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New geopolitical and energy market realities require the EU institutions and the member states’ governance to drastically accelerate the clean energy transition and increase energy independence from unreliable suppliers and volatile fossil fuels. Quick switch to renewables and hydrogen, combined with more energy efficiency, fast moves towards independent energy system, price regulation, state aid and tax measures to protect households and businesses are becoming urgent…
Global and European energy systems have been severely disrupted during recent years, particularly, during and after the Russian-Ukrainian military conflict. As a result, numerous issues: e.g. high energy prices and urgent energy security concerns, as well as the EU’s over-dependence on gas, oil and coal imports from Russia have been on the EU and states’ agendas.
The EU needs to create long-term partnerships being beneficial in boosting renewable energy, increasing energy efficiency and cooperation in green technology and innovation. The ultimate task is to make energy efficiency and savings the EU member states’ priority and facilitate the transition to a more circular economy.
Short history
In the beginning of March 2022, the Commission issues a Communication to the member states on REPowerEU program as a joint European action for more affordable, secure and sustainable energy. The program was a kind of “rapid response” to cut supply of Russian fossil fuels and accelerate the deployment of the European Green Deal’s plan.
Already at the end of March, the member states’ leaders agreed at the European Council (24-25 March 2022) that the EU states will fully phase out its dependency on Russian gas, oil and coal imports “as soon as possible, well before 2030” and asked the European Commission to develop a comprehensive and ambitious plan by the end of May 2022.
This elaboration of the REPowerEU plan has been the response to changing energy realities in Europe; besides, the plan seeks to diversify gas supplies, speed up the roll-out of renewable gases and replace gas in heating and power generation.
These and other measures could reduce the EU-27 demand for Russian gas by two thirds before the end of 2022.
Finally, at the end of May 2022, the Commission issues a draft of regulation on “green hydrogen”, providing the background for the integrated gas-hydrogen infrastructures by 2030.
Reference to press release on REPower EU in: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1511
The plan was presented by the Commission to the member states on 18 May 2022. According to the plan, the new EU’s initiative “REPowerEU” is a response to the EU-27 new priorities through energy savings, diversification of energy supplies, and accelerated roll-out of renewable energy to replace fossil fuels in homes, industries and power generation.
Besides, the EU green transformation (so-called “green deal”) will strengthen economic growth, security, and climate action for the EU member states and its partners around the world.
REPowerEU plan: main aspects
At the center of the “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.
From the EU side, the EU planning mechanism will include in the European Semester cycle-2022 some country-specific “re-power” recommendations for each EU member state; the latter can use the remaining RRF loans (currently €225 billion) and new RRF grants funded by the auctioning of Emission Trading System allowances, currently held in the Market Stability Reserve (worth €20 billion), for the following national development spheres:
= boosting energy efficiency in buildings, and decarbonising industry;
= increasing the production and uptake of sustainable biomethane and renewable or fossil-free hydrogen, and increasing the share of renewable energy;
= addressing internal and cross-border energy transmission bottlenecks and supporting the electrification of transport infrastructure, including railways;
= accelerated requalification of the workforce towards green skills;
= boosting value chains for the production of key materials and technologies linked to the green transition; and
= improving energy infrastructure and oil and gas facilities for immediate security of supply.
REPowerEU plan is to increase the resilience of the EU-wide energy system based on two pillars: a) diversifying gas supplies, via higher Liquefied Natural Gas (LNG) and pipeline imports from non-Russian suppliers, as well as producing larger volumes of biomethane and renewable hydrogen production; and b) quicker reduction of the use of fossil fuels in households, buildings, industry and power infrastructures by boosting energy efficiency, increasing renewables and electrification.
Besides, full implementation of the Commission’s “Fit for 55” proposals would already reduce the Union’s annual fossil gas consumption by 30%, equivalent to 100 billion cubic meters (bcm), by 2030. With the REPowerEU measures, the states could gradually remove at least 155 bcm of fossil gas use, which is equivalent to Russian import in 2021.
Nearly two thirds of that reduction can be achieved within a year, ending the EU’s overdependence on a single supplier. The Commission will work with the member states to identify the most suitable projects to meet these objectives, building on the extensive work done already on national recovery and resilience plans.
