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Deep changes in Europe and the world, which have generated growing tensions in politics and economics, need scientists’ closer attention. The real challenge is to understand the core and essence of these changes so that national governance can manage them for the common good. Such an understanding is also required in analysing the urgent issues of European and sub-regional energy issues.
Among numerous modern challenges, including climate change and sustainability issues, one of the most urgent recent is that of the energy crisis, leading to dramatic changes in national priorities, increased inflation and households’ hardships. Ukraine-Russia military conflict just added new parameters in energy issues’ complexities and challenges. However, with the EU efforts to mitigate the negative geopolitical effects and the member states’ efforts to safeguard national energy security the perspectives look quite optimistic.
Although a specific part of the EU’s political agenda concerning “energy union” exists since 2015, the whole spectrum of national and the EU-wide energy security has become so vital presently. Thus, during last couple of years, and particularly during 2022, the EU institutions have devised, discussed with the states and approved numerous actions and plans aimed at remedying existing (and quickly mounting) energy supply and security problems.
Among most vital EU-wide measures are: Next Generation EU program (NGEU), the EU’s Recovery and Resilience Facility (EURRF) and some others; particularly, the national recovery-resilience plans (NRRPs) included climate action measures, advised by the EU “green deal” and having serious implications for energy use, as well as sustainability and renewables in perspective national energy strategies.
The narrative goes from showing new logistics’ facets in the EU and the member states’ national political economy followed by the application of energy security issues in the national recovery and resilience plans, including the energy component in the Baltic States perspectives in gas supply and security. Besides, the article assesses the EU’s trajectory in managing available and perspective renewable energy resources (such as hydrogen and off-shore wind farms, etc.), as well as the European and the Baltics States energy sovereignty through a newly adopted REPowerEU plan and other measures.
Energy policy: EU-member states’ connections
This policy issue has occupied a vital place in a changing political economy’s paradigm both in the EU institutions and in the member states’ governance. Modern political-economy’s narrative has acquired a specific set of national re-designed priorities instigated by the EU’s twin transition and social inclusion, as part of a new “instrumental arsenal” in growth with long- and short-term tasks in modern sustainable agenda.
Present energy crisis can serve as an example of a clear lack of long-term thinking among governing elites –particularly in the Eastern and Central European states – in the energy sector’s perspectives during last several decades. Everybody knew that the decade-old 40-50 percent European dependence on Russian oil and gas would sooner or later turn into a political weapon, which has happened already in 2014 with the annexation of Crimea… For example, Lithuanian government has shown a perfect example of an optimal logistics’ usage in sustainable energy: during last decade it prioritized bio-fuel strategy in energy mix (with sufficient use of EU funds). Besides, it has built a LNG terminal and so, presently, it has been the first EU state to abandon now its dependence on Russian gas import.
It has to be mentioned that the European energy policy is a shared competence between the EU institutions and the member states; though energy infrastructure is based on solidarity among the EU states. In achieving regional energy security the EU states need to adapt their policies to a “common denominator” and take additional measures, whereas the Commission used a two-stage approach: pre-emptive action and the EU alert mechanism.
Many EU states decided to go for renewables, both because of the high energy prices and uncertainties of supply; others are massively buying solar panels, installing heat pumps and looking for various types of alternatives to fossil fuels.
The EU institutions are doing everything they can to diversify gas supply and improve energy security; however, the EU states have to achieve the target of 60 bcm of available gas capacity; besides, the EU is also facilitating joint purchasing of gas and hydrogen, as well as wider use of renewables.
For example, recent reforms in the EU electricity policy acquired un-balanced approach calling the EU efforts superficial and hasty; it was backed by seven states (Germany, Denmark, Estonia, Finland, Luxembourg, Latvia and the Netherlands) suggesting more “targeted approach” in modernising the EU-wide wholesale market that does “not endanger the decarbonisation efforts and well-functioning electricity market.” According to these states’ plan (February 2023), “any reform… should be underpinned by an in-depth impact assessment and should not be adopted in crisis mode.”
