Documents considered by the Committee on 15 December 2010 - European Scrutiny Committee Contents

15 Energy infrastructure priorities for 2020 and beyond



+ ADDs 1-3

COM(10) 677

Commission Communication: Energy infrastructure priorities for 2020 and beyond — A Blueprint for an integrated European energy network
Legal base
Document originated17 November 2010
Deposited in Parliament23 November 2010
DepartmentEnergy & Climate Change
Basis of considerationEM of 1 December 2010
Previous Committee ReportNone but see footnotes
To be discussed in CouncilSee paragraph 15.19
Committee's assessmentPolitically important
Committee's decisionCleared, but relevant to the debate recommended on Energy 2020


15.1 According to the Commission, the EU's energy policy goals will not be achievable without a major shift in the way in which European infrastructure is developed: but it adds that this is a task not just for the energy industry or which a single Member State can accomplish on its own, there being a need for a European strategy and funding. It also notes that, in the light of the Energy Policy for Europe[117] agreed by the European Council in 2007 (which established the aim of competitiveness, sustainability and security of supply) and of the so-called 20-20-20 goals,[118] it recently produced a Communication[119] — Energy 2020 — which called for a step change in the way in which energy infrastructures are planned, constructed and operated. It adds that modern energy networks are a crucial prerequisite, not only for EU energy policy goals, but also for its economic strategy, that the EU has paid a price for its outdated and poorly interconnected infrastructure, not least during the gas disruption in eastern Europe in January 2009, and that the development of renewable sources, such as offshore wind in the North and Baltic Seas, and solar energy in Southern Europe and North Africa, requires additional connections within the EU and with neighbouring countries.

15.2 The Commission also points out that all these issues will be by compounded by the EU's aim of reducing greenhouse gas emissions by 80-95% by 2050, and that it is thus crucial when taking investment decisions to keep in mind the longer term objectives. In view of this, it says that it intends to put forward in 2011 a comprehensive roadmap towards 2050, which will present energy mix scenarios, describe ways of achieving the long-term decarbonisation goal, and the implications for energy policy decisions. In the meantime, the aim of this Communication is to identify the infrastructure needed to meet the 2020 objectives.

The current document

15.3 The Commission suggests that a new EU infrastructure policy to coordinate and optimise network development on a continental scale will reduce the costs to Member States of making the low-carbon shift through the resultant economies of scale: in addition, it says that it will improve security of supply and help stabilise consumer prices by ensuring that energy goes where it is needed, facilitate competition in the single energy market and solidarity among Member States, and ensure consumers have access to affordable energy sources. However, it says that two specific matters need to be addressed — project authorisation and financing — and it goes on to examine in more depth the various issues involved.


15.4 The Commission says that the challenges of interconnecting and adapting EU energy infrastructure are significant and urgent, and affect all sectors in different ways, as follows:

—  Electricity grids and storage

The Commission says that electricity grids must be upgraded to meet increasing demand, due to the multiplication of applications and technologies relying on electricity, as well as to foster market integration, maintain existing levels of security, and in particular transport and balance electricity generated from renewable sources. It also comments that a significant share of generation capacity, such as offshore wind or solar panels, will be located further away from major centres of consumption and storage, and that the greatest efficiencies needed to bring down costs can be made on a pan-European scale. It suggests that grids must become "smarter", with more innovation and intelligence being applied to both transmission and distribution networks by the use of information and communication technologies, thus enabling consumers to control appliances so as to save energy and reduce costs, and boosting the competitiveness of EU industry, including small and medium-sized enterprises (SMEs).

—  Natural gas grids and storage

The Commission says that, provided its supply is secure, natural gas will continue to play a key role in the EU's energy mix in the coming decades, and will gain in importance as the back-up fuel for variable electricity generation. It adds that, although unconventional and biogas resources may in the long run reduce the EU's import dependency, the depletion of conventional indigenous resources will require additional imports in the medium term. It suggests that gas networks provide additional flexibility through bi-directional pipelines, enhanced storage capacities, and flexible supply, including liquefied (LNG) and compressed (CNG) natural gas, but that markets are still fragmented and monopolistic, and that single-source dependency (compounded by poor infrastructure) prevails in eastern Europe. It therefore concludes that a diversified portfolio of physical gas sources and routes, and a fully interconnected and bi-directional gas network is already needed by 2020, and that this should be linked closely with the EU's strategy towards third countries, in particular suppliers and transit countries.