Source: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1511
Most of the EU’s gas demand will be substituted by the renewables, by low carbon energy sources and by energy savings. In the short term, a substantial part will also have to be replaced by diversifying suppliers and supply routes. The REPowerEU Plan sets out that an additional 15 million tons (mt) of renewable hydrogen – on top of the 5.6 mt already planned under the Fit for 55 initiative – can replace approximately 27 bcm of imported Russian gas by 2030. This includes 10 mt of imported hydrogen.
Source: https://ec.europa.eu/commission/presscorner/detail/en/FS_22_3136
With the REPowerEU plan, the states have to reduce by a third already by the end of 2022 the Russian gas imports, compared to a year before; however, uncertain price hikes and gas supply vulnerability, more measures are needed: e.g. reduce consumption of gas and make a “solidarity approach”; these steps must be taken amid higher competition on the LNG market.
Based on the REPowerEU, renewable deployment and green energy production has been accelerated as the energy efficiency has become an even more important part of the member state’s recovery plans.
The EU actions to secure alternative gas supplies are already bringing tangible results: in the first half of 2022, non-Russian LNG supplies to the EU increased by 19 bcm and pipeline deliveries by 14 bcm. The EU has reached gas supply agreements with the US, Canada, Norway, Egypt, Israel, Qatar and is cooperating with Algeria; additionally, the EU is exploring the options to increase LNG imports from Nigeria – the country is already the fourth-biggest exporter to the EU and has potential to contribute even more.
Reference to Commissioner Simson’s remarks at: https://ec.europa.eu/commission/presscorner/detail/da/speech_22_4727
More on possible means to finance the REPower plan in: https://www.integrin.dk/2022/05/20/re-power-the-eu-vital-perspectives-in-energy-security/
Renewables and new energy sources
Already before Russia-Ukraine military conflict, the EU expressed the necessity to move away from fossil fuels to a more sustainable economic growth: the transition would provide the member states with abundant and affordable clean energy, as well as provide the EU’s energy security. Green hydrogen is essential to end Europe’s dependence on an unreliable and dangerous supplier such as Russia; that is why in the new REPowerEU plan the Commission has doubled the 2030 target to produce annually ten million tons of renewable hydrogen in the EU-27.
Besides, the member states are also able to import another ten million tons of hydrogen from abroad; it all can replace up to 50 billion cubic meters per year of imported Russian gas.
However, the ultimate EU’s idea is to change the entire socio-economic system with new and emerging sectors, where solar, wind and biomass would replace importing fossil fuels; e.g. clean energy then would be turned into hydrogen to be used to power industry, businesses, mobility and households.
Most vivid example is in Poland, where first fleet of hydrogen buses is coming already in 2022; next year, the country will build these buses locally by about 100 vehicles per year. This means both more local jobs and new skills at the national Hydrogen School giving workers the needed professions.
Several EU states are already building hydrogen systems: i.e. the EU-27 has urgently expand the European hydrogen economy’s sector. There are three factors in accelerating the hydrogen transition in the member states: giving the industry a needed predictability, massive public investment along the European Clean Hydrogen Alliance with the private sector and advanced research. Besides, the new EU Clean Hydrogen Partnership will add € 1 billion to research and innovation, matched by another one billion from industry; these investments will help to bring innovative technologies from the laboratory to factory floor and, ultimately, to European businesses and consumers.
At the end of May 2022, the Commission adopted a regulation on “green hydrogen”, providing the needed legislative background for the completion of an integrated gas and hydrogen infrastructure by 2030, including storage and port facilities. In this way, the hydrogen industry is having perspective predictability; besides, all regional systems can merge into a truly EU-wide hydrogen market, which will be competitive on a global scene. With the current rise in gas prices, green hydrogen can already be cheaper than grey hydrogen; the EU’s target is to bring its cost below €1.8 per kg by 2030.
The EU intends to scale-up clean hydrogen production, expand its applications and create a virtuous circle where demand and supply feed each other and bring the prices down. The European recovery plan – NextGenerationEU – is worth € 800 billion for the next four years: over one third will finance the goals of the “green deal” to ensure sufficient renewable electricity to produce renewable hydrogen; over nine billion euros from NextGenerationEU are going directly to hydrogen projects.
