion, consumer associations, national regulators, national
ased in recent years. The setting of retail electrical power
transmission system operators and energy producers.
prices is influenced, in particular, by the increase in the tax
and system costs components:
Potential resistance to the proposal:
>> for manufacturing consumers, between 2008 and 2012,
it rose by 109%15 (compared to the +17% in transmission
34. Potential market resistance could arise from:
and distribution system costs and the 10% drop in ener-
>> European Regulators, which in the past have seen, in
gy generation costs and demand);
some cases, long-term contracts as a tool for monopoli-
>> for households during the same period, it rose by 31%
zing electricity markets. Given these negative messages,
(compared to the +10% in transmission and distribution
some wholesale operators have wrongly considered all
system costs and the 4% drop in energy costs).
long-term agreements as not allowed under European
37. The discrepancies in the level of the tax and tax-related
competition rules.
component in the various countries (e.g., in 2012, up to
>> Retailers, for whom, because of the highly-mobile natu-
34% of the end-cost of electricity in Italy, 46% in Germany
re of their customers, long-term contracts are risky.
and 50% in Spain)16 generate market distortion.
Figure 7. The different components of electricity prices among the European Member States (%, for average household consumers in capital cities), 2013.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Energy
Network
Taxes (VAT incl.)
DK
NO
SE
RO
DE
IT
LV
PT
LT
EE
BE
ES
CZ
FR
NL
AT
SL
FI
SK
HU
PL
LU
HR
BG
GR
UK
IE
CY
MT
0%
Subsidies to RES
Source: The European House - Ambrosetti re-elaboration on ACER data, 2014
(15) In Europe, this component increased from 12.8 a 26.7 €/MWh between 2008 and 2012 in the manufacturing sector. Source: Eurelectric, “Analysis of European power
price increase drivers”, May 2014.
(16) Source: Eurelectric, “Analysis of European power price increase drivers”, May 2014.
49
Our proposal:
39. The benefits associated with these initiatives are:
>> Promoting cost-reflective price signals to increase the ef-
38. Adopt, on a European scale, uniform and transparent
ficiency of the system.
criteria, and best practices for the structuring of electri-
>> Providing incentive for the use of electrical power as a
city retail prices, especially in terms of grid fees and taxes
fundamental driver in decarbonization and energy effi-
and tax-related fees.
ciency for end-consumption.
At the same time, launch an “operation transparency” in
>> Increase competitiveness and quality of service for Euro-
all Member States aimed at making more transparent and
pean power consumers, by making it easier for foreign
cost-reflective end-user electricity prices (i.e., tied to the ac-
companies to understand price structures in other Mem-
tual costs of generation, transmission and distribution, mini-
ber States.
mizing fees not connected with the service).
Proposal recipients:
40. The proposal is addressed to: national governments,
The Electric Bill 2.0 in Italy
consumer associations, European Commission and Eurostat (asked to review and harmonize the monitoring
The Electric Bill 2.0 (“Bolletta 2.0”), to be introduced
process of the components of retail electric prices among
in Italy from January 2016, will feature a single and
Member States).
simplified page, highlighting the key elements of ex-
Potential resistance to the proposal:
penditure and delivery for a better understanding of
the final expenditure. The bill will also highlight “system fees”, an item currently shown in Italian electric
bills, but in a scarcely clear and intelligible way for the
consumer.
41. Resistance could arise from national governments (due
to lower flexibility in electricity prices as a potential leverage
point for internal policy or needs) and from non-electrical
sectors (should such costs be transferred to the general
taxation and/or to other industries).
2.4 Adopting smart regulation for smart investments
Proposal 6
Promoting new regulation for
the digitalization of the European
power system
Rationale:
42. The entry of digital technologies into the energy sector
is radically changing models of energy production and
consumption. New technologies make it possible to:
New technologies are being
deployed as the energy systems
become “smarter”
New technologies –such as smart grid technologies,
energy storage, demand-side management, energy
efficiency solutions and electric vehicles– can make
energy systems more efficient and resilient, but are
also a key step in integrating larger amounts of renewable and distributed generation.
>> Have widespread generation grids in which consumers are
transformed into potential generators of electric energy.
50
43. Digitalization is already underway in the energy sector,
>> Offer new services to consumers and industry.
but it is progressing slowly, in particular as a result of signi-
>> Reduce consumption in peak periods with resulting sa-
ficant investment in the state-of-the-art ICTs requested of
vings in energy bills and cost of creating additional infra-
consumers and grid operators, and of the lack of regulatory
structure for energy transmission/generation.
instruments suitable to providing support to this process.
building the european energy union
44. The development of smart grids is a central element
given that these grids make it possible to increase the effi-
>> Reduction in costs to consumers and transport-related
energy loss.
>> Completion of infrastructural initiatives that create
ciency of the electrical system:
>> Integration into the electrical system of renewable
advantages for the entire economy (e.g., development
sources and dispersed generation using innovative pro-
of spin-offs for components companies and technology
cesses and devices.
providers with a high level of innovation and specialist
>> Improvement in the quality of the service offered.
expertise), including through partnerships between tra-
>> Enabling of the development of new efficient electrical
ditional utilities and high-tech providers.
applications (e.g., electric cars, smart metering, applications connected with the potential offered by the Inter-
45. Initiatives involving smart grids require significant in-
net of Things, etc.).
vestments from sector companies (to build and/or redesign
>> Greater awareness and active involvement by consumers
in the management of the electrical power system.
extensive electrical power grids often dating from 40-50 years ago).
Figure 8. Smart metering in Europe up to 2020
Figure 9. PLC smart metering deployment
(meters installed, confirmed plans and forecast 2020 -
in Europe.
number of thousands of meters).
Implemented
Complete rollout
Confirmed plans
Large scale rollout (>100k)
Forecast total 2020
Pilot (<100k)
*- Total AMI Market
4,650*
2,600*
1,760*
680*
720*
960*
10,400*
1,920*
1,800*
27,000
5,840*
32,000*
3,600*
35,000*
3,440 1,360*
2,880*
560*
5,920*
3,040
2,320*
3,040*
23,000*
32,000*
3,440*
245*
Source: GTM Research, “The Smart Grid in Europe 2012-2016: Technologies, Market
Forecasts and Utility Profiles”, 2011.
Source: The European House - Ambrosetti re-elaboration on various data, 2015.
Our proposal:
Italy is a pioneer on PLC smart
metering deployment
46. Go beyond the current regulation of power grids, which
is mainly based on costs reduction, and instead promote a
Italy and Northern European countries (e.g., Denmark,
EU-wide regulatory system that provides incentive for
Finland, Sweden and Norway) have already com-
digitalization of the power system:
pleted the deployment of advanced metering infra-
>> Defining guidelines by the European Commission aimed
structures based on power line communication (PLC).
at national regulators for the development of innova-
Spain, France and the Netherlands have also mana-
tion incentive schemes and funds.
ged large-scale rollouts.
>> Harmonizing the regulatory framework of incentive
schemes and providing measures in support of digitali-
51
zation and electrification (e.g., tax breaks, low-interest
Proposal recipients:
and unsecured loans).
>> Streamlining and eliminating bureaucratic red-tape (e.g.,
authorization and access to incentives).
>> Defining common technical standards to guarantee
communication and interoperability among the va-
48. This proposal is addressed to: European Commission, national governments and national energy regulators.
Potential resistance to the proposal:
rious solutions proposed on a European level.
49. Member States (and their respective national regulators)
called upon to adapt and modify existing regulations, may
Smart grids will be a key
tool in driving the digital
transformation of the
European electric system
47. The primary benefit associated with defining a regulatory framework in support of digitalization is the substantial
acceleration of deployment of smart grids and other “digital” initiatives already on the way across Europe, thus fully
exploiting the related advantages (e.g., better management
of RES, information for a smart regulation, widespread diffusion of innovative products/services, etc.) coherent with
the decarbonization goals of the European Energy Union.
be at variance with this proposal. In addition to regulatory improvements, public budget constraints may represent
a constraint. These issues could be partially overcome by
adopting “revolving” financing instruments.17
Proposal 7
Enhancing access to finance for
energy efficiency projects
Rationale:
50. To reach the target of a 20% increase in energy efficiency
by 2020 and a 27% increase by 2030, Europe requires significant investment, in particular in the area of residential
and industrial construction, and in the area of mobility.
Buildings are responsible for the largest share of European
final energy consumption in the EU-28 (40% in 2012, of
which 26% in residential buildings and 14% in non-residen-
The “GRID4EU” project
tial buildings). Since buildings’ demolition renovation rates
remain both low (0.1% and 1.2% per year, respectively) and
“GRID4EU” is a project funded by the European Com-
the rate of highly energy efficient new-buildings is statio-
mission (€25 million out of a total budget of €54 mil-
nary (1% additions per year) in the EU-28, Europe’s energy
lion) to lay the groundwork for the development of
efficiency challenge in buildings is mainly related to energy
tomorrow’s electricity grids. The project brings toge-
efficient renovation.
ther a consortium of 6 European energy distributors
(ERDF, Enel Distribuzione, Iberdrola, CEZ Distribuce,
Vattenfall Eldistribution and RWE).
The objective is to test the potential of smart grids in
areas such as renewable energy integration, electric
vehicle development, grid automation, energy storage, energy efficiency and load reduction (over 50 tests
are to be conducted between 2012 and 2016).
Europe’s energy efficiency
challenge in buildings mainly
concerns energy efficient
renovation
(17) By revolving financing instruments is meant loans and equity investments which generate returns that must, in turn, be reinvested in the same area. For example,
the European structural fund JESSICA (Joint European Support for Sustainable Investment in City Areas) for urban renewal follows this model: it is an initiative of the
European Commission developed in co-operation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB) aimed at supporting
sustainable urban development and regeneration through financial engineering mechanisms.
52
building the european energy union
Figure 10. Share of final energy consumption in different sectors in the EU-28 (%), 1990 and 2012.
40%
35%
34%
32%
26%
26%
4%
Buildings
Transport
Industry
1990
3%
Agriculture
2012
Source: The European House – Ambrosetti re-elaboration on Energy Efficiency Financial Institutions Group and Eurostat data, 2015.
51. According to recent estimates,18 the EU should invest:
>> around €60-100 billion per year in modernizing buildings
to reach the 2020 target;
>> Transparency, scalability and standardization of financing in the private sector to create a secondary market of
energy efficiency financial products.
>> around €4,250 billion (in addition to the “business as
>> Improve the role of dedicated credit lines, and in par-
usual” scenario) to meet the ambitious goal of decarbo-
ticular concessional loans, through public banks in order
nizing the economy by 2050.
to increase the bankability of projects.
>> Sharing best practices regarding “On-Bill Repayment”
52. It is estimated that, to-date, investment in the construction sector has been:19
>> less than half what would be required to meet the 2020
target;
>> less than one-fifth what would be required to meet the
2050 decarbonization target.
mechanisms.20
>> Better use of risk-sharing facilities by public banks and
multilateral development banks.
>> Assign incentives to service and product providers
rather than only to customers, in order to benefit from
economies of scale and learning.
>> Standardization and promotion of Energy Performance
53. As of today, initiatives in support of investment in ener-
Contracting (EPC) programs, energy performance con-
gy efficiency must often come to terms with:
tracts that guarantee companies immediate savings wi-
>> Processes that are inefficient and lacking clarity.
thout capital expenditure.21
>> Programs directed towards large-scale projects (when, in
reality, the targets should be individual consumers on a residential level through small and fragmented investments).
>> Need for major investment in the initial phase.
>> Shortcomings in the regulatory framework.
>> Corporate returns that are too low or spread out over too
long a period of time.
Our proposal:
We propose to promote
instruments and mechanisms
aimed at making European
energy efficiency projects
fundable
54. Promote instruments and mechanisms aimed at making
European energy efficiency projects fundable, such as:
(18) Source: Energy Efficiency Financial Institutions Group, “Energy Efficiency – the first fuel for the EU Economy. How to drive new finance for energy efficiency investments”,
February 2015.
(19) Source: Energy Efficiency Financial Institutions Group, February 2015.
(20) For example, some systems take advantage of pre-existing relationships between utilities and their customers to promote construction investment for energy efficiency.
(21) EPC agreements also provide for the possibility of the supplier making investments aimed at efficiency initiatives on behalf of a customer, against a fixed or variable
monthly sum equal to or less than the energy savings guaranteed for the duration of the EPC (on average, between 5 and 10 years, based on the extent of the project
itself). When the agreement expires, the customer becomes the sole beneficiary of the energy saving and owner of the installed system.
53
deployments of launch and deployment of the energy effi-
How the U.S. finance energy
efficiency: the PACE program
ciency initiatives.
Potential resistance to the proposal:
Several countries have introduced financing programs
for household energy efficiency investments in which
58. Resistance to adopt this proposal could be due to financ-
the debt is repaid by the beneficiary (i.e., the building
ing higher-risk investments (risk-sharing approach) and to
occupant) through their utility or local tax bill. In many
problems related to coordinating initiatives between local
of these schemes, the debt is attached to the property
rather than the owner. Such schemes take advantage
of the relationships that already exist between utilities
or local governments, on the one hand, and occupants
on the other.
In the United States, the PACE program (Property Assessed Clean Energy) offers an instrument to share
the risk and returns of household energy efficiency investments. PACE pays for 100% of a project’s costs and
is repaid over a period of up to 20 years with an asses-
entities.
Proposal 8
Making Europe the world pioneer
in the application and market
diffusion and export of innovative
energy technologies
Rationale:
sment added to the property’s tax bill. As of January
2014, on-bill financing programs using utility electricity
59. The energy sector is undergoing a profound transfor-
invoices were operating or preparing to be launched in
mation. Europe needs to stay ahead of the curve to keep its
at least 25 states.
competitive position in the global market and its share of
energy-related technology export.
55. In preparation, national governments and the European
Commission must play a leading role in:
>> Selecting priority energy efficiency projects.
>> Identifying the metrics to set these priorities and evaluate
whether the projects have been successful.