—  Direct heating and cooling networks

The Commission says that thermal power generation often leads to conversion losses, whilst at the same natural resources are consumed nearby to produce heating or cooling in separate systems, and it comments that this is both inefficient and costly. It also points out that natural resources such as seawater or groundwater are seldom used for cooling, despite the cost savings involved. It suggests that the development of district heating and cooling networks should be promoted as a matter of priority for all larger agglomerations where this can be justified, and it says that this will be addressed in the Energy Efficiency Plan and "Smart Cities" innovation partnership, to be launched early in 2011.

—  Carbon capture, transport and storage (CCS)

The Commission says that CCS technologies would reduce carbon dioxide emissions on a large scale, whilst allowing the use of fossil fuels, and that the technology, as well as its risks and benefits, is still being tested through pilot plants, which will come on line in 2015, with commercial rollout in electricity generation and industrial applications expected to start after 2020. It points out that, as potential storage sites for carbon dioxide are unevenly distributed, and some Member States have only limited potential storage, the construction of European pipeline infrastructure, spanning national borders and in the maritime environment, could become necessary.

—  Oil and olefin transport and refining

The Commission says that, if climate, transport and energy efficiency policies remain as they are today, oil would represent 30% of primary energy, and that a significant part of transport fuels are likely to remain oil-based in 2030. It notes that security of supply depends upon the integrity and flexibility of the entire supply chain, and that the future shape of infrastructure for crude oil and petroleum product transport will be determined by developments in the European refining sector.

15.5 The Commission goes on to say that the policy and legislative measures adopted by the EU since 2009 — notably the third internal energy market package — have provided a sound foundation for European infrastructure planning and investment. It points out that regulators are now required to take into account the impact of their decisions on the EU internal market as a whole, but that decisions on tariffs are set nationally, as are those on infrastructure interconnection projects: and it observes that, since national authorities have sought to minimise tariffs, it has been difficult for projects with problematic cost allocation across borders, or applying innovative technologies or fulfilling only security of supply purposes, to obtain the necessary rate of return. On the other hand, it points to the unified European carbon market arising from the strengthened and extended Emission Trading Scheme, which it says will increasingly shift the optimal electricity supply mix and location towards low carbon supply sources, and to the way in which the Regulation on security of gas supply[120] will enhance the EU's capacity to react to crises.

15.6 The Commission notes that both industry and transmission system operators have pointed to long and uncertain permitting procedures as one of the main reasons for delays in the implementation of infrastructure projects, particularly for electricity, and that cross-border projects often face additional opposition. Overall, it suggests that delays could prevent about 50% of commercially viable projects from being realised by 2020, and that this would seriously hamper the EU's transformation into a resource efficient and low carbon economy and threaten its competitiveness. It also observes that lack of coordination and strategic planning often slow down the process in offshore waters, and increase the risk of subsequent conflicts with other sea users.

15.7 The Commission also looks at investment needs and the financing gap. It says that around €1 trillion must be invested in energy between now and 2020, of which half will be required for networks, including electricity and gas distribution, storage and smart grids. It adds that about €200 billion will be needed for energy transmission networks alone, but that only about 50% of this will be taken up by the market, due in part to delays in obtaining the necessary permits, but also by difficult access to finance, and a lack of adequate risk mitigating instruments for projects with an insufficient commercial justification. It adds that the costs of not realising these investments (or not doing so under EU-wide coordination) would be huge, but that, if all the investments needed in transmission infrastructure were to be realised, EU GDP by 2020 would increase by €19 billion, and the diffusion of EU technologies would be promoted.