New regulatory arsenal
According to the new EU-wide energy-policy’s instrument, the so-called REPowerEU plan, the states have to reduce in 2023 by eighty percent Russian gas imports. Besides, present gas vulnerability, more measures are needed: e.g. reducing consumption of gas, “solidarity approach” in energy security amid higher competition on the LNG market and increasing gas prices. Based on the REPowerEU plan, renewable deployment is to be accelerated and there are examples of very positive moves in green energy production as the energy efficiency has become an even more important part of the member state’s recovery plans.
Among the goals in the perspective European energy strategy there are two most vital: the first is about consumption’s restrictions: every EU state should reduce the use of gas; with the reduction by the EU-wide consumption by 15% by the end of March 2023; it would be equivalent to about 45 bcm of gas saving. The EU will coordinate distribution of gas among the EU states and promote the EU Energy Savings Plan’s requirements and ask all the states to launch awareness campaigns to encourage gas-saving behavior. The second goal encourages the EU institutions, to provide a safety net for all states according to solidarity clause; some states are more exposed than others to external gas supply, i.e. they are more vulnerable than others to potential energy disruption. Therefore it is important that all states now contribute to the saving, storing and sharing gas market facilities with the neighbors in case of need. Along the energy solidarity, there is the EU Security of Supply Regulation that foresees some emergency instruments; thus, the EU’s approach is both on voluntary cuts in usage and possible mandatory demand reductions.
The Commission’s idea is to introduce more flexibility to reflect the specific situations of the states: e.g. some states do not use gas at all, and several states (Ireland, Malta and the Baltic States) have strongly underlined their intention to reduce demand.
The EU actions are to secure alternative gas supplies: e.g. EU has reached agreements with the US, Canada, Norway, Egypt, Israel, Qatar and is cooperating with Algeria on LNG supply; additionally, the EU is exploring the options to increase LNG imports from Nigeria, which is already the fourth-biggest exporter to the EU.
During March-May 2022, the Commission adopted REPowerEU program as a joint EU-wide action for more affordable, secure and sustainable energy. The program was not only a “rapid response” to cut supply of Russian fossil fuels and accelerate the deployment of the European Green Deal’s plan, it was a plan to diversify gas supplies, speed up the roll-out of renewable gases and replace gas in heating and power generation. The Commission also issued a draft of regulation on “green hydrogen”, providing the background for the integrated gas-hydrogen infrastructures by 2030.
At the center of the EU’s “re-power” strategy is the EU’s Recovery and Resilience Facility (RRF), which provides additional EU funding for the national recovery/resilience plans (RRPs); the latter shall include in their national strategies a new chapter on “re-powering” socio-economic development.
Energy situation in the Baltic States
Energy independence and security has become a vital issue in the EU member states during last five years; particularly, starting with the Russian-Ukraine military conflict, the energy issues have become quite complicated. On the one hand, the Baltic States’ vulnerabilities and risks posed by Russia have been well known. On the other hand, energy independence would not come without significant investment and reforms.
Among the Baltic States, Lithuania has traditionally been the most vocal on energy security; it has taken one of the first bold steps among the EU members towards natural gas independence: in 2014 it launched an LNG terminal in Klaipeda with a floating storage and re-gasification unit after unsuccessful efforts to make a common LNG co-funded by the EU. After about eight years, the Klaipeda LNG terminal remains a Baltic States facility technically capable of supplying gas to the Lithuanian market together with two other Baltic States and Finland. Finnish and Estonian networks are connected by the Balticconnector pipeline, which has been running since 2020; recently established Poland-Lithuanian gas interconnection (being operational since May 2022), also links the Baltic States with other EU countries.
Klaipeda LNG terminal allowed Lithuania to announce in spring-2022 a complete abolishment of Russian natural gas import; Estonia also announced its intention to stop imports by the end of the year. In cooperation with Finland, which already has its own LNG facilities, Estonia is launching already an LNG terminal in Paldiski. Adopting similar measures have been voiced in Latvia too: national decision-makers agreed to stop Russian gas import by the end of 2022. However, some experts argue that complete ban of Russian gas would raise prices and could even lead to an energy crisis; presently, Latvia has stored sufficient gas amounts at the Inčukalns underground storage facility. Besides, Latvian government decided in April 2022 to build by 2023-24 its own LNG terminal either in Skulte or Rīga; the Ministry of Economic Affairs has already completed a review.