Europe has to maintain and
defend its competitiveness in the
energy sector on a global scale
>> Promoting initiatives for local and regional cooperation in
order to create sufficient critical mass to take advantage
of EC financing projects.
>> Increase standardization on energy savings measurement.
56. The benefits associated with the realization of energy efficiency initiatives include:
>> Long-term savings in energy bills while contributing to
the environment thanks to adoption of innovative applications (such as electric vehicles, heat pumps, etc.);
>> Greater scalability of energy efficiency projects on a local
scale.
>> Sufficient rates of return for private investors thanks to
the creation of public funding schemes.
Proposal recipients:
57. This proposal is addressed to: European Commission,
European Investment Bank, national governments and local
public entities (regions and municipalities) to launch tailormade programs; public and private investors in the phase of
54
building the european energy union
60. The digitalization of energy infrastructure will be a key factor in providing support to distributors in efficiently and actively managing energy flows and related data. Distributed
Generation allows consumers to have an active role in the
market. In addition, the development of technologies that can
promote electrification (battery storage systems, smart grids,
etc.) must be a EU priority to reach the decarbonization target.
Finding new ways to be smarter
about energy
The Silicon valley-based company Tesla Motors Inc.
announced in early 2015 the launch of energy storage products called the Powerwall and Power Pack for
residential and commercial customers, respectively.
Tesla, best known for its pioneering plug-in electric
cars, is also building the world’s largest battery factory
in the Nevada desert to implement its automotive and
energy-storage plans.
61. Europe has well-established expertise in energy techno-
65. The identification of the key technologies on which the
logies. However, European countries have to face growing
European Energy Union could concentrate over the coming
competition from external players. The Strategic Energy
decades will make it possible to reduce current uncertainty
Technology Plan (SET-Plan) promoted by the European
while also providing incentive to the private sector to invest
Commission to meet the “20-20-20” goal identifies 21 key
and focus its investments in specific areas.
energy technologies to attain the goal of energy decarbonization and improvement of energy efficiency. According
66. Finally, the EU should create partnership with emerging
to some estimates, the SET-Plan could result in €60 billion
economies to promote digital energy transition and secure
worth of savings in oil and natural gas imports by 2020.
a growing market share for its technological export.
62. Today, however, R&D investment remains limited and
divided among a high number of projects (fragmentation
and lack of guidance).
The Juncker Investment Plan
The “Juncker Plan” is a package of measures introduced
63. Therefore, the European Union must focus attention on
by the European Commission to mobilize investment
those technologies most coherent with the goals of decar-
finance without creating new public debt, to support
bonization and those “closest” to the market, in order to:
projects and investments in key areas, and to remove
>> Be able to implement them on a large scale.
sector-specific and other financial and non-financial
>> Capitalize on the R&D expertise of individual Member
barriers to investment. It aims to mobilize approxima-
States and consolidate it on a European level.
tely €315 billion through the EIB in additional (public
>> Create a bridge for competitiveness (with the potential
and private) investments in the EU over the 2015-2017
for European companies to sell new technologies on fo-
period. Energy efficiency is one of the key areas of in-
reign markets).
vestments covered by the plan. The new resources will
Our proposal:
64. Focus European investments on the most innovative
energy technologies and those coherent with the goals of
complement already existing energy efficiency financial
instruments (e.g., European Energy Efficiency Fund, HORIZON 2020, European structural funds and EIB debt for
energy efficiency projects).
decarbonization and European energy transition with a greater level of maturity and greater market potential, through:
>> Identifying and selecting a limited number of key technologies through direct interaction between the European
Commission, Member States and private stakeholders.
>> Pooling of all available instruments (including the European Fund for Strategic Investments,22 a significant part
of the revenues coming from a renewed Emission Trading Scheme - ETS, unsecured loans, etc.).
>> Once the technologies to be focused on have been selected, identifying a limited number of high-impact
driver-projects, developed –to the extent possible– on
the basis of a regional approach.
As anticipated, the technologies eligible for financing
Proposal recipients:
67. The recipients of this proposal are:
>> European Commission, Member States and energy sector operators during the strategic technologies selection
phase.
>> European Commission, European Investment Bank (EIB)
and other public financing sources that could invest in
R&D and innovation projects.
>> Energy sector operators and related supply chain during
the implementation phase of pilot initiatives.
Potential resistance to the proposal:
should be selected on the basis of three main principles:
>> Capability to maximize the decarbonization impact.
68. There might be divergent interests between countries
>> Proximity to commercial maturity.
and industries, as well as different priorities in defining stra-
>> Share of the potential markets.
tegic technologies.
(22) Approximately €240 billion out of €315 billion in investment that could be activated over the three-year period 2015-2017 by the European Fund for Strategic Investments (EFSI) involve the sectors of digital, energy, transport grids, research and education.
55
CHAPTER 3
The energy sector scenario in Europe
56
building the european energy union
Key messages
The European Union is diversifying away from conventional
sources towards renewables and low-carbon energy generation.
Widespread electrification, the entrance of new players and the
empowerment of consumers thanks to new digital technologies are
revolutionizing the energy sector.
Europe is progressing towards decarbonization but some critical
issues remain unaddressed. Among these:
– High dependency on natural gas and petroleum imports.
– Cross-country interconnectors are insufficient and not adequately
planned.
– The lack of adequate long-term price signals has produced
inefficient investment decisions in the wholesale market.
– Energy retail prices are not cost-reflective and in line with the
decarbonization objective.
– An increased focus on energy efficiency investments in the
transport and building sectors is needed.
– Defining an appropriate competitive framework for renewables
and reforming the EU Emissions Trading System (ETS) are
preconditions for the success of the EU’s decarbonization strategy
in the long term.
– The EU lags behind in the deployment of key enabling technologies.
Completing the Energy Union can provide relevant benefits for
the European Union at several levels, such as: price convergence,
lower energy imports, enhancement of technological leadership
in the energy industry and its related sectors (also in the light of
the global “energy transition”), increased energy efficiency, supply-side
innovation (new services/products for the final consumer),
environmental protection, EU geopolitical influence and “soft power”
in climate change and trade negotiations.
57
3.1 The energy scenario and main trends in the world and
Europe
1. World energy demand has grown steadily in the past
regions have recorded the highest growth (CAGR 1994-
two decades.
2014: +4.6%), while the EU-28 is the only global area whe-
Total primary energy consumption has increased from
re primary energy consumption has decreased starting
over 8,000 Mtoe (million tonnes of oil equivalent) in 1994
from 2006 (CAGR: -0.1% between 1994 and 2014).
1
to almost 13,000 Mtoe in 2014, with a compound annual
growth rate (CAGR) of 2.2%.2 Middle East and Asia-Pacific
2. Economic activity has been the main driver of growth in
global energy demand. In fact, energy demand tends to
grow in accordance with Gross Domestic Product (GDP),
The rise of China in world energy
consumption
even if typically at a lower rate.3 However, there are considerable differences across regions in the amount of energy
used per dollar of GDP:
Asia-Pacific region has reached a primary energy con-
Emerging economies have seen primary energy con-
sumption of 5,335 Mtoe in 2014: with 55.7% of the to-
sumption and GDP grow between 1994 and 2014. In China,
tal, China has surpassed the United States, becoming
energy use increased more than GDP, also due to the boom
the no. 1 country for final consumption of energy.
in energy intensive manufacturing during the 2000s.
Figure 1. Final energy consumption per geographical area (Mtoe), 1994-2014.
12,000
10,000
8,000
6,000
4,000
2,000
North America
South and Central
America
EU-28
Other Europe and
Eurasia
Middle East
Africa
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-
Asia Pacific
Source: The European House - Ambrosetti elaboration on International Energy Agency and BP data, 2015
(1) Primary energy consumption refers to the direct use at the source, or supply to users without transformation, of crude energy, that is, energy that has not been
subjected to any conversion or transformation process.
(2) Source: International Energy Agency (IEA) and BP, 2015.
(3) On average, between 1994 and 2014, an increase of 1% in GDP corresponded to an increase of 0.5% in energy demand at global level.
58
building the european energy union
In developed countries, conversely, the link between GDP
3. In the European Union, the economic recession started
growth and energy use growth has weakened because of a
in 2008 has led to a decrease in energy consumption (-1.1%
shift towards services (in the United States, GDP has grown
in final energy consumption and +122% in GDP between
by 138% between 1994 and 2014, while primary energy
1994 and 2014). However, the ensuing recovery has not
consumption has grown by only 10.7%).
been matched by an increase in energy consumption, which
has continued to decrease.
Figure 2. Growth in GDP (current $ billion) and primary energy consumption (Mtoe) in selected countries and global
regions, 1994-2014.
Primary Energy Consumption (Thousands of Mtoe)
3.0
2.5
2.0
1.5
1.0
1994
2014
0.5
-
5,000
-
10,000
15,000
20,000
GDP ($ bln.)
South America
India
China
European Union
Africa
United States
Source: The European House - Ambrosetti re-elaboration on World Bank, IEA, OECD, and BP data, 2015
Despite the key role of
oil and coal in energy
consumption, renewable
sources have experienced
the fastest growth in the
past two decades
4. Considering the fuel mix, oil and coal remain the mostused energy sources, accounting respectively for 32.6% of
world primary energy consumption (4,211 Mtoe) and 30.0%
(3,881 Mtoe) in 2014. These sources are followed by natural gas (3,065 MToe, 23.7%), hydroelectricity (879 Mtoe,
6.8%), nuclear energy (574 Mtoe, 4.4%), and renewable
energy sources (316 Mtoe, 2.5% of the total). Compared to
the other energy sources, renewables have experienced the
fastest growth in the past two decades (+110% at global
level),4 also thanks to the support of subsidies, accounting
for $120 billion in 2013 worldwide.5
(4) Considering RES without hydroelectric power, the percentage variation was equal to 786% in the period under consideration, while CAGR was equal to 11.5%.
(5) Source: International Energy Agency, “World Energy Outlook”, 2014.
59
Figure 3. Growth of different sources in primary energy consumption at global level (index, 1994=100), 1994-2014.
Note: in the left graph, RES includes hydroelectricity, while on the right graph hydroelectricity is separated from other RES.
900
220
200
Total RES
(including hydroelectricity)
RES
(excluding hydroelectricity)
800
700
600
160
500
400
140
300
120
Oil
Nuclear
Natural gas
RES (total)
Coal
Oil
Hydroelectric
Natural
gas
Nuclear
Coal
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
100
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
100
200
1994
Index, 1994 = 100
180
Other
RES
Source: The European House - Ambrosetti elaboration on BP and IEA data, 2015
5. Considering future trends, in the next two decades global energy demand is expected to grow, reaching about
17,450 Mtoe in 2035,6 equal to a 35% increase in the period 2014-2035. This growth, however, is expected to slow
markedly during the period, in part as a result of the effects
of policy measures, and in part because of a structural shift
in the global economy toward services and less energy-in-
In the future, global
energy demand is
expected to grow, even if
at a slower pace
tensive industries.
Figure 4. Compound Annual Growth Rate (CAGR) of energy demand at global level (%), 1990-2035(e).
Forecast
2.78%
2.22%
1.98%
2.13%
1.72%
1.41%
1.13%
1.11%
1990-1995
1995-2000
2000-2005
2005-2010
Source: The European House - Ambrosetti elaboration on BP data, 2015
(6) Source: BP, “BP Energy Outlook 2035”, February 2015.
60
building the european energy union
2010-2015
2015-2020
2020-2025
2025-2030
0.99%
2030-2035
6. The slowdown in energy demand will characterize de-
but their energy demand growth is also expected to decre-
veloped economies especially (+0.02% between 2020 and
ase, reflecting slower economic growth and less energy-in-
2035 in OECD countries).7 World energy demand will be
tensive economies.9
pulled by developing countries, such as China and India,
8
Figure 5. Trends in energy demand growth and GDP growth at global level (index, 1990=100), 1990-2035.
600
World GDP
2035(e): 128,015.6 $bln.
CAGR (1990-2035): +3.9%
550
500
Index, 1990=100
450
400
Non-OECD Energy Consumption
2035(e): 11,742.2 Mtoe
CAGR (1990-2035): +2.7%
350
300
World Energy Consumption
2035(e): 17,454.7 Mtoe
CAGR (1990-2035): +1.7%
250
200
150
OECD Energy Consumption
2035(e): 5,712.5 Mtoe
CAGR (1990-2035): +0.47%
100
1990
1995
GDP (World)
2000
2005
2010
2015
Total Energy Consumption
(World)
2020
2025
2030
Total Energy Consumption
(OECD)
2035
Total Energy Consumption
(non-OECD)
Source: The European House - Ambrosetti on BP, IMF, World Bank, and OECD data, 2015
7. This trend will lead to a change in global energy demand
and China for only 8.2%.
distribution:
>> In 2035, non-OECD countries are expected to account
>> In 1990, together the United States and the EU-28
for 67.3% of total energy demand.
countries accounted for 44.6% of total energy demand,
Figure 6. Share of global energy demand (%): comparison between 1995, 2015(e) and 2035(e).
1990 World Total: 8,118 Mtoe
4%
3%
2%
3% 5%
2015(e) World Total: 13,186 Mtoe
8%
5%
12%
2035(e) World Total: 17,454 Mtoe
3% 4%
4% 4%
6%
26%
23%
7%
8%
5%
8%
19%
24%
10%
13%
13%
9%
20%
China
13%
Other Europe
and Eurasia
Africa
Other
Asia Pacific
India
17%
Other
North America
9%
US
Middle East
EU-28
13%
South and Central
America
Source: The European House - Ambrosetti elaboration on BP data, 2015
(7) In this context, European Union energy demand is expected to decrease steadily with a CAGR equal to -0.20% between 2015 and 2035. United States demand will
remain nearly steady between 2015 and 2035 (CAGR equal to 0.04%), but will decrease in the period between 2020 and 2035, with a CAGR of -0.15%.