15.8 The Commission says that delivering the energy infrastructures needed by Europe in the next two decades requires a completely new infrastructure, and in particular changes the current practice of TEN-E,[121] with long predefined and inflexible project lists. It proposes a new method, which would:

·  identify the energy infrastructure map, leading towards a European smart supergrid, interconnecting networks at continental level;

·  focus on a limited number of European priorities to be implemented by 2020 in order to meet long-term objectives where European action is most warranted;

·  identify, on the basis of an agreed methodology, concrete projects necessary to implement these priorities in a flexible manner, and building on regional cooperation;

·  support the implementation of projects of European interest through new means, such as improved regional cooperation, permitting procedures, better methods and information for decision makers and citizens, and innovative financial instruments.


15.9 The Commission proposes a number of short term and longer term priorities to make the EU's infrastructure suitable for the 21st century.

Priority corridors for electricity, gas and oil

15.10 The Commission says that the first 10 year network development plan forms a solid basis for identifying priorities as regards electricity infrastructure, but does not take full account of investment triggered by important new offshore generation capacities, such as wind in the North Sea, or ensure timely implementation, especially for cross-border interconnections. In order to ensure timely integration of renewable energy in Northern and Southern Europe and further integration, the Commission focuses attention of the following corridors:

·  Offshore grid in the Northern Seas and connection in Northern as well as Central Europe (including hydro storage facilities in the Alpine region and Nordic countries);

·  Interconnections in South Western Europe, in particular between the Iberian Peninsula and France, and further connecting with Central Europe, to make best use of North African renewable sources;

·  Connection in Central Eastern and South Eastern Europe;

·  Completion of the Baltic Energy Market Interconnection Plan (BEMIP), integrating the Baltic states into the European market, and strengthening interconnections with Finland, Sweden and Poland.

15.11 In the case of gas, which the Commission describes as a priority area, it says that the aim is enable supply from any source to be bought and sold anywhere in the EU. It notes that, whilst supplies on an EU level are diversified along three corridors[122] and through LNG, single source dependency still prevails in some regions, and it suggests that each European region should have infrastructure which allows access to at last two different sources, adding that the balancing role of gas for variable electricity generation imposes additional flexibility requirements. It says that, in order to achieve these objectives, the following priority corridors have been identified:

·  Southern Corridor to bring in gas from the Caspian Basin, Central Asia, and the Middle East;

·  linking the Baltic, Black, Adriatic and Aegean Seas through implementation of the BEMIP and the North-South Corridor in Central Eastern and South-East Europe;

·  North-South Corridor in Western Europe to remove internal bottlenecks and make full use of possible alternative external supplies, including Africa.

15.12 As regards security of oil supply, the Commission says that the aim is to ensure uninterrupted crude oil supplies to land-locked EU countries in Central-Eastern Europe which are dependent on limited supply routes, so as to guard against lasting supply disruptions from conventional sources. It believes this can largely be achieved within the existing infrastructure by reinforcing the interoperability of the Central-Eastern European pipeline network.

15.13 Finally, the Commission looks at smart grid technologies. It says the aim should be to provide the necessary framework and incentives for rapid investment in a new "intelligent" network infrastructure, and that it will also assess the need for further legislation to keep implementation on track, including which aspects of smart grids and meters need to be regulated or standardised and which can be left to the market. In addition, the Commission says that it will set up a smart grids transparency and information platform to enable dissemination of the good deployment practice and create synergies between different approaches, where it regards the timely establishment of technical standards and adequate data protection as key requirements.

Preparing the longer term networks

15.14 The Commission says that there is only a limited window of opportunity for the EU to acquire the energy network needed to further reduce greenhouse gas emissions in the longer term, and that this requires a coordinated European approach. This would involve European Electric Highways (where the Commission proposes to launch immediately work to establish a development plan allowing the commissioning of the first highways by 2020), and a European carbon dioxide transport infrastructure (where it says that further research, coordinated by the European Industrial Initiative for carbon capture and storage, launched under the Strategic Energy Technology Plan, will allow a timely start to infrastructure planning and development at European level).