The EU’s “Projects of Common European Interest” including hydrogen development is already prepared to kick start large industry-driven investments worth over €50 billion, showing a perfect example in hydrogen of what public-private partnerships can achieve.
References to: https://ec.europa.eu/commission/presscorner/detail/da/speech_22_3123
Energy security
The Union’s energy security is inseparable from an EU-wide sustainable and low-carbon economy with reduced imported fossil fuels. This strategy has been an integral part of the 2030 policy framework in the EU climate and energy plan; e.g. in 2014 about half of states’ electricity was produced without pollution – with 23% from renewables and 27% nuclear.
The strategy has been also consistent with the EU competitiveness and industrial policy objectives in line with the Commission’s idea of “European Industrial Renaissance” (see Commission Communication in COM-2014- 014).
Since February 2015, the EU has adopted a new “energy union” plan which was aimed at providing consumers, households and businesses in the member states with secure, sustainable, competitive and affordable energy. Since then, the European Commission published several packages of measures and progress reports monitoring the implementation of key priorities and to ensure that the energy union strategy is achievable.
More in: https://energy.ec.europa.eu/topics/energy-strategy/energy-union_en
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 environment 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.
Reference to: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52014DC0330&qid=1407855611566
Among present energy security challenges are: high energy prices, urgent energy security concerns, the EU’s over-dependence on gas, as well as drastic reduction of oil and coal imports from Russia; i.e. almost €100 billion per year is regularly paid for Russian fossil fuels.
Energy market in Europe
In response to several months of exceptionally high and volatile energy prices, the Commission has set out a series of additional short-term measures to tackle high energy prices and address possible supply disruptions from Russia.
The Commission Communication on energy markets is closely linked to REPowerEU program. To address the skyrocketing energy prices, the Commission is elaborating possible options for emergency measures to limit the contagion effect of gas prices on electricity consumption, such as temporary price limits. It will also assess options to optimise the electricity market design taking into account the final report of the EU Agency for the Cooperation of Energy Regulators (ACER) and other contributions on benefits and drawbacks of alternative pricing mechanisms to keep electricity affordable, without disrupting supply and further investment in the green transition.
Some evidences reflect negative consequences for the market if EU states would pull the brake on soaring gas prices by signaling the 15 percent demand cut: thus, gas prices by the end of July limbed past the €200 per MWH mark, and continued soaring reaching a record €214 for August futures and €217 for November futures, which is almost 10 times more than a year ago.
The EU plan on “external energy engagement in a changing world” was presented in May 2022 as part of the REPowerEU Plan; it explains how the EU would support a global, clean and just energy transition to ensure sustainable, secure and affordable energy.
The EU’s “external energy strategy” plan is aimed at such elements as: reducing the EU overall energy demand and ensuring fair competition for resources; boosting energy savings, energy efficiency and the development of renewables; preparing for further EU energy market integration; repairing existing energy infrastructures, and paving the way for a future green hydrogen partnership.
At the end of 2021, the Commission published the sixth “State of the EU energy union report”, which included an annex on energy subsidies in the EU-27, as well as detailed progress reports on some vital issues, e.g. on competitiveness of clean energy technologies, on fuel quality, on the functioning of the carbon market, and on climate action progress in the member states.
The 6th Report was the first “energy union report” since the adoption of the European climate law in June 2021and the second since the adoption of the European “green deal” published in July 2021.
More in: https://energy.ec.europa.eu/topics/energy-strategy/energy-union/sixth-report-state-energy-union_en.
References on the issues in the article: Factsheet on Financing REPowerEU; REPowerEU Clean Industry Factsheet; Questions and Answers on the REPowerEU Communication; Factsheet on REPowerEU Actions; Factsheet on Clean Energy; Factsheet on the International Energy Strategy, and Factsheet on Energy Savings.
Additional information on energy markets in EU: Energy Markets: Commission presents short-term emergency measures and options for long-term improvements, and
Questions and Answers on the Commission Communication on Short-Term Energy Market Interventions and Long Term Improvements to the Electricity Market Design