(8) Energy demand in China is expected to grow with a CAGR of 3.94% between 2015 and 2020.
(9) CAGR of Chinese energy demand between 2020 and 2035 is expected to decrease to 1.36%, although it grew by 6.13% per annum on average between 1990 and
2015. Indian energy demand will grow with a CAGR of 4.52% between 2015 and 2020 and with a CAGR of only 3.52% between 2020-2035. Non-OECD countries will
see their energy demand grow with a CAGR of 3.22% between 2015 and 2020 and with a CAGR of 1.82% in the period 2020-2035. Source: IEA and BP, “BP Energy
Outlook 2035”, February 2015.
61
8. Considering energy sources, oil, coal and natural gas will
2,766 Mtoe in 2015 to 3,726 Mtoe in 2035). This situation
remain the most used sources also in the future, accounting
will pose serious consequences for environment and global
together for 80.5% of world total energy consumption in
carbon emissions. For this reason, the success of internatio-
2035 (86.1% in 2013). In this scenario, however, coal con-
nal negotiations on energy and environment (such as Paris
sumption is expected to increase in the Asia-Pacific region,
2015) in achieving a strong political commitment to reduce
sustaining the growth in countries such as China and India
CO2 emissions at global level will be of pivotal importance.
(coal consumption in this region is expected to increase from
18,000
Index, 2015=100
Mtoe
Figure 7. Share of global energy consumption by energy source (Mtoe and index, 2015=100), 1990-2035(e).
16,000
14,000
12,000
305
255
205
10,000
155
8,000
6,000
105
4,000
Total Liquids
Consumption
Total Nuclear
Energy Consumption
RES +
Hydroelectricity
Total Natural
Gas Consumption
Total Hydroelectricity
Consumption
Total Coal
Consumption
2035
2030
2025
2020
2015
2010
2005
2000
1995
5
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
0
1990
55
2,000
Total Renewables
Consumption
Source: The European House - Ambrosetti elaboration on BP data, 2015
9. Between 2015 and 2035, the consumption of liquid energy sources10 will grow at global level,11 but it is expected to
decrease in North America (-8.3%) and in Europe (-6.9%).12
In particular, natural gas consumption will grow by 41.8%13
and its share in global demand will rise from 23.7% to 26.1%,
becoming the leading fuel in the OECD energy mix by around
2030.14 Total consumption of coal will also increase (+19.6%,
A shift in global energy
demand distribution towards
non-OECD countries is
expected, while renewables
will keep growing fast
from 3,816.1 to 4,563.7 Mtoe).15 Its share in total energy
consumption, however, will decrease from 30.1% to 26.1%.
10. On the supply side, world primary energy production will
Hydroelectric consumption will grow by 39.2%, mainly boo-
follow the global demand trend: in 2013 it reached 12,817
sted by developing countries, while other renewables will
Mtoe and it is expected to increase up to about 17,437 Mtoe
grow by +239.8%, to a level of almost 7% of world energy
in 2035. As for global demand, forecasts show a progressive
demand.
slowdown in supply growth.
16
17
(10) Including oil, biofuels, gas-to-liquids and coal-to-liquids.
(11) Growth of +18.35% between 2015 and 2035, boosted mainly by biofuels (+93.29).
(12) The International Energy Agency estimates that, for each barrel of oil no longer used in the OECD countries, two barrels more will be used in non-OECD countries.
(13) Higher growth between 2015 and 2025 (CAGR of +2.12%) than in the period 2025-2035 (+1.4%).
(14) Source: International Energy Agency, 2015.
(15) In North America its consumption will drop by 42% (-184 Mtoe) and in Europe and Eurasia by 20.5% (-97 Mtoe).
(16)Between 2015 and 2035, in South and Central America hydroelectric consumption is expected to grow by 65.7%. In Africa, in the same period, this growth will be
equal to 129.5%, in the Asia-Pacific region by 49.2% and in the Middle East by 78%.
(17) Nuclear energy demand will increase by 33% globally and its share will remain stable (from 4.4% of total demand in 2013 to 4.8% in 2035).
62
building the european energy union
Figure 8. Global production forecast and CAGR in the five-year period at global level (Mtoe and % growth),
1990-2035(e).
18,000
17,437
16,648
6%
15,721
16,000
14,677
14,000
5%
13,298
12,043
12,000
10,792
10,000
8,197
4%
9,331
8,570
3.0%
8,000
3%
6,000
2.2%
2.0%
1.7%
4,000
2.0%
2%
1.4%
2,000
1.2%
0.9%
0.9%
0
1%
1990
1995
2000
2005
2010
2015(e)
2020(e)
2025(e)
2030(e)
2035(e)
Source: The European House - Ambrosetti elaboration on BP data, 2015
11. Considering types of fuels, energy production is gra-
account for 80.5% of total energy production in 2035, less
dually moving towards higher sustainability and a more
than the 1990 levels (88.1%).
balanced mix. Coal, oil and natural gas are expected to
Figure 9. Energy mix in global production at global level (MToe and % share): comparison between 1990, 2015(e)
and 2035(e).
2015(e) World Total: 13,298 Mtoe
1990 World Total: 8,197 Mtoe
0.1%0.3%
6.0%
5.5%
6.8%
38.7%
0.5%
2035(e) World Total: 17,437 Mtoe
2.6%
0.8%
6.8%
7.2%
4.8%
28.0%
4.8%
31.9%
27.4%
29.1%
26.3%
26%
26%
21.9%
Oil
Natural gas
26.2%
24.4%
Coal
Nuclear
Hydroelectricity
Biofuels
Renewables
Source: The European House - Ambrosetti elaboration on IEA and BP data, 2015
63
12. Thanks to the increase in energy efficiency and the use
the development of shale gas.18 On the contrary, non-OECD
of renewables, OECD countries are expected to reduce their
countries will see their consumption grow more than their
energy dependence. The United States, in particular, are
production. The Asia-Pacific region, however, will remain
expected to produce more energy than the amount it con-
the no. 1 region for energy production (34.7% of world total
sumes by 2025 (2,441 vs. 2,359 Mtoe), thanks, in part, to
in 2035, with more than 1/5 produced by China).19
Figure 10. Energy balance forecast in selected regions (Mtoe), 1990-2035(e).
Net Producer
2000.0
500.0
2035 (e)
1000.0
1990
0.0
Net Consumers
Energy Balance (Mtoe)
1500.0
-500.0
-1000.0
-1500.0
-2000.0
OECD
Non-OECD
EU
US
China
India
South and
Central
America
Middle
East
Africa
Source: The European House - Ambrosetti on BP data, 2015
13. In this global scenario, the EU is moving towards increa-
to decline slightly in the coming decades, while the share of
sed sustainability and efficiency. According to the European
renewables on final consumption will continue to increase.
Commission estimates, its energy consumption is expected
Figure 11. EU energy flow (Mtoe), 2013.
Net Imports:
908.9
Gross Inland
Consumption:
1,666.2
Total
Production:
804.1
.6
42
s:
.6
:9
se
er
nk
tU
c
re
Ch
Bu
a
ck
o
St
4
5.
Di
s:
e
ng
Supply
Transformation
Input:
1,302
Transformation
Output:
946
Available for
final
Consumption:
1,204.9
Final Non-Energy
Consumption: 101.1
Final Energy
Consumption:
1,103.8
Co
an nsu
Tr
d
an
Di mpt
sfo
str io
rm
ib n i
ut n
at
io En
ion
n L er
Lo
os gy
sse
se Se
s:
s:
35
11 ctor
6
0.6
Demand
Intermediary
Final
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
(18) According to the U.S. Energy Information Administration, shale gas production increased from 2,116 to 11,415 billion cubic feet (between 2008 and 2013 in the United States.
(19) Source: BP, “BP Energy Outlook 2035. Country and regional insights”, 2015.
64
building the european energy union
14. Gross inland consumption20 in the European Union has
the economic crisis: gross inland consumption of energy de-
steadily decreased since 2006 (-9.1% between 2006 and
creased by 5.7% in 2009 and by 3.6% in 2011 (bound to the
2013), reaching a value of 1,666 Mtoe in 2013, lower than
double dip recession of the European economy). However, it
in the 1990s. This trend is related, in part, to the effects of
started before, in part as a result of energy savings policies.
Figure 12. Gross inland consumption in the EU-28 and at global level (Mtoe), 1990-2013.
14,000
2,000
12,807
1,950
12,000
1,900
10,000
1,850
8,133
8,000
1,800
6,000
1,750
1,666
4,000
1,667
1,700
EU-28
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
1992
1,600
1991
2,000
1990
1,650
World
Source: The European House - Ambrosetti elaboration on IEA and Eurostat data, 2015
15. Regarding the overall energy source mix, European
gross inland consumption is becoming increasingly balanced and sustainable. On one side, between 1990 and 2013,
petroleum products decreased from 38% to 33% and the
share of solid fuels dropped from 27% to 17%. On the other
side, the share of renewable energy sources increased from
4% to 12% of the total in 2013. If we look at the composition of energy consumption at a national level, some rele-
EU-28 shows good
energy diversification
and sustainability, despite
relevant differences
among Member States
vant differences emerge among EU Member States: in fact,
11 European countries have a share of renewables in total
gross inland consumption higher than 15%,21 but Eastern
countries still rely greatly on solid fuels22 and 12 countries
have a share of petroleum products still higher than 35%.23
(20) Gross inland consumption is calculated as follows: primary production + recovered products + total imports + variations of stocks - total exports - bunkers. It corresponds to the addition of final consumption, distribution losses, transformation losses and statistical differences.
(21) Latvia, Sweden, Austria, Finland, Denmark, Portugal, Lithuania, Romania, Italy, Slovenia and Croatia.
(22) Estonia, Poland, the Czech Republic and Bulgaria have a share of solid fuels in gross inland consumption higher than 35% of the total; Germany and Greece higher than
25%.
(23) Luxembourg, Ireland, Greece, Portugal, Spain, the Netherlands, Croatia, Belgium, Denmark, Lithuania, Austria and Italy.
65
Figure 13. Energy mix in gross inland consumption in the EU-28 (% share), 1990 and 2013 (left graph). EU Member
States energy mix (% share), 2013 (right graph).
1%
2013
12%
14%
4%
33%
12%
1990
38%
27%
18%
17%
23%
EU-28
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
HR
IT
LV
LT
LU
HU
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
0%
Total petroleum products
Gas
Solid fuels
Nuclear heat
20%
40%
60%
Renewable energies
80%
100%
Waste (non RES)
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
16. Despite the gradual economic recovery, a decrease in
consumption and an increase in the usage of renewables
are expected to continue in the future. Gross inland consumption is expected to slightly decrease, reaching a value
close to 1,605 Mtoe in 2035.24 This trend will be enhanced
by policy measures and legislation on energy efficiency.25
Renewables will increase their share up to 21.3% of total
European energy
production will become
more sustainable and will
continue to decrease
gross inland consumption in 2035, having reached maturity and helped by subsidies and policy measures.
17. On the supply side, total production in the European
Union has decreased steadily since 1996 (-15.1% between
2000 and 2013), reaching a level of 804.2 Mtoe in 2013,
when almost 70% was produced by six European countries (France, Germany, the United Kingdom, Austria, Poland,
and Italy).
(24)Source: European Commission, Trends to 2050. Reference Scenario 2013. Estimates from the BP Energy Outlook expect a value lower than 1,580 Mtoe. After 2035,
energy consumption is expected to increase moderately, yet remain below 2010 level.
(25) Such as the 2009 Eco-Design Directive, the 2010 Energy Performance of Buildings Directive (EPBD), the 2012 Energy Efficiency Directive (EED), etc.
66
building the european energy union
Mtoe
Figure 14. Production and net imports in the EU-28 (Mtoe), 1990-2013.
1,050
1,000
950
947.1
909.0
900
850
804.2
800
753.5
Net import
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
700
1990
750
Production
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
18. The fuel mix is becoming more balanced and sustaina-
for 27.5% of total production, while renewable sources are
ble also on the production side. In 2015, solid fuels account
in second place. With a share of 25.5% of total production in
for 18.0% of total production (vs. 39% in 1990), natural gas
2015, RES have shown a significant increase: +98% between
for 18.0% (vs. 17.4% in 1990) and petroleum products for
2000 and 2013, helped by policy measures (such as binding
10.9% (vs. 14% in 1990). Nuclear power still remains the
targets for renewables by 2020) and incentives.26
most important source in terms of contribution, accounting
120%
100%
80%
60%
40%
20%
0%
% share and Mtoe
Figure 15. Estimated energy production per fuel input in the EU-28 (Mtoe and % share), 2015-2035(e).
831.7
808.1
800.0
775.1
750.2
25.5%
27.5%
31.8%
39.4%
35.7%
23.9%
23.3%
755.8
41.8%
26.8%
28.4%
18.0%
17.4%
16.1%
10.9%
9.6%
8.4%
18.0%
17.3%
16.4%
11.8%
5.8%
10.5%
2015
2020
2025
2030
2035
Solid fuels
Oil
Natural gas
14.6%
7.4%
Nuclear
RES
13.5%
Total production
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
(26) According to ECOFYS data, interventions to support renewable energy sources were worth €41 billion in 2012, compared to €10.1 billion for coal, €7 billion for nuclear
and €5.2 billion for natural gas. Source: ECOFYS, “Subsidies and costs of EU energy. Final report”, 2014.
67
19. The European course towards a more sustainable
20. Despite the reduction in energy consumption (-3.5%
energy mix in production is expected to continue over
between 2000 and 2013), lower energy production (-15.1%
the coming years. According to European Commission
in the same period) led to an increase of primary energy
projections, renewable sources are expected to account
imports, from 826 to 909 Mtoe between 2000 and 2013.
for 41.8% of total energy production in 2035, with nuclear
Since 2007, however, net imports have begun to decrease.
power maintaining a share of about 28%. Total production
European energy exports grew from 442 to 535.8 Mtoe in
will continue its downward trend (with a small recovery after
2013 (+21.2% between 2000 and 2013),27 while imports
2030).
increased by 18.6% between 2000 and 2008, subsequently
stabilizing as a result of the crisis.28
1,444.8
Figure 16. Import, export and net import of energy products of the EU-28 (Mtoe), 1990-2013.
