Energy union, the EU’s next revolution

Jean-Claude Juncker identified building energy union as one of the priorities for his EU Commission that started work last November. He put vice president Maroš Šefčovič, of Slovakia, in charge of putting together a strategy document and, less than five months later, on 19 March, European leaders endorsed a plan for creating a single market for energy and gas, which also includes ambitious steps towards greater energy efficiency and a phase-out of fossil fuels.

While energy independence and deeper integration into the EU has been the buzzwords in Eastern European countries like Lithuania for years, renewable energy still receives, to a great extent, merely lip service and is seen as an expensive fancy of the rich nations. In fact, key points of Lithuania’s energy strategy include a terminal for importing liquefied natural gas, exploring its shale resources and an increasingly unlikely nuclear power plant project.

It is pouring outside when I talk about renewable energy, like solar power, with Peter Van Kemseke, a member of Šefčovič’s cabinet and one of the authors of the energy union strategy. Nor is Lithuania particularly windy, while all the bigger rivers that could be used for water power plants have been damped long ago. “Biomass,” he offers an off-the-cuff suggestion. Indeed, a little later on, driving across the vast plains of the country, he marvels at the incredible emptiness of the landscape. Growing wood for fuel is not infeasible.

But each country producing its own power is not the point of energy security, one of the milestones of the strategy, he is quick to note. Quite the opposite – while EU member states should indeed strive for less reliance on gas and energy imported from third countries, they must, at the same time, count on one another to help meet their needs. Spain, Van Kemseke offers an example, could easily supply more clean energy from renewable sources to France. The problem, however, is that Spain and France are not wired together well enough and cannot transport large quantities of electricity across national borders.

Building interconnections is one thing, but would the French, the Spanish, the Germans or, for that matter, the Lithuanians be ready to give up thinking about energy security as a national interest and treat it as a common, European issue? But there is a precedent, Van Kemseke suggests. If EU countries could delegate as important a part of their sovereignty as monetary policy to supranational institutions, anything is possible. “In EU Council meetings, you can see that finance ministers already think as Europeans, while energy ministers still think in national terms,” Van Kemseke says.

And there is incredible momentum right now not to be wasted, he adds. Events in Ukraine, if anything, made Europe painfully aware of its dependence on Russian energy. Moreover, there are indications that world leadership is finally taking climate change seriously. With the United Nations Climate Change Conference (COP21) scheduled for this November in Paris, where everyone hopes for a universal and legally binding agreement on reining in global warming, there is a case to be made that whoever is the first to perfect feasible alternatives to fossil fuel will reap great economic benefits. Europe hopes to be the one.

Peter Van Kemseke talks to the Lithuania Tribune about the EU’s energy union strategy.

What problems and challenges is the energy union supposed to solve?

Several issues. First of all, our extremely high energy dependency. EU-wide, we import 53 percent of our energy, which means that every year we pay 400bn euros for energy import. On top of that, the dependence is not only costly; in the current geopolitical context, it’s not the wisest thing to do.

Second, we don’t really have a common market in the field of energy. We have 28 different decision makers, we have 28 different markets and this costs a lot of money, we lose a lot of money just by the fragmentation of our internal energy market.

And third, our current system is not sustainable in the long term. That’s why we decided to move our energy system away from fossil fuels to strong emphasis on the renewables and on saving energy, because the cheapest, cleanest, safest energy is energy that you don’t consume.

How realistic is it to have a truly sizeable share of our energy produced from renewable sources?

It’s very realistic. Europe has a huge renewable potential. It’s true that some time ago, renewable energy was not always mature and it needed huge subsidies, which is not the way to go. Because if you have huge subsidies, to put it on the market, it means in the end that it is the consumer who will pay. So that’s why we will propose a gradual phasing-out of subsidies, especially subsidies that distort the functioning of the market.

But when we look at the maturity of renewables now, we see that a lot of renewable energy sources are mature enough and can be put on the market even without market-distorting subsidies. And