15 Energy infrastructure priorities for
2020 and beyond
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16302/10
+ ADDs 1-3
COM(10) 677
| Commission Communication: Energy infrastructure priorities for 2020 and beyond — A Blueprint for an integrated European energy network
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| Legal base | —
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| Document originated | 17 November 2010
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| Deposited in Parliament | 23 November 2010
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| Department | Energy & Climate Change
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| Basis of consideration | EM of 1 December 2010
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| Previous Committee Report | None but see footnotes
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| To be discussed in Council | See paragraph 15.19
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate recommended on Energy 2020
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Background
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its economic strategy, that the EU has paid a price for its outdated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.
INFRASTRUCTURE CHALLENGES
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.
ENERGY INFRASTRUCTURE BLUEPRINT: A NEW METHOD FOR
STRATEGIC PLANNING
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.
EUROPEAN INFRASTRUCTURE PRIORITIES FOR 2020 AND BEYOND
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".
SPEEDING UP IMPLEMENTATION
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
Conclusion
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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