1,268.4
1,600
400
909.0
826.3
535.8
600
442.1
800
753.5
1,000
353.1
1,200
1,106.7
1,400
Import
Export
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
200
Net import
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
The EU is the largest
energy importer in the world
22. Regarding the origin of EU energy imports, the role of
Russia has progressively increased over time. it is the main
supplier of oil (34.6% of total Extra-EU imports in 2013), natural gas (39.0%, even if its share of the total has progressi-
21. In 2013, the EU imported 53% of its energy, for a
vely diminished) and solid fuels (28.8%). In 2013, 35.1% of
value of €400 billion.29 Six European Member States de-
all energy products imported to the EU came from Russia.
pend on a single external supplier for their entire natural
Norway is the second supplier for crude oil (11.7%) and na-
gas imports and therefore they show a high level of vul-
tural gas (29.8%). In 2013, 71.4% of total extra-EU energy
nerability. The largest net importers of primary energy are
imports came from only five countries.
generally those countries with the greatest population and
consumption (with the exception of Poland that still has
reserves of coal).
Russia remains the main
energy supplier for the EU
(27) From 2004 to 2012, Denmark was the only net exporter of energy in the EU-28.
(28) Imports dropped by 6.6% in 2009 and decreased by 1.3% in 2011.
(29) See also: European Commission, Communication “A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”, 2015.
68
building the european energy union
Figure 17. Share of EU-28 energy imports coming from Russia on total extra-EU imports per type of fuel (% share),
1990-2013.
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
Total fuels
Natural gas
Solid fuels
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0.0%
Oil
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
23. The EU-28 energy dependency rate30 grew from 42.8%
A need for a better balanced
energy supply system across the EU
in 1994 to 54.7% in 2008, subsequently decreasing to 53.2%
in 2013. The highest energy dependency rates in 2013 were
recorded for crude oil (88.4 %) and for natural gas (65.3 %).
Only 6 out of 28 European Member States have an
Over the next decades, net imports are expected to remain
import dependency rate below 30%: Estonia (11.9%),
stable reaching 911Mtoe in 2035, despite the decreasing
Denmark (12.3%), Romania (18.6%), Poland (25.8%),
trend in final energy demand for fossil fuels. Import depen-
the Netherlands (26%) and the Czech Republic
dence is expected to increase moderately, reaching 54.7% in
(27.9%). Other economies can leverage on lower
2035. As of 2013, all the “EU Big 5” countries showed high
dependence rates, such as the United States (15% in
energy dependency rates (Italy 76.9%, Spain 70.5%, Ger-
2013) and China (12.7% in 2013).
many 62.7%, France 47.9% and the United Kingdom 46.4%).
60
1,000
58
900
56
800
54
700
52
600
50
500
48
400
46
300
44
200
42
100
40
1990
1995
2000
2005
Net imports
2010
2015(e)
2020(e)
2025(e)
2030(e)
2035(e)
Net import (MToe)
Import dependence (%)
Figure 18. Net imports and energy dependency rate in the EU-28 (Mtoe and %), 1990-2035(e).
0
Import dependency
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
(30) Energy dependency shows the extent to which an economy relies upon imports in order to meet its energy needs. The indicator is calculated as net imports divided by
the sum of gross inland energy consumption plus bunkers.
69
11.9%
12.3%
Estonia
Denmark
25.8%
Poland
18.6%
26.0%
The Netherlands
Romania
27.9%
Czech Republic
46.4%
United Kingdom
31.6%
47.1%
Slovenia
Sweden
47.9%
France
37.8%
48.7%
Finland
EU-28 average:
53.2%
Bulgaria
52.3%
Hungary
52.3%
59.6%
Slovakia
Croatia
62.1%
Greece
55.9%
62.3%
Austria
Latvia
62.7%
70.5%
Spain
Germany
73.5%
Portugal
76.9%
Italy
77.5%
Belgium
78.3%
Lithuania
89.0%
Ireland
96.4%
Cyprus
96.9%
Luxembourg
Malta
104.1%
Figure 19. Energy dependency rate among the EU-28 Member States (%), 2013.
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
24. In 2013, EU-28 final energy consumption31 was equal
economic crisis). This reduction helped to put final energy
to 1,104 Mtoe, equivalent to 66.2% of gross inland con-
consumption on the right path to reach the target of 20%
sumption. As gross inland consumption, final energy con-
energy saving by the year 2020 set by the European Com-
sumption started decreasing in 2006 and dropped in
mission. However, this trend should continue also during
2009, reaching a level of 1,106.9 Mtoe (mainly due to the
the expected economic recovery.
Mtoe
Figure 20. Final Energy Consumption in the EU-28 and 2020 target (Mtoe), 1990-2013 and 2020 target.
1,210
1,187.2
1,190
1,170
1,150
1,130
1,104.6
1,110
1,086
1,090
1,070
Final Energy Consumption
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
(31) Excluding energy used by power producers and energy transformation processes.
70
building the european energy union
2020 target
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1,050
25. Considering the key sectors of European economy, in
consumption (+40%). Energy consumption by transpor-
2013 transport accounted for 31% of final energy con-
tation increased until 2007, then began to decrease. The
sumption,32 residential consumption for 27% and indu-
residential sector, which relies especially on natural gas and
stry for 25%. From 1990 to 2013, services –a sector intensi-
electricity, remained virtually stable (+8%),33 while industrial
ve in electricity and gas– saw the highest increase in energy
consumption has dropped (-24%).
Figure 21. Final energy consumption per sector in the EU-28 (index, 1990=100, left graph), 1990-2013; % of the total
(right graph), 2013.
150
2013 World Total: 1,104 Mtoe
140
130
14%
120
3%
25%
110
100
90
80
Industry
Transport
Residential
Services
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
60
1990
70
27%
31%
Others
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
26. In the future, the industrial sector is projected to recover and its consumption is expected to stabilize at about
305 Mtoe per year, with an increase in renewables and
electricity as a result of EU energy efficiency directives,
national binding targets and policy measures, as well as
The energy sector is a key driver
for the EU in terms of value
added and employment
improved ETS resulting in a higher carbon price and incen-
27. The value added created by the entire energy supply
tive for green investments. Residential sector energy de-
chain35 in Europe has grown despite the economic crisis
mand should also stabilize below 2010 levels (about 300
(+33% between 2005 and 2012), up to €223.9 billion in
Mtoe). Electrification is expected to be a major trend also
2012. European energy companies employ 1.3 million
in the tertiary sector (with renewables accounting for 58%
people.36 The value of production in the EU energy sec-
of final consumption of services), where increase in pro-
tor has grown since 2005 with a CAGR of 7.2%, reaching
ductivity will be over-compensated by energy efficiency
a value of €1,440 billion in 2013. Labor productivity has
gains pushed by policy measures. Transportation will re-
also grown by an average of 3.7% per year and there are
gister a moderate decrease until 2035, with diesel and ga-
97,000 companies operating in the energy sector (+228%
soline remaining the main energy sources, while electricity
between 2005 and 2013).37 However, R&D expenditure in
will reach 8% of total consumption in the sector.
energy remains low (especially when compared to other
34
industrial sectors) and there are significant discrepancies
among EU Member States (see also section 3.2.).
(32) This sector consumed 326.8 Mtoe of petroleum products in 2013.
(33) According to European Commission, 75% of EU housing stock is energy inefficient and 94% percent of transport relies on oil products.
(34) Electrification in the residential sector is expected to account for 36% of total consumption in 2050.
(35)Including: production of electric power, natural gas, steam, hot water, etc. through a permanent infrastructure (network) of lines, mains and pipes; distribution of
electricity, gas, steam, hot water, etc. in industrial parks or residential buildings; provision of steam and air-conditioning supply. Source: Eurostat, 2015.
(36) The energy sector accounts for 2% of total value added and 0.6% of total employment.
(37) Enterprises active in the electric power generation, transmission and distribution sectors.
71
Figure 22. Growth in selected dimensions of EU-28 energy sector (index, 2005=100), 2005-2013 (left graph); expenditure for R&D in solar and wind energy in the EU Big-5 (€ million), 2013.
180
80
170
70
160
60
150
50
140
40
130
30
120
20
110
10
100
0
Germany
90
2005
2006
Value of
Production (mln€)
2007
2008
2009
Gross Value
Added (mln€)
2010
2011
2012
Productivity
France
2013
Employment
United
Kingdom
Expenditures
for R&D - Solar
Spain
Italy
Expenditures
for R&D - Wind
Source: The European House - Ambrosetti elaboration on Eurostat and European Commission R&D Scoreboard data, 2015
28. In the future, some key trends in Europe will affect the
consumption in transport will see a steady increase (thanks
implementation and development of the EU Energy Union
to electrification of rail transport, penetration of rechargea-
and that of its industrial players:
ble vehicles,39 decreasing battery costs, etc.).
>> A shift towards electricity for heating and cooling (higher demand for air conditioning, spread of electric heat
30. New players from different sectors (e.g., telecommuni-
pumps) and an increasing use of electric appliances in re-
cations, computing and ICT, etc.) are entering the energy in-
sidential and tertiary sectors (IT, leisure, communication,
dustry, providing customers with new solutions, information
etc.).
and smart and connected energy management services, di-
38
>> The entrance of new competitors into the energy market.
sintermediating traditional players and acting as “game
changers. Utilities and other traditional energy players can
>> The empowerment of energy consumers.
compete with these players, acquire these companies or, alter-
>> Further development of renewable energy sources and
natively, cooperate with new entrants, building value added
widespread diffusion of decentralized generation.
services for customers in a “win-win” relationship and benefiting from valuable data and information, lower grid conge-
29. The European Commission estimates that the share of
stion, increase in energy efficiency and customer satisfaction.
electricity in final energy consumption will reach a share of
28% of the total in 2050 (compared to the current 21.6%).
Final electricity demand is expected to reach 250 Mtoe in
2015 and 320 Mtoe in 2050. Efficiency requirements and
the development of electronic appliances will make electri-
Towards a “new skin” for energy
operators across the EU
city account for 36% of final energy demand in the residen-
The consolidation of the Energy Union could promote
tial sector by 2050 (from 23% in 2010), becoming the no.
the evolution of the energy industry and reshape the
1 form of energy. There will also be a major increase in the
traditional business model by facilitating the supply of
tertiary sector, with electricity expected to account for al-
new services and products, thus creating opportuni-
most 60% of final energy demand. Electrification will have a
ties for greater competitiveness in the industry.
lower impact in industry and transport. However, electricity
(38) See also: European Commission, “Trends to 2050 Report, Reference Scenario 2013”, 2015.
(39) By 2050 the European Commission estimates that the share of electric vehicles in the total EU stock of cars will reach approximately 8%.
72
building the european energy union
31. The empowerment of energy consumers will be enhanced by smart technologies and new ICT solutions that will
enable them to take better consumption choices. Decentralizing production will provide customers with greater independence and could allow them to become energy producers
(“prosumers”). In fact, thanks to the development of Distributed Generation and “energy communities” (which alre-
Electrification will become
a priority in transport,
heating and cooling
ady exist in several European countries including Germany,
the United Kingdom and Denmark), consumers can become
protagonists in the production of energy from renewable
32. Smart grids rely on smart metering systems that pro-
sources. Therefore, energy system players –in particular, TSOs
vide customers with complete and real time information.40
and DSOs– are asked to a great extent to accompany the
Thanks to smart metering, smart appliances, smart ther-
process currently underway and, as a result, massively invest
mostats and open data, consumers will have frequent and
in their infrastructural grid in order to accommodate large
complete information about prices and consumption habits.
amount of dispersed generation. In fact, while in the past the
New devices and applications will also allow consumers to
flow of energy was one-way (from the center of the network
better understand and manage their energy usage get-
to its periphery), in the future this flow will be increasingly
ting control over their energy consumption. Thanks to “smart
inverted and smart grids can be a mechanism capable of op-
homes”, customers will be able to manage, monitor and opti-
timizing interactions among all stakeholders of the electricity
mize their energy consumption easily and remotely, allowing
system, by better linking wholesale and retail markets.
greater flexibility and energy savings.
3.2 Critical points and open questions in EU energy markets
33. As previously explained in Chapter 1, EU energy policy
and affordable energy: ensuring security of supply, comple-
is based on five main dimensions, according to the ove-
ting the internal market for energy, ensuring environmen-
rall mission to build a resilient Energy Union with an ambi-
tal sustainability, improving energy efficiency and fostering
tious climate policy at its core is to give EU consumers –hou-
research and innovation.
seholds and businesses– secure, sustainable, competitive
Figure 23. The five pillars of EU Energy Union Framework.
Energy Supply
Security
Internal Energy
Market
Diversification of
supply (geography
and energy mix)
Physical
infrastructure network
integration
Cooperation for
supply security
Grid software
update (smart grids)
EU role in global
energy markets
Common EU regulatory
framework focused on
the system’s long term
needs
Transparency on
gas supply prices
Energy
Efficiency
Environmental
Protection
Energy efficiency
increase in
building and
transport sectors
“EU Active Climate
diplomacy”
Decarbonization
of the transport
sector (modal
shift towards
railways)
Consumer
empowerment
Research and
Innovation
Strengthening of
the Emission Trading
Scheme (broader
application, progressive
allowance reduction and
Reserve Mechanism)
Large-scale
deployment of
innovative
technologies, starting
from next generation
Renewable Energy
Sources (energy
storage, biofuels,
biomass, etc.)
Increase of
Renewable Energy
Sources share in
final consumption
Roll-out of smart
grids, smart home
appliances, smart
cities
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
(40) The European Commission aims to replace at least 80% of electricity meters with smart meters by 2020. Italy has been a European leader in deploying advanced metering systems and is close to 100% coverage of its 36 million customers.