The “disentanglement” from Russia’s electricity infrastructure has been also vital due to recent increase in electricity prices. The Baltic States made lately several successful steps: two interconnections were built between Estonia and Finland completed in 2006 and 2014; two more were built Lithuania and other EU states (e.g. NordBalt underwater cable connected Lithuania-Sweden electricity grids and LitPol Link connected Lithuania and Poland). The so-called Harmony Link is expected to connect Lithuania and Poland under the Baltic Sea by 2025.
Already in 2018, the European Commission agreed to disconnect the three Baltic States from BRELL and synchronize them with the EU-wide electricity network by the end of 2025; the process has been both complex and costly. As soon as electricity supply for the Baltic States is fully connected to the EU-wide electricity grid, these states should produce more electricity without using gas. However, the Latvian government ordered Latvenergo (the state electricity-supply company) to acquire two terawatt-hours of natural gas so that, in the event of disconnection, the shortage could be compensated by the thermal power plants.
The European Commission approved “coordination and solidarity” measures in gas imports, as was suggested in the REPowerEU plan adopted in May 2022, rather than having individual member states compete on the international markets and drive prices up.
Some prominent positive trends in energy reforms are evident in the Baltics: e.g. a decade-old successful energy transformation of Lithuania’s central heating system, which used to be gas-dominated, now runs at 80 percent on biofuel; great progress in this regard is in Estonia too.
With low population density in Latvia, there are great opportunities to develop wind farms and other renewable projects, both on land and at sea; it all makes economic sense as gas prices are likely to remain high in future.
In order to reduce dependency, the European Commission has set up a joint gas storage facility which is presently filled at about 90 percent of total capacity. Besides, the EU has set up a continental Energy Platform for joint outside-purchase of needed energy resources and adopted a special REPowerEU plan. This plan’s goal is to put an end to the Union’s dependence on external fossil fuels as soon as possible through diversification, renewables and energy efficiency.
Sustainable energy
European renewables’ perspectives are concentrated, mainly, on two main sources: hydrogen and wind power. As to the use of hydrogen, it is expected to significantly increase in the coming years; most important is that hydrogen is a clean fuel that, when consumed in a fuel cell, produces only water. Hydrogen can be produced from a variety of domestic resources, such as natural gas, nuclear power, biomass, and renewable power like solar and wind; the qualities that make it an attractive fuel option for transportation and electricity generation applications. The EU hydrogen strategy is developing along three directions: a) strong public investment to innovate and scale up; b) international cooperation in the global market for hydrogen; d) partnership with the private sector and researchers.
For the EU and the Baltics it is vital that national policy-makers, industries and scientific community shall be “open” to new prospects to boost hydrogen agenda as part of complex green transition measures. The latter includes, e.g. deep analysis of the hydrogen’s role in the EU “green deal”, active measures towards so-called hydrogen economy, the complexities of the EU’s “fit for 55” legislation for hydrogen’s expansion, and renewed hydrogen cooperation. For example, among seven new projects worth over €1 billion to be financed from the EU’s Innovation Fund four are hydrogen-related, i.e. from “green steel” production in Sweden to carbon capture in France, etc.
For example, by the end of 2025, the Netherlands will complete “green hydrogen” value chain: two electrolysers will use the needed renewable energy source, which then will power up industries, public transport, heating homes, and even could be stored underground. Besides, the EU Emissions Trading System may be extended to new type of residential and office building heating, as well as “green transport”, which would provide for positive hydrogen position in numerous economic sectors hydrogen to be used in comparison to traditional electricity.
As to the Baltic perspectives in renewables, since 2008, numerous high-level groups worked to implement the Baltic Energy Market Interconnection Plan on sub-regional cooperation to fully integrate the Baltic’s electricity systems with the EU states by 2025; strong EU budget financial assistance of more than €1.2 billion is available. Main part of this support is directed towards renewables; there are three pillars in the strategy: a) substantial fossil energy saving measures in all EU states: present agreed level is to save 15 percent of energy by spring 2023; b) accumulating both a “diversified way” from imported fossil fuels to reliable/sustainable sources and filling-up the states’ storages capacities; c) massive investment into renewable energy sources, i.e. clean, cheap, big and locally produced; the EU proposed to further increase the 2030 target for renewable energy to up to 45% presently. This means a renewable energy capacity of around 1,250 gigawatts by 2030, compared to about 340 gigawatts of wind and solar sources, or totally 500 gigawatts taking into account biomass.