From priorities to projects

15.15 The Commission says that the priorities established should translate into concrete projects, and lead to the establishment of a rolling programme, requiring projects to be ranked according to agreed and transparent criteria, resulting in a limited number. It suggests that the criteria for electricity should include contribution to security of supply, the capacity to connect to renewable generation and to transmit to major consumption centres, increased market integration and competition, and contribution to energy efficiency and smart use: in the case of gas, they should include diversification of sources, suppliers and routes, increased competition, increased market integration and reduced market concentration. It adds that the projects identified would be examined at EU level to ensure consistency, and ranked in terms of their urgency: and those meeting these criteria would be labelled a "Project of European Interest".


15.16 The Commission outlines a number of ways in which implementation can be speeded up. These include:

·  regional cooperation;

·  the faster granting of permits, through the establishment of a contact authority for each project of European interest, coupled with a time limit within which it must take a decision, and the development of guidelines to increase transparency and predictability;

·  the development of a dedicated policy and project support tool to accompany infrastructure planning and project development;

·  creating a stable framework for financing, involving the leveraging of private sources through improved cost allocation, and optimising the leverage of public and private sources by mitigating investor risks.

The Government's view

15.17 In his Explanatory Memorandum of 1 December 2010, the Minister of State for Energy and Climate Change at the Department of Energy & Climate Change (Mr Charles Hendry) says that the Government welcomes the publication of this Communication much of which is fully in line with the UK position. He notes that the Communication highlights the investment challenge which must be overcome in order to make the move to a low-carbon economy at least cost (including the need for new technological developments such as large-scale electricity storage, electric vehicle charging points, CO2 transport and storage, and smart grids), that it stresses the benefits of a fully interconnected European market in terms of increased security of supply, more stable prices and increased competition, and that it agrees that full use should be made of the tools set out in the Third Package in order to provide incentives for the investment in infrastructure needed, most of which will be financed by regulated tariffs.

15.18 The Minister also points out that the Commission has said that it will propose an Energy Security and Infrastructure Instrument in 2011 to replace the current TEN-E Regulation, and that the UK will want to ensure that the proposals respect the division of competence between Member States and the EU, adding that it has concerns about some of the Commission's suggestions on planning procedures, which could have implications for national competence and will need careful scrutiny. He says that, whilst the UK agrees that difficulties in obtaining planning consents will have to be overcome if the strategic infrastructure projects needed for a low-carbon future are to be built, planning decisions should continue to fall within national competence. Finally, the Minister notes the reference in the Communication to the use of EU funds in projects designated as being of "European Interest", and says that the Government will need to ensure that the budget agreed for the new TEN-E instrument is in line with its objective of reducing the overall size of the EU's Budget and the net costs to the UK.

15.19 The Minister says that the Communication was due to be discussed at the Energy Council on 3 December, and will in turn inform the energy-themed European Council on 4 February 2011


15.20 As we have noted in a separate chapter of this Report, the Commission's Communication Energy 2020 has called for a step change in the way in which energy infrastructure is planned, constructed and operated, and it has sought in this document to identify in greater detail the infrastructure needed to meet the EU's energy needs, the problems which will have to be overcome in order to put that in place, and how the necessary finance can be met. As such, it is clearly an important document which should be drawn to the attention of the House, but, as we have recommended the Energy 2020 Communication for debate in European Committee, we think it would be sufficient if the current document were to be tagged to that debate, rather than considered in its own right.

117   (28276) 5282/07: see HC 41-x (2006-07), chapter 2 (21 February 2007). Back

118   To reduce greenhouse gas emission by 20%,deliver 20% savings in consumption, and increase to 20% the contribution made by renewable energy to overall consumption. Back

119   (32170) 16096/10: see chapter 2 of this Report. Back

120   Regulation (EC) No 994/2010. Back

121   Trans European Network - Energy Back

122   Northern from Norway, Eastern from Russian, and Mediterranean from Africa. Back

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