73
34. Although from 2006 to 2013 –as shown in the pre-
instruments to achieve these objectives across the five
vious section– energy consumption decreased 9%, renew-
above-mentioned policy areas.
able energy consumption increased by 4% and greenhouse
emissions decreased by 12%, EU energy policy has so far fal-
36. Overall, the Commission Communication goes in the
len short of creating an integrated energy market.
right direction by focusing on how to adapt the EU regulatory and incentive system to create a more competitive and
35. The Juncker Commission indicated energy as one of its
decarbonized energy market. However, some critical issues
ten political priorities and it published in February 2015 a
have remained unaddressed and would require further
Communication
41
that has the objective of completing an
consideration.
“Energy Union” by setting new energy targets and new
Figure 24. The EU Energy Union main policy instruments and objectives.
Energy supply
security
Gas: emergency
plans at EU and
regional level
Create voluntary
demand
aggregation
mechanisms for gas
purchasing
Define EU-wide
acceptable risk in
electricity supply
Build capacity
mechanisms
Leverage on trade
negotiations and
diplomacy to create
new energy
partnerships with
US, Canada, Norway,
neighborhood
countries
Internal energy
market
Energy
efficiency
Environmental
sustainability
Research and
Innovation
Electricity
interconnection
target raised to 15%
by 2030
Further action on
buildings energy
efficiency
required
Implementation of
Market Stability
Reserve (MSR) and
review of the ETS
in 2015
New EU energy
R&I approach on
technology and
transport
EU investment in
infrastructures
Transport
efficiency (road
charging
schemes based
on polluter / user
pay to be
introduced)
Redesign electricity
markets linking
wholesale and retail
Smart grids
promotion and
standardization
Promoting rail
transport
(”Shift2Rail”)
Upgrading
Transmission
System Operations
(3rd Int. Energy
Package)
National targets
need to be set on
non-ETS covered
sectors
EU should become
number one in
RES: target 27%
RES by 2030
Create more stable
regulatory
framework at EU
and MS level
Horizon 2020
resources
available
Maintain
technological
leadership in
nuclear (ITER)
Leverage EU
trade agenda to
open up
third-party public
procurement
Strengthening ACER’s
powers
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
3.2.1 Security of energy supply
High dependency on energy imports
37. Europe is highly dependent on natural gas and petroleum imports: between 1995 and 2012, the import share of
consumption of petroleum increased more than 12 percentage points (from 74% to 86.4%), while natural gas increased more than 22 percentage points (from 43.4% to 65.8%).
The EU will remain
highly dependent on
energy imports
(41) European Commission, Communication “A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”, 2015.
74
building the european energy union
Figure 25. Energy import dependency in the EU-28 (%): comparison between 1995, 2012 and 2030(e).
95.0%
86.4%
84.0%
74.0%
67.0%
65.8%
63.0%
53.4%
43.0%
43.4%
42.2%
21.5%
Total
Solid Fuels
Petroleum and products
1995
2012
Natural gas
2030
Source: The European House - Ambrosetti elaboration on Eurostat and ENTSO-E data, 2015
The EU imports about half of its natural gas supply from countries at high
geopolitical risk
After the 2009 Ukrainian gas shortage crisis, the European Union introduced new measures to strengthen the external
dimension of security of supply policy by setting:
> A common European standard for energy cross-border energy supply.
> A regulatory framework to prevent and deal with emergencies in a coordinated way to avoid shortages.
However, the EU continues to be highly dependent on gas and petroleum imports from politically unstable countries
such as Russia and other potentially unstable countries.
Figure 26. Top EU natural gas suppliers (% of total EU imports), 2013.
Quatar
8.40%
Algeria
13.50%
Norway
31.30%
Nigeria
3.50%
Other
countries
11.40%
Russia
31.90%
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
38. Significant differences also remain among Member
States. The degree of import dependency is set to increase in the coming years for the whole EU. This is mainly
due to dwindling domestic energy sources, popular opposition (the so called NIMBY effect – “Not in My Back Yard”)
to new infrastructures and non-traditional energy resource
development (e.g., shale gas) and the cost uncertainty of
such new sources. Furthermore, the good level of interconnection between Europe and Russia results in Russian gas
Energy infrastructure network:
the role of public opinion (NIMBY
effect)
According to Eurobarometer, over 40% of Europeans
would be very concerned if a shale gas project were
to be located in the neighborhood, whereas only 20%
would not be very concerned or not concerned at all.
75
being comparatively cheap and accessible. This, in turn, di-
In fact, excessive dependency on a single producer reduces
scourages development of new energy sources.
the market power of European consumers. For example, the
Russian gas producer Gazprom charges, on average, higher
39. In view of this trend of increasing import dependency,
gas prices to energy countries that have a higher depen-
energy supply diversification is set to remain a EU priority.
dency on its supply.
Figure 27. Gas prices charged by Russian supplier Gazprom in selected European countries (US$/thousand cubic
367
meters).
420
Finland
480
382
420
Estonia
Lithuania
387
Hungary Romania
394
Austria
399
438
Czech Rep.
Slovakia
418
404
Germany
402
366
400
United Netherlands
Kingdom
France
Latvia
Poland
396
285
400
429
Denmark
Italy Slovenia
469
Bulgaria
Greece
Source: Bruegel Institute, 2015
40. Energy diplomacy can also play a role in ensuring the
41. On a commercial level, some argue that demand aggre-
security of supply. The European Commission has exclusive
gation on a regional basis could increase the bargaining
responsibility for trade and investment negotiations for bi-
power of energy companies operating in smaller and less
lateral trade talks and it negotiates on behalf of European
interconnected countries vis-à-vis producers. However, poli-
Member States. After the Lisbon Treaty, the European Union
tical and regulatory discrepancies among EU Member States
expanded its external energy relations further by establi-
have made this option unfeasible until now.
shing a large number of bilateral energy dialogues with
key consumer and producer countries. The European Union
42. Furthermore, there is a clear lack of information and
has also started negotiations on major trade agreements
technical analyses on import reduction and diversification
which have an energy dimension to them, notably with Ca-
policies. For example, there is a lack of feasibility studies on
nada, Japan and the United States. In addition, the Europe-
the cost-effectiveness of alternative energy sources (e.g.,
an Union intensified its external energy relations with China
shale gas) at the EU aggregate level.
as energy policy is a key area of cooperation.
76
building the european energy union
Low interconnection between Member
States
44. To address this issue, the Energy Union Communication
of February 201542 demands that EU Member States have
electricity interconnection links to other Member States of
43. An efficient system of cross-country energy interconnec-
at least 10% of their own electricity production capa-
tors could reduce external import dependency of individual
city by 2020, confirming that the interconnection of the
countries and improve market efficiency. As of today, inter-
electricity markets is a political priority for the European
connections between EU Member States are insufficient
Union in the years to come.
and new investments are not adequately planned.
Figure 28. Interconnections, generation and demand in selected European countries.
1,000
Capacity (GW)
800
600
400
13%
17%
200
23%
0
Interconnectors
Generation
Demand
34%
27%
3%
3%
10%
23%
11%
48%
15%
21%
9%
5%
4%
3%
Source: International Energy Agency (IEA) and ENTSO-E, 2014. Note: interconnection levels of individual Member States refer to 2013.
45. This target is based on an inefficient metric (i.e., instal-
out of 28, mainly in the periphery of the EU (such as the th-
led production capacity). For example, transit countries, like
ree Baltic states as well as Poland and Spain), remain below
Switzerland or Belgium, should have interconnectors to
the 10% electricity interconnection target43 and are thus
be able to support a functioning pan-European market. A
isolated from the internal electricity market.
more efficient metric for interconnectors should be considered. This could be based, for example, on net and/or peak
demand rather than production and it would ensure that
there is adequate cross-country transmission capacity available when it is most needed. In addition, the 10% electricity
interconnection target presents the limit to be a “flat” rate
for all EU countries. Even if Member States have increased
their interconnection capacities during recent decades, as
already seen in Chapter 2, in 2014 12 European countries
Cross-country interconnectors
of electricity markets are
insufficient across the EU and
the current metrics show
some limits
(42)See: European Commission, Communication “Energy Union Package - Achieving the 10% electricity interconnection target. Making Europe’s electricity grid fit for
2020”, Brussels, 25 February 2015 COM(2015) 82 final.
(43) Source: ENTSO-E, “Scenario Outlook and Adequacy Forecast 2014”.
77
46. Furthermore, interconnection financing remains an is-
with the Energy Union Communication should be comple-
sue, especially in small countries in Eastern Europe. Some
mented with a series of new measures that addresses th-
interconnection projects have low return on investment
ree aspects:
and long amortization times (i.e., gas projects in Greece
>> Promoting regional cooperation of TSOs, with the
and Bulgaria), and this situation hinders investments. At
aim to have regional operators.
the same time, some European countries are too small
>> Stronger European Commission guidance in the se-
and/or not sufficiently liberalized (for instance, the Third
lection and prioritization of Projects of Common Inte-
Energy Package has not been adequately implemented
rest (PCIs) and strategic interconnectors to be based on
in some states) to attract demand and interconnection
better metrics and congestion assessments.
projects.
>> Financial support through incentives, European funds
(e.g., via the European Investment Bank - EIB) and tax
47. To overcome these obstacles, the approach introduced
deductions for strategic interconnector projects.
Figure 29. Scheme of the decision-making process for the identification and selection of Projects of Common
Interest.
284 Projects of Common Interest (PCIs) identified by Transmission System Operators (TSOs), project promoters,
the European Agency for the Cooperation of Energy Regulators (ACER), the European Commission and Member States
PROJECT
PROMOTERS
ENTSO -E
SUBMIT
CANDIDATE
PROJECTS
PREPARE TEN
YEAR NETWORK
DEVELOPMENT
PLAN
(TYNDP)
NRAs*
CHECK
CRITERIA
APPLICATION
CROSSBORDER
RELEVANCE
(*) National Regulatory Authorities
Source: The European House - Ambrosetti elaboration on ACER data, 2015
78
building the european energy union
EVALUATE
PROJECTS
RANK
CRITERIA
COST-BENEFIT
ANALYSIS FOR
MATURE
PROJECTS
REGIONAL
GROUPS
DEFINE
REGIONAL
LISTS
ACER
OPINION ON
THE DRAFT
REGIONAL
LISTS AND
CROSS-BORDER
CONSISTENCY
MEMBER
STATES & EU
COMMISSION
MEMBER STATES
AND THE EU
COMMISSION
DECIDE ON
REGIONAL PCI
LISTS
THE EU
COMMISSION
ADOPTS
PCI LIST
The PCI toolbox
Quick permit granting procedures:
General criteria of eligibility:
> Priority status
> Contribute to infrastructure priorities (corridors)
> Competent authority to manage permitting
> Economic, social, environmental viability
> Time limits for procedures (3.5 years max)
> Involve at least two EU Member States
> Enhanced transparency and public participation
> Have significant cross-border impact
> Part of the Ten-Year Network Development Plan –
Regulatory and other support measures:
TYNDP (from the 2015 PCI list)
> Cost-benefit analysis (CBA)
> Cross-border cost allocation (CBCA): “beneficiaries
pay” principle
Specific criteria of eligibility:
> Market integration (market, price convergence)
> Risk-related incentives
> Security of supply
> Financial support (grants for studies and financial
>Sustainability
instruments for all PCIs and grants for works for
> Competition (diversification-natural gas only)
some)
3.2.2 Internal market
Imbalances in the European retail market
>> Freeing up the supply side of the market (e.g., removal
of barriers preventing alternative suppliers from importing or producing energy).
>> Freedom of consumers to choose their supplier and the
48. The EU has introduced three Energy Packages with the
removal of restrictions on customers from changing
objective of creating a single and liberalized European energy
their supplier.
market. These directives opened up national markets and increased cross-border trade and business activities during the
>> Creation of independent regulators to monitor the sector and enforce these measures.
1990s and 2000s. They introduced the basic principles which
characterize today the European regulatory framework:
49. The three Packages have so far fallen short of creating
>> Differentiation between competitive parts of the indust-
a truly integrated energy market in Europe. In particular,
ry (e.g., supply) and regulated parts (e.g., operation of the
in the retail market significant differences remain in
networks) – with ex ante regulation and unbundling.
the structure and levels of energy prices for individuals
>> Obligation on operators of the regulated parts of the indu-
and companies (ranging from €0.24/kWh in Denmark to
stry (e.g., the networks and other infrastructure) to allow
€0.08/kWh in Sweden for mid-sized enterprises in the se-
third parties to have access to the infrastructure.
cond semester 2014).
79
Figure 30. Average electricity costs (€/kWh for a mid-sized enterprise, 500 MWh < consumption < 2,000 MWh),
second semester 2014.
0.25
0.20
0.15
0.10
0.05
Energy cost
Sweden
Finland
Czech Republic
Romania
Bulgaria
Poland
Slovenia
Luxembourg
The Netherlands
France
Estonia
Hungary
Croatia
Austria
Belgium
Latvia
Slovakia
Spain
Lithuania
Portugal
Greece
Ireland
EU-28
UK
Malta
Germany
Italy
Cyprus
Denmark
0.00
Taxes and levies
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
50. Furthermore, retail prices are not cost-reflective due the
significant weight of national policy choices, tax schemes
and other system costs, which have increased substantially
Retail prices are
not cost-reflective
over the last ten years.
213.2
245.9
272.8
276.3
28.9
84.3
89.3
96.4
117.0
171.8
184.5
180.2
France
201.4
233.4
169.9
155.8
149.1
161.6
EU-28
108.9
164.4
165.6
172.8
143.1
119.3
122.3
114.2
168.5
197.4
183.0
185.3
Figure 31. Tax wedge in selected European countries (Euro/Toe): comparison between 1995, 2005, 2010 and 2012.