With a recent “Baltic off-shore wind project” the EU could reach the desired goal: eight states around the Baltic Sea region have already committed in summer 2022 to increase seven time the current offshore wind capacity in the region to up to 20 gigawatts by 2030, which is already one-third of the overall EU ambition for offshore wind by 2030.
EU-wide cooperation in commodities
The benefits of regional cooperation are immense: when offshore wind turbines are connected to multiple countries, the costs are reduced, the impact on the environment is minimized, and the energy production is never wasted (it can flow towards different markets at different times). In this way, solidarity meets sustainability and security of supply; and the Commission is supporting this regional cooperation project: from planning and organizing, to issuing permits and financing.
The states around the Baltic Sea agreed to accelerate wind capacity with huge investment in offshore facilities. In this regard the states agreed on three points:
First is to make a “hybrid approach” as a priority when planning interconnectors and offshore generation. Hybrid projects, which connect wind farms to several states save up to 10% of the total project costs. A great example of cross-border cooperation is the ELWIND offshore wind project between Estonia and Latvia; the Commission selected ELWIND presently as an “important cross-border project” to be eligible for EU funding.
Secondly, wind-grid network development plans shall be fast in implementation based on common offshore commitments. The Commission, with ENTSO-E facilities, will provide during September technical guidance to support this work.
Thirdly, providing political backing will accelerate the permitting process: it often represents the biggest bottlenecks; hence, it is important to fast-forward the permitting within one year.
The Baltic Sea offshore wind project will cover the energy consumption of around six million households by 2030. That is more than the number of households in Denmark, Lithuania, Latvia and Estonia combined.
This sub-regional cooperation can incentivize using full potential of offshore wind in Europe; and the EU institutions will strongly support such initiatives: e.g. the NextGenerationEU program makes available € 5.6 billion for the deployment of offshore and onshore wind capacities in Europe.
There is another important issue connected to the wind energy: i.e. electricity price situation in the EU, which is connected to imported gas, mainly from Russia. Besides, the negative and even devastating impact of climate change is already threatening the states’ wellbeing. About 94% of the electricity price is composed of gas prices; the European emission trading system, ETS’ share is only 6%. But the states have to introduce the ETS to cut CO2 emissions because it is the CO2 that causes climate change. Evolution of the price shows that -compared to 2021 – the ETS increased by 58%, mainly because more coal is used, but gas increased by 580% – tenfold.
Thus, European climate policy is a security policy too: the states have to invest in renewables, which clean, cheaper and nationally produced; it all makes the states more sovereign and independent of external supplies.
Besides, the pricing mechanisms of the electricity market shall be addressed: the EU intends to develop an emergency tool and to work for a long-term structural reform of the electricity market. However, the electricity market is no longer a functioning market because there is main part of the price-ingredient – gas import, which during last decades was systematically destroying the stability of prices.
Geo-political factors
The biggest present issue is a modern energy crisis as it is closely connected to geopolitical factors, the cost of living and climate change, i.e. the factors dubbed presently as the “polycrisis’. For example, it is scientifically proved that achieving net-zero emissions is necessary to avert a climate catastrophe. In order to meet the goals of the Paris Agreement on climate change, it will require massive and transformative action across all sectors of national socio-economic fabric, including, of course big companies and SMEs as the most vital parts of growth.
Wind and solar has already overtaken gas as the EU’s biggest source of electricity: wind and solar combined produced over 22 percent of electricity in 2022, overtaking fossil gas, which produced 20 percent; during 2023, due to extremely warm weather, the EU’s solar capacity grew by a record 24 percent, i.e. double the previous year’s growth.
The energy transition world-wide, according to the World Economic Forum, is going to require about $2 trillion investment every year; with just $750 billion available from philanthropic capital, the states’ governance and corporate entities will experience sever press in the coming years…
It is important to mention that the EU states were collectively prepared to implement long-term plans for competitive, secure and sustainable energy in a fast-changing political economy which required flexibility, capacity to adapt and change. In order to meet the EU’s new energy and climate targets for 2030, the EU member states were required to establish 10-year national energy-climate plans for up to 2030.