Germany
Spain
1995
2005
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
80
building the european energy union
Italy
2010
The Netherlands
2012
Poland
UK
51. These imbalances in the retail market are the result of
tions. Therefore, regulated prices should be progressively
a series of political and regulatory decisions and, in par-
phased out.
ticular, of:
>> Strong political interest of national governments in
Depressed prices in the wholesale market
maintaining control over retail energy prices (through
54. The current EU electricity target model, which sets out
directly- or indirectly-regulated prices).
>> Different targets for renewable energy targets (2008
the guidelines for integration of the EU wholesale market,
Climate Energy Package) and support schemes for each
relies on having efficient cross-border capacity calculation,
Member State, which is free to set incentives and taxa-
efficient long-term capacity allocation and efficient day-
tion with minimal guidelines from the EU.
ahead and intra-day cross-border markets, and efficient bal-
>> Lack of adequate coordination across Member States in
the definition of national energy mixes.
ancing markets.
44
55. The liberalization of wholesale markets has had posi52. In order to reduce such imbalances an overhaul of na-
tive effects on competition and it has increased the num-
tional incentive schemes for renewables is warranted. In
ber of market operators.
particular, it should be ensured that financial incentives for
renewables are allocated in a more efficient way.
56. Furthermore, the increase in RES deployment has led
to a significant decrease of wholesale prices. In the period
53. Furthermore, price regulation (direct and indirect) by
from 2008 to 2014, wholesale prices have decreased by
national governments has also contributed to misaligning
50% in Germany, by 50% in France, by 40% in Italy and by
energy prices across Member States, thus creating distor-
35% in Spain.
Figure 32. Wholesale power prices (€/MWh): comparison between Germany, France, Italy and Spain, 2008-2014.
90
87
80
70
69
66
64
60
52
50
42
40
35
33
30
20
10
0
Germany
France
2008
2009
Italy
2010
2011
2012
Spain
2013
2014
Source: The European House - Ambrosetti re-elaboration on CEPS data, 2015
(44) Article 194 of the revised Treaty on the Functioning of the European Union (TFEU) states that measures defined by the European Parliament and the Council on energy
policy do not affect “a member state’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general
structure of its energy supply”.
81
57. The lack of adequate long-term price signals has
produced inefficient investment decisions by market operators.45 This resulted in overcapacity in the majority of
countries (mainly due to over-investment and deployment
of RES with high costs) and under-capacity in other countries. In the latter countries, the risk of electricity disruptions
(due to low investments) remains considerable.
The lack of adequate
long-term price signals
has produced inefficient
investment decisions
Figure 33. Spare electricity capacity in European countries, January 2015.
≥ 20%
≥ 10% & < 20%
≥ 0% & < 10%
< 0%
Source: The European House - Ambrosetti elaboration on ENTSO-E, “Scenario outlook and adequacy forecast 2014-2030”, 2015. Note: Spare Capacity is the ratio (Remaining
Available Capacity – Adequacy Reference Margin)/Adequacy Reference Margin. The Adequacy Reference Margin includes Margin Against Seasonal Peak Load. As seasonal
peak load does not occur simultaneously, this map shall not be understood as a European-level assessment of adequacy.
58. The lack of long-term price signals and price uncertain-
59. Furthermore, the European Parliament has recently ap-
ty have deterred investments as well as de-investments. In
proved (July 2015) the Commission’s proposal to establish
fact, without long-term price signals, investors are not wil-
a Market Stability Reserve. This will address the current
ling to divest assets in market with capacity surplus and tend
surplus of allowances and improve the system’s reliance to
to wait until competitors shut down their generation capa-
major shocks by adjusting the supply of allowances to be
city. A wider utilization of long-term contracts would help
auctioned. 46 As a result, these measures will create the ex-
to address this imbalance and would create more stable and
pectation of an increasing CO2 price, and will lead to more
clearer signals for investments.
stable wholesale prices.
(45) Reliable price signals also have important implications for long-term contracts since importers have more bargaining power and a price reference for contract renegotiations with producers.
(46) See: European Commission, “Transforming Europe’s energy system - Commission’s energy summer package leads the way”, 15 July 2015.
82
building the european energy union
62. A fully-functioning and interconnected energy mar-
The reform of the EU European
Trading System
ket will reduce (but not eliminate) the need for market
The EU Emissions Trading System (ETS) is Europe’s
in one country to be used in another country. Clear, ba-
flagship tool for tackling climate change and placing
lanced and shared common rules on market capacity
the EU on-track towards a low-carbon economy. As
would thus help to reduce costs.
capacity mechanisms and the relted costs. This could be
done, for example, by allowing market capacity located
recently announced by the European Commission
(July 2015), the review of the EU ETS aims to ensure
that it remains the most efficient and cost-effective
way to cut emissions in the decade to come, as the
first legislative step towards implementing the EU’s
3.2.3 Energy efficiency
Lack of adequate metrics
commitment to reducing greenhouse gas emissions
by at least 40% domestically by 2030.
63. Energy efficiency is gaining new momentum in the
The key components of the ETS reform (including
EU amid concerns about decreasing industrial competi-
Market Stability Reserve implementation and ETS re-
tiveness and energy security. Energy efficiency has been
form legislative proposal) are the following:
identified as a key tool with strong benefits for ensuring
> The reform will take effect on January 1, 2019.
better competitiveness, security of supply and social out-
> The surplus allowances temporarily taken out (or
comes, as well as fostering energy and climate objecti-
“backloaded”) from the market last year, would
ves. It is estimated that 1% in additional energy savings
be placed into the Market Stability Reserve rather
(beyond the 25%) can decrease EU gas imports by 2.6%.47
than returned to the (already flooded) market.
> The overall quantity of allowances will decline by
2.2% every year starting from 2021.
64. The EU set ambitious energy efficiency objectives:
the 2008 EU Energy and Climate Change Package set the
> Over the current trading period (2013 to 2020),
target of a 20% energy efficiency increase by 2020
57% of the total amount of allowances will be
compared to the “business as usual” scenario. In October
auctioned, while the remaining allowances are
2014, the European Council agreed to a further non-bin-
available for free allocation (actually the remai-
ding EU-wide target of at least 27% energy efficiency
ning alllowances are not all free allocations but
by 2030, based on current criteria, but kept the option
also innovation fund). The share of allowances to
open to review the target in 2020, having a 30% target
be auctioned will remain the same after 2020.
in mind.
The agreement on the ETS reform proposal would
reinforce the effective operation of the internal
65. It is questionable, however, whether this is an ade-
energy market and would provide adequate long-
quate metric to gauge energy efficiency. The European
term price signals to induce investments in low-car-
Commission decided to measure the target through ab-
bon technologies.
solute consumption but it is not clear whether this needs
to be achieved through higher efficiency or lower energy
intensity of the economy (energy-intensive industries in
60. Finally, internal market integration and efficient envi-
Europe are already in structural decline). In this respect,
ronmental protection are two faces of the same coin and
Member States should be allowed to define different
should be addressed in parallel.
metrics that measures energy efficiency rather than focusing on absolute consumption trends (e.g., the diffe-
61. Each Member State currently sets out its own rules for
rence between primary and final energy demand, carbon
market capacity remuneration mechanisms. The lack of a
intensity, etc.), which would provide a more effective sy-
coordinated approach among Member States may, howe-
stem to gauge energy efficiency.
ver, lead to an inefficient allocation of resources.
(47) International Energy Agency, “Energy Policy of IEA Countries: European Union”, 2014.
83
Low energy efficiency in building and transport sectors
A large proportion of EU buildings
have poor energy performance
According to the European Commission, about 75%
66. Even though the EU has already seen an overall decline
in energy intensity of 31.5% since 1990,
48
of European housing stock is energy-inefficient.
some economic
sectors –such as transport and buildings– have seen limited
progress in energy efficiency. Today, building and transport
and cooling are the largest single sources of energy demand
account for over two-thirds of energy consumption. Heating
in the EU and the main driver of gas imports.
Figure 34. Final Energy Consumption (FEC) by sector in the EU-28 (Mtoe), 1990-2013.
1,200
-58%
1,000
+41%
-26%
800
+8%
600
+15%
400
+23%
200
-25%
Industry
Transport
Residential
Agriculture/Forestry
Services
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
70 % of total FEC
Non-specified (Other)
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
67. Energy efficiency and technological innovation are closely interdependent. While energy efficiency technology is
available, its usage is not yet sufficiently widespread. Governments and the EU need thus to intervene to increase in-
ing savings for consumers (about 10-15 years on average).
d. Limited public awareness as to the long-term benefits of
energy efficiency incentive schemes.
vestments, incentivize the electrification of heating systems
and transport and the installation of efficiency-related
69. Finally, since electricity is the most efficient energy
technologies (mass storage, smart grids, etc.).
source for end users, an explicit electrification target could
be set at the EU level to stimulate the adoption of electricity
68. Until now, energy efficiency investment in the transport
instead of gas and coal.
and building sectors have not been adequately widespread.
This was mainly due to four factors:
70. The penetration of energy efficient technologies and be-
a. Lack of political will at national and EU level to impose
haviors is strongly hindered by the presence of non-econo-
standards on vehicle producers.
b. Lack of demand and high costs for increasing energy efficiency in households and commercial buildings.
c. The time-lag between upfront investment and the result-
mic barriers. In particular, financing is becoming more and
more one of the main barriers hindering the development
of energy efficiency. Improving financing inititiaves, such
as risk sharing mechanisms, dedicated credit lines, or on-
(48) Public investment in energy efficiency in 2010 across eleven Member States averaged between €4 and €20 per capita. In 2014, the European Union had lower energy
intensity than its major trade partners Australia, the United States and Canada. In addition to energy efficiency improvements, the collapse in industrial demand amid
the economic crisis in 2008 added to lower energy consumption. Source: International Energy Agency, 2014.
84
building the european energy union
bill repayments, for the investments of commercial firms is
essential to meet EU energy efficiency targets. Moreover,
financing programs are also a key topic. The EU is funding
energy efficiency through several mechanisms including the
3.2.4 Environmental protection
Low carbon prices
European Structural and Investment Funds (€5.6 billion to
72. In 2009, the European Union took on a unilateral target to
energy efficiency, co-generation and energy management
reduce its greenhouse gas emissions by 20% in 2020 below
from 2006 to 2013), the European Energy Efficiency Fund
1990 levels and introduced a system of carbon allowances (EU
(established in 2011 by the European Commission with an
Emission Trading Scheme - ETS). The EU is currently on-track
initial volume of €265 million), and the Horizon 2020 Pro-
to meet its 20% greenhouse reduction target, also thanks to
gram (€285 million allocated to energy efficiency between
the increase in RES deployment but, at the same time, due to
2006 and 2013).
the current economic slowdown. An extensive reform of the
ETS system is warranted and already in the pipeline.
71. However, in view of their long maturity and return required, many energy effiency projects have not yet been
73. The EU carbon market under the EU ETS has experienced
funded. The Juncker Plan (€315 billion over the period
a major price collapse from around €30 per tonne of carbon
2015-2018) offers an opportunity to leverage resources
dioxide (tCO2) to around €6-8 per tCO2 since 2008. These pri-
through the European Investment Bank to finance energy
ce levels did not act as a signal for the decarbonisation of the
efficiency projects that require longer maturities.
power sector or the investment in low-carbon technologies.
Figure 35. Overall surplus of CO2 market (MtCO2) (left graph); CO2 emission allowance price (€/t tCO2) (right graph).
CO2 emissions allowance price
(€/tCO2), 2008-2015
Overall surplus on the EU CO2 market
(MtCO2) 2008 - 2020
3,000
35
30
2,500
25
2,000
20
15
1,500
10
1,000
5
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
0
08/04/2008
08/08/2008
08/12/2008
08/04/2009
08/08/2009
08/12/2009
08/04/2010
08/08/2010
08/12/2010
08/04/2011
08/08/2011
08/12/2011
08/04/2012
08/08/2012
08/12/2012
08/04/2013
08/08/2013
08/12/2013
08/04/2014
08/08/2014
08/12/2014
08/04/2015
0
500
Source: The European House - Ambrosetti elaboration on EEA and EEX data, 2015
74. According to the ETS, emission allowances are to be
ation of a market stability reserve after 2020 to address the
progressively reduced. The current rate of allowance allo-
current surplus of emission allowances by automatically
cation reduction is 1.74% per year: this reduction rate has
adjusting the supply, together with an increase in the EU
clearly failed to keep carbon prices at a meaningful level.
ETS linear emission reduction factor from 1.74% to 2.2%.
This would significantly reduce the surplus market for CO2
75. As previously anticipated, to make the ETS system more
allowances and should be implemented swiftly.
effective, the European Commission has proposed the cre-
85
Figure 36. The impact of the Market Stability Reserve (MSR) on the CO2 allowance surplus (Mt CO2).
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2015
2016
2017
2018
2019
Surplus with EC MSR
2020
2021
2022
2023
2024
Surplus with current regulation
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
76. Furthermore, there is a risk that the sectors covered by
Imbalances in the RES support scheme
the ETS could fall out-of-step with the emission reductions
in sectors that do not fall under the ETS, such as transport
77. In order to meet the target of 20% gross final energy con-
To address this problem, the ETS could be
sumption from renewable energy sources, EU Member Sta-
extended to all relevant sectors. Where it would not be fe-
tes have introduced a wide range of incentive schemes (e.g.,
asible to charge consumers directly (e.g., car owners), new
capital subsidies/rebates, investment or production credits,
measures could be introduced to charge the producers of
taxes, production payments, public loans or grants) to sup-
such final goods (e.g., car manufacturers).
port the deployment of renewables at a national level.
and heating.
49
Figure 37. Fiscal incentives to RES in selected European countries.
Capital subsidy
and rebate
Investment or
production credits
Reduction in sales,
energy, CO2, VAT or
other taxes
Energy production
payment
Public investment,
loans or grants
Austria
Belgium
France
Germany
Greece
Ireland
Italy
The Netherlands
Poland
Spain
Sweden
UK
Source: The European House - Ambrosetti re-elaboration on various sources, 2015
(49) The system covers carbon dioxide (CO2) emissions from power and heat generation, energy-intensive industry sectors (including oil refineries, steel works and production of iron, aluminum, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals) and commercial aviation.
86
building the european energy union
78. Under the Renewable Energy Directive, individual
Member States remain primarily responsible for designing
the energy market to achieve RES targets and thus support
schemes for RES have remained national in scope. This lack
of a clear framework for RES incentives has sometimes resulted in inefficiencies and overcompensation of already
mature technologies. A more harmonized EU approach on
EU state aid on RES is thus warranted to ensure a more efficient allocation of public resources.
The lack of a common EU
regulatory framework for
RES incentives has produced
inefficiencies
79. In this respect, the European Commission should encourage the adoption of the feed-in premium as the common incentive scheme for RES deployment across the EU
(as indicated by the DG Competition’s guidelines on RES
state aid) and promote competitive allocation of incentives
The German photovoltaic case
(e.g., through tenders) as an effective tool.
Germany has installed more photovoltaic energy ca-
80. Furthermore, Member States should be required to in-
pacity than other countries with higher solar exposure.
crease the frequency and transparency of incentive scheme reviews in order to promote greater alignment between deployment compensations and actual deployment cost/returns.
Figure 38. Types of support schemes for new RES capacity in selected EU countries.
Auctions
Feed-in Tariff
Feed-in Premium (including fixed, sliding)
Green Certificates
Minimum return on invested capital
Retroactive changes
Other legal changes
Source: The European House - Ambrosetti re-elaboration on Ecofys, Eurelectric and Enel data, 2015
87
Figure
Share of
renewable
energy
gross final
energy
consumption in the EU-28: comparison between 2005
Share 39.
of renewable
energy
in gross final
energyin
consumption
in the
EU-28,2005-2015
and 2013.
60
50
40
30
20
10
2013
Luxembourg
Malta
The Netherlands
United Kingdom
Ireland
Belgium
Cyprus
Slovakia
Hungary
Poland
Germanty
Czech Republic
France
Greece
EU-28
Spain
Italy
Croatia
Bulgaria
Slovenia
Lithuania
Romania
Estonia
Portugal
Denmark
Austria
Finland
Latvia
Sweden
0
2005
Source: The European House - Ambrosetti elaboration on ENTSO-E and Eurostat data, 2015
3.2.5 Research & Innovation
batteries). Similarly, the European Commission set targets
The EU lags behind in the deployment of
key technologies
RES-related technologies in energy transition.
only for RES deployment, underestimating the role of non
82. This could prevent the EU from developing pivotal techno81. The European Commission set development policies
logies in the future and does not provide adequate incentives
only for RES deployment and not for key technological tran-
to direct financial resources to technologies currently not yet
sformation such as digitalization and energy storage (e.g.,
mature for commercialization but with high potential.
Investments in R&D vs. RES
deployment in the EU Big-5
Figure 40. R&D expenditure compared to RES
deployment costs (ratio), 2013.
In the “EU Big-5” (United Kingdom, France, Spain,
14.0%
Germany and Italy) public and private sectors have
12.0%
devoted much more attention and resources to
RES deployment compared to energy R&D finan-
10.0%
cing. The United Kingdom is a partial exception to
8.0%
this trend where, in 2013, the ratio between R&D
6.0%
expenditure and RES deployment costs on average
4.0%
were above 10% (12.2% for solar energy and 8.2%
for wind energy), whereas in the other countries
this ratio was well below 1%.
2.0%
0.0%
UK
France
Spain
Solar
Germany
Italy
Wind
Source: The European House - Ambrosetti elaboration on Bruegel Institute
data, 2014
88
building the european energy union
83. Collective EU action in supporting R&D investment in
new energy technologies is particularly important in the
current market context for three main reasons:
a. Current overcapacity and lower industry margins discour-
The most innovative energy
technologies for the EU
The Strategic Energy Technology Plan (SET-Plan) has
age investments in new technologies.
b. Lack of proper regulation on negative prices discourages
identified 21 main energy technologies as key to Eu-
customers from adopting the so-called “flexibility tech-
rope’s effort to decarbonize its economy and increase
nologies”.
energy efficiency.
c. Small spreads between higher and lower retail prices in
the electricity market discourage investments in technologies such as storage.
in 2008, the SET-Plan aims to accelerate the development
84. The European Union aims to increase the overall share
and deployment of low-carbon technologies and to promo-
of R&D to 3% of GDP from less than 2% in 2010. Under the
te research and innovation efforts across Europe by suppor-
Europe 2020 Strategy, two flagship initiatives –the Resource
ting technologies with the greatest impact on the EU’s tran-
Efficiency and the Innovation Union – are of particular re-
sformation to a low-carbon energy system. The Plan lists six
levance to EU energy R&D policies. Furthermore, Horizon
technology areas as the most relevant for both the Europe-
2020 has made €5.6 billion available for non-nuclear energy
an Union’s targets for 2020 and 2050: wind, solar, bioener-
sources.
gy (with the focus on second-generation biofuels), carbon
50
capture and storage, electricity grids and nuclear fission. In
85. The Strategic Energy Technology Plan (SET-Plan) is the
these six key areas, European Industrial Initiatives (EIIs) were
research and innovation pillar of EU energy policy. Launched
established.
Figure 41. SET-Plan: strategic energy technologies.
Advanced Fossil Fuel Power
Generation
Bioenergy
Biofuels
Carbon Capture Utilisation and
Storage
Cogeneration of Heat and Power
Concentrated Solar Power
Electricity Storage in the Power
Sector
Energy Efficiency in the Cement
Industry
Energy Efficiency in the Iron and
Steel Industry
Energy Efficiency in the Pulp and
Paper Industry
Fuel Cells and Hydrogen
Geothermal Power
Heating and Cooling Technologies
Hydropower
Nuclear Fission Power
Nuclear Fusion Power
Ocean Energy
Road Transport Efficiency
Smart Electricity Grids
Solar Photovoltaic
Wind Energy
Source: European Commission, SETIS – Strategic Energy Technologies Information System, 2015
(50) The Resource Efficiency and the Innovation Union provide a long-term framework for action and financing under Horizon 2020 in many policy areas, supporting policy
agendas for climate change, energy, transport, industry, raw materials, agriculture, fisheries, biodiversity and regional development.
89
86. Further resources for energy-related R&D have been
innovation indicators, similar indicators to track energy-
made available throug Horizon 2020, the 7 Framework
related R&D results at EU and Member State levels have not
Programme for Research and Technological Development,
been developed so far, however.
th
and EIB’s instruments such as the EIB Green Bond Initiative.
88. Finally, the EU should continue efforts to better align EU
87. An essential part of R&D policy is systematic monitoring
and national R&D priorities, policies, and international techno-
of progress and effective program evaluation. More atten-
logy co-operation. Market- based criteria should be identified
tion to these areas would be desirable. While monitoring
at EU-level to select technological innovation projects with
the progress of EU R&D efforts includes economy-wide
high potential and channel resources toward them.
3.3 The benefits of the European Energy Union
89. Completing the Energy Union will provide relevant be-
>> EU industry gas prices were three to four times more
nefits for the European Union and its citizens and compa-
expensive than comparable U.S., Indian and Russian
nies at different levels. In particular, our analyses focus on
four key dimensions:
a.Competitiveness: technological leadership in the energy industry and its related sectors; lower imports of
prices and 12% higher than Chinese prices.
>> EU industrial retail electricity prices were also more
than twice those in the U.S. and Russia, 20% more than
in China.51
energy products and energy dependence.
b. Environmental protection: lower carbon emissions and
related savings.
92. This price difference with other economies hinders the
competitiveness of European industries, especially energy-
c.Energy efficiency: technological innovation, competi-
intensive ones. Also, the developing of new technologies
tiveness of EU energy-efficient industries and prevention
(such as shale gas) will bring the U.S. from being a net ener-
of “carbon leakage”.
gy consumer to become a net energy producer in the next
d.Geopolitics: increasing EU geopolitical influence on the
few years.
global energy and climate change Agenda; trade negotiations and diplomacy.
93. Considering research and development, European
companies have a share of 40% of all patents for rene-
3.3.1 The Energy Union as a driver of
European competitiveness
wable technologies and a relevant market share in environment technologies. However, the European Union
is still far from having a fully coordinated and focused research approach, capable of combining EU and Member
90. In its recent Communication “A Framework Strategy for
State research programs around selected and strategic
a Resilient Energy Union with a Forward-Looking Climate
common goals and technologies (e.g., smart grids, storage
Change Policy”, the European Commission recognized com-
solutions, etc.) that will be critical for tomorrow’s energy
petitiveness of Europe and its companies as a key element
sector.
in the Energy Union strategy.
94. Moreover, the Emissions Trading System (ETS) has been
91. As of today, Europe is leader in key technologies, such
forefront in innovation in environment policies and will
as renewables, clean technologies and energy efficiency.
continue in the future to be the EU flagship climate change
However, the European energy sector still presents several
tool. However, as of today, it is failing in communicating pri-
critical issues that hinder the competitiveness of EU firms. In
ce signals that incentivize European companies to invest in
2014, according to European Commission estimates:
clean and energy-efficient technologies.
(51) European Commission, “Energy prices and costs in Europe report”, 2014.
90
building the european energy union
95. Considering the great changes underway in the global
crease energy efficiency and reduce greenhouse gas
energy sector and the growing competition, European ener-
emissions.52
gy policy can be a unique opportunity to create synergies
between climate policy and business and deliver an ener-
99. The European Commission also identifies other research
gy policy for the European Union that fosters innovation,
priorities for those Member States who want to use these
strengthens European leadership in high value sectors and
technologies – such as carbon capture and storage (CCS),
drives investments in strategic technologies.
carbon capture and use (CCU), nuclear energy, etc.
96. Recognizing the importance of competitiveness and
considering it a top priority for the European Union, in its
Energy Union Communication the European Commission
has called on research, industry, the financing sector and
public authorities to work together to take advantage of
the creation of the Energy Union.
Environmental technology: a
growing industry in the years to
come
The environmental technology market has grown by
97. The aim of the Commission is to build strong and com-
11.8% per year, on average at a global level between
petitive European companies, capable of developing cut-
2007 and 2012, reaching a value of €2 trillion and it is
ting-edge technologies (such as smart grids, smart homes,
expected to reach a value of €4.4 trillion in 2025.
renewables, storage solutions, clean transport solutions,
clean fossil fuel and nuclear generation) and to create industrial products that will become the standard inside and
outside Europe in the coming decades.
100. A clear strategy along these core areas will enable EU industry to benefit from the first-mover advantage, becoming
98. To reach this goal, a new approach in research and
a leader in cutting-edge environmental technology.53 As
innovation is needed. Key technologies must be clearly
of today, Europe is a world leader in environmental techno-
identified, in order to not dispel resources and to drive in-
logy: its industries employ more than two million people,
vestments. The Commission has identified four core priori-
accounting for about one-third of the global market.
ties to which all Member States, European Commission and
other stakeholders must commit:
101. Through a consistent energy strategy focusing on com-
a. Achieve leadership in developing the next generation of
petitiveness and research and innovation financing, Europe
renewable energy technologies, including environment-
can keep its market share despite growing international
friendly production and use of biomass and biofuels, to-
competition. In doing so, EU environmental technologies
gether with energy storage.
firms could generate €1,452 billion by 2025. The cumulated
b. Facilitate consumer empowerment through smart grids,
smart home appliances, smart cities and home automa-
value will be equal to about €12 trillion between 2015 and
2025.
tion systems.
c. Increase energy efficiency and make building stock energy neutral.
d.Develop sustainable transport systems and deploy on a
large scale innovative technologies and services to in-
102. In addition, gaining competitiveness in cutting-edge
technologies will allow Europe to develop new standards
and innovative business models and create valuable skills
and jobs.
(52) Source: European Commission, “A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”, 2015.
(53)The “environmental technology” sector includes: power generation with renewable energy sources, environmental-friendly use of fossil fuels, storage technologies,
efficient grids, waste collection and transport, waste utilization, waste disposal, environmental remediation, water procurement and treatment, water utilization, efficiency increases in water utilization, alternative fuels, alternative drive technology, infrastructure and traffic control, sustainable mobility management, cross-sectional
technology, new materials, material-efficient processes, sustainable design, industry-specific energy-efficient production processes, efficient appliances and energyefficient buildings.
91
Figure 42. Value of Environmental Technology market at global and European level (€ billion), 2015(e) - 2025(e).
4,400
4,500
4,000
3,500
3,000
2,500
2,399
2,000
1,452
1,500
1,000
792
Cumulated Value:
€12,012 bln.
500
2015
2016
2017
2018
2019
2020
2021
World
2022
2023
2024
2025
EU-28
Source: The European House - Ambrosetti elaboration on European Commission data and various sources, 2015
103. Furthermore, increasing the share of RES in gross inland
deployment, the EU would save about €767 billion in the
consumption would improve the EU balance of payments
period 2015-2030 (at 2013 prices) compared to a scenario
and reduce the amount of energy imports currently at over
where renewables share of gross consumption remains con-
€400 billion per year. By reaching the 2030 target on RES
stant.
Figure 43. RES production and extra-EU imports in the EU-28 (Mtoe), 2015(e)-2030(e).
900
850
800
750
700
650
600
2015
2016
2017
2018
2019
2020
2021
2022
2023
Imports reduction thanks to RES increase
Source: The European House - Ambrosetti elaboration on Eurostat and BP data, 2015
92
building the european energy union
2024
2025
2026
2027
Imports with no RES increase
2028
2029
2030
3.3.2 Europe’s contribution to the
global environmental agenda
setting targets on emissions, renewables and energy efficiency.
105. On October 2014, European Member States agreed to
104. Since the European Union has started to focus on
strengthen their commitment with the 2030 Climate and
energy, environmental issues have been at the core. In
Energy Package, which aims to make the European Union’s
1991, the Commission issued the first community stra-
economy and energy system more competitive, secure and
tegy to limit CO2 emissions and improve energy efficiency.
sustainable. This new package sets the following 2030 targets:
Then, in 2000, it launched the first European climate chan-
>> Greenhouse gas reduction target of at least 40% compared to 1990.
ge program (with the target to cut by 8% EU greenhouse
>> Increasing the share of renewable energy to at least 27%
gas emissions to 8% below 1990 levels by 2008-2012 and
of EU energy consumption.
achieve Kyoto targets). This paved the way to a more inte-
>> Increasing energy efficiency by at least 27%.
grated action, with the 2020 Climate and Energy Package,
Figure 44. EU climate action: targets for 2020 and 2030 (target), 2004-2030.
Share of renewables
Energy efficiency
(max. Mtoe, primary energy consumption)
GHG emissions
“Business as usual” scenario used
by the EU Commission to calculate
the 2020 target
2004: 93.8%
Target 2030: 27%
1,951.2
1,853
2012: 82.1%
1,787
2004:
1,706
Target 2020: 80%
-
Target 2020: 20.0%
2013: 15.0%
2013:
1,567
2020: 1,483
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2030
2030: 1,424
2028
2026
2024
2022
2020
2016
2014
2012
2010
2008
2006
2004
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2004: 8.3%
2018
Target 2030: 60%
Source: The European House - Ambrosetti elaboration on Eurostat data, 2015
106. To reach these ambitious goals, however, a forward
looking climate policy could not be enough. A more comprehensive energy strategy, capable of improving the governance of the European energy sector and considering all the
interrelated aspects is needed. In this sense, the European
ETS reform is needed to deliver
price signals that incentivize
energy savings investments
Energy Union can offer a unique opportunity to tackle
climate change and environmental issues, providing the
107. First of all, the Energy Union should reform the Emis-
“control room” and far-ranging regulation for a comprehen-
sions Trading System (ETS). As of today, it is delivering low
sive European environmental strategy. It can also deliver the
prices for CO2 emissions, disincentivizing investments in cle-
comparative advantage that Europe needs to become the
an technologies. The European Parliament has approved, in
world leader in sustainability, to cut emissions to unprece-
July 2015, the Market Stability Reserve (MSR) proposed by
dentedly low levels and to be in the forefront of renewable
the European Commission and expected to become fully
energy production and in the fight against climate change.
operational by 2019. It will balance demand and offer CO2
93
allowances, addressing the current surplus of allowances
and improving the resilience of the ETS to major economic
shocks. It will operate according to pre-defined EU-level ru-
Changing global habits is needed
les with no discretion to the Commission or Member States
According to World Health Organization (WHO) esti-
in its implementation. The revised ETS Directive will also in-
mates, in 2012 deaths due to outdoor air pollution
clude an innovation fund (to support low-carbon demon-
were 3.7 million, of which nearly 90% were in deve-
stration activities across the EU) and a modernization fund
loping countries.
(to fund the modernization of energy systems in low-income Member States) financed by the sale of emission allowances from 2021 to 2030.
tor in Europe and accounts for about one-fifth of emissions.
An integrated approach will have to promote electrification
108. Moreover, the Energy Union strategy will also help to
and clean fuels investments, collaborating with business and
further develop renewable energy sources thanks to new
consumers and merging policy and financial instruments.
policies and legislation, measures to incentivize investments
and financing of cutting-edge research and development
112. Environment is today a compelling priority in the glo-
projects. The Energy Union will also keep in mind the impor-
bal agenda. At the end of 2015, France will be hosting the
tance of international competitiveness of European firms in
21st session of the Conference of the Parties to the United
the environmental technology sector.
Nations Framework Convention on Climate Change (COP21
in Paris). The EU will have to play a major role in this crucial
109. The Energy Union also aims to ensure that renewable
conference, where a new international agreement on clima-
energy will be integrated into a “secure and cost-efficient
te must be reached that must be applicable to all countries,
energy system”54 where consumer empowerment and de-
with the aim of keeping global warming below 2°C.
centralization of production will be taken into account and
will contribute to efficiency and sustainability of the entire
113. Reducing pollutant emissions will not only save lives
system.
and the environment, but also economic resources for environmental-friendly European companies. There have been
110. Another key aspect is related to energy efficiency: ac-
several attempts to quantify the cost of carbon emissions
cording to the European Commission, 75% of EU housing
and air pollutants,56 taking into account all the externalities
stock is currently energy inefficient55 and heating and cooling
they cause. We have decided to consider this cost only from
remain the main single source of energy demand in Europe.
an economic standpoint, using the price of a ton of CO2
The Energy Union will have to take into account this problem,
delivered by the EU-ETS (€8/CO2 ton, as of July 2015).57
simplifying financing for a comprehensive renewal of the
European building stock, incentivizing investments and re-
114. Considering this CO2 price, it has been evaluated that
viewing Energy Efficiency and Energy Performance Directives.
reducing Green House Gas emissions by 60% (vs. 1990
levels, as decided in the 2030 framework for climate and
111. The Energy Union will also have to tackle the problem of
energy policies) would result in €66.3 billion cumulated
pollutants and GHG emissions, especially in the transport sec-
savings between 2012 and 2030 for European compa-
tor. Transport, in fact, is the second largest GHG-emitting sec-
nies.
(54) European Commission, “A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”, 2015.
(55) According to European Commission estimates, to achieve the 27% energy efficiency target by 2030, the energy intensity of the residential sector will have to improve
almost five times faster between 2020 and 2030 than it did between 2000 and 2010.
(56) For instance, the Environmental and Energy Study Institute - EESI, “Carbon pricing around the world”, 2012.
(57) Several attempts to evaluate CO2 emissions have been made. In particular, some of them use the price of CO2 delivered by carbon taxes implemented around the globe
(the average value of carbon taxes in the world was about €25.45/ton as of October 2012) or ETS allowances price. We have adopted a conservative value of CO2, using
the current EU-ETS price for CO2.
94
building the european energy union
Figure 45. GHG emissions levels in the EU-28 (% reduction to 1990 levels and € billion savings), 2004-2030.
93.8%
82.1%
Target 2020: 80%
Savings (2012-2020)
€4,4 bln
Target 2030: 60%
Savings (2012-2030):
€66.3 bln
1990 = 5,696 million
tonnes of CO2-equivalents
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
3.3.3 The benefits of a more efficient
energy sector
118. Calculating the benefits of energy efficiency presents
115. Energy efficiency brings multiple benefits that go
or technology that is being renovated:
beyond traditional outcomes of energy demand and green-
>> The European Commission estimates that energy effi-
house gas emissions reduction, and include supporting stra-
ciency will have significant positive spillover effects on
tegic objectives for energy system security, economic and
environmental policy and EU balance of payments. An
social development and environmental sustainability.
increase in energy efficiency by 27% on the baseline sce-
serious challenges. Benefits vary widely depending on the
nature of the investment and the state of the infrastructure
nario (which is the EU-wide non-binding target agreed
116. The energy efficiency transition requires a multifaceted
by the European Council in October 2014) would produ-
approach, combining economic, industrial, technological
ce a reduction of 14% of net energy imports (from a
and geopolitical aspects.
2010 baseline) and would reduce ETS allowance costs
to €39/ton by 2030.58
117. Beyond the issues related to the supply of fossil fuels
>> An increase in energy efficiency by 30% would reduce
and raw materials, renewed dialogues and partnerships are
imports by 18% from the 2010 baseline, and would re-
an opportunity for the EU to promote its foreign direct in-
duce the ETS carbon price to €25/ton by 2030.
vestments, open new markets for its technologies and services, and share its vision of the energy transition pathway
119. Furthermore, an integrated energy market in Europe,
and innovative governance across society.
coupled with targeted financial incentives for energy effi-
(58)This estimate assume that EU ETS allowance prices will rise significantly in the coming years as a result of the planned ETS reform. Source: European Commission,
“Impact Assessment accompanying the Communication from the Commission to the European Parliament and the Council, Energy Efficiency and its contribution to
energy security and the 2030 Framework for climate and energy policy”, SWD(2014) 255 final, Brussels.
95
Figure 46. The impact of energy efficiency targets on Green House Gas (GHG) reduction and imports.
EU-wide impacts
Energy efficiency target options
(in%)
Additional annual energy system
costs, relative to 40% GHG target
in 2030 (in EUR billion)
ETS Carbon Price in 2030 (in EUR)
Net energy imports
100=2010 levels
25
-
42
87
27 (EU Target 2030)
-
39
85
28
5
35
85
29
13
30
83
30
20
25
82
35
55
13
78
40
112
6
74
Source: European Commission, 2014
ciency technologies and R&D, would ensure that Europe
countries, as well as at a multilateral level with neighboring
maintains its leadership in this sector and continue to be a
regions, and with international organizations. Furthermore,
net exporter of such technologies.
the EU is a key player in the United Nations Framework Convention on Climate Change.
120. The digitalization of energy distribution would also
bring significant efficiency savings and benefits: it would
124. Europe has a strong economic and geopolitical interest
open more smart technologies for the grids and the home
in the successful completion of an ambitious decarboniza-
which should simplify consumer involvement in the new
tion policy at the global level. This would prompt a process
retail market. For consumers, investments in digitalization
of de-investment from energy inefficient industries, boost the
would increase energy efficiency and reduce costs.
competitiveness of the EU’s energy-efficient industries and
support the EU’s export of state-of-the-art energy-related
3.3.4 Boosting Europe’s “soft power”
in global relations
technologies.
125. With regard to multilateral relations, by taking a leadership role in global energy policy, as mentioned before, the
121. A strong and ambitious Energy Union will also streng-
EU can help to ensure a successful agreement at the forthco-
then the role and “soft power” of the EU in international
ming 2015 Paris Conference on Climate Change. This should
relations.
include the setting of binding carbon reduction targets for
developed and developing countries.
122. Energy policy can become a launch-pad for the EU’s global influence by projecting the internal market rules towards
126. In the past, the EU’s timely delivery of the EU Energy and
neighboring countries, promoting European values of inclu-
Climate Change Package (2008) allowed the EU to “lead by
sion and energy transition in third countries and supporting
example” at the 2009 Copenhagen Climate Change Confe-
EU economic and geopolitical priorities in bilateral and mul-
rence, setting a model for other countries. Full ownership by
tilateral forums.
developing countries of an ambitious decarbonization agenda is a key priority for Europe in order to prevent “carbon
96
123. The EU has already established external energy rela-
leakages” from carbon-efficient economies to less-efficient
tions at a bilateral level with key consuming and producing
developing countries.
building the european energy union
127. The EU also has a strong interest in seeing an effective
cess towards the harmonization of energy laws and to link
implementation of the G20 energy agenda on energy effi-
the markets of the contracting parties with each other and
ciency, reduction of fuel subsidies and marine environmental
with the internal market of the European Union and new
protection. In fact, a reduction of fuel subsidies and an incre-
supplies from the Caspian Region. The Energy Community
ase in energy efficiency investments in developing countries
expanded its membership and recently extended its man-
would create new markets for European-developed energy
date until 2023. A stronger EU common energy market
efficiency technologies.
would be better positioned to project its norms and principles in Eastern Europe and thus to provide better energy
128. Finally, Europe could promote the adoption by emer-
security to partner countries.
ging countries of carbon pricing mechanisms similar to the
EU’s ETS (e.g., China is in the process of adopting a carbon
132. In addition, in 2008, the EU launched the Union for
trading scheme modeled on the EU’s experience).
the Mediterranean, a stronger and more integrated EU
energy market which would give more leverage to the EU
vis-à-vis Northern African countries, especially if this were
to include an exchange of expertise and resources on cli-
“Power Africa” initiative
mate change adaptation and RES deployment, where there is a high potential for growth.
U.S. President Barack Obama launched “Power Africa”
to bring together technical and legal experts, the pri-
133. Finally, in 2009, the European Commission started
vate sector and governments from around the world
negotiations on behalf of member states with Central
to work in partnership to increase the number of pe-
Asia on the Southern Gas Corridor, the construction of
ople with access to power. The project aims to enable
the Trans-Caspian Pipeline and with Belarus and Russia on
electricity access in Africa by adding 60 million new
the integration of the Baltic States into the EU electricity
electricity connections and 30,000 MW of new and
system. More effective demand aggregation at EU level
cleaner power generation.
could further support the EU’s effort to diversify its energy
suppliers.
129. The completion of the Energy Union would also
strengthen the EU position in bilateral relations with other
energy producers and consumers. Climate change adaptation and electrification are set to be key priorities of developing countries in the coming years. Competing with
global players such as the United States and China, Europe
has a leading competitive role in the development and
deployment of electrification and ICT technologies in
Europe can play a
leading role in promoting
electrification and energy
digitalization in emerging
economies
emerging economies and this can constitute a powerful
leverage for the EU to boost its exports and global influence.
134. The European Union has also begun negotiations on
major trade agreements, notably with Canada, Japan and
130. Furthermore, the full integration of Energy Diplomacy
the United States, the so-called TTIP, which include energy
and Climate Change in the EU’s international agenda would
questions. Strengthening the Energy Union would put the
give the EU more leverage in diplomatic and commercial re-
EU in a stronger negotiating position. For example, with re-
lations with its partners.
gard to trade relations with the United States, the elimination of export restrictions for U.S. gas and oil is a key priority
131. In 2005, the Energy Community set in motion a pro59
for the EU to diversity its energy sources and lower prices.
(59) The Energy Community includes: Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic of Macedonia, Moldova, Montenegro, Serbia and the Ukraine, and Armenia, Georgia, Norway and Turkey as observers.
97
Figure 47. Free trade agreements and partnerships between the EU and third countries/regions.
Canada
(2014)
EU
South Korea
(2010)
USA
(started in 2013)
Mexico
(2010)
ASEAN
(started in 2012)
GCC
(started in 2001)
India
(started in 2007)
Malasya
(started in 2010)
Chile
(2002)
South Africa
(2004)
Ongoing negotiations
Source: The European House - Ambrosetti elaboration on European Commission data, 2015
98
building the european energy union
Signed agreements
Singapore
(started in 2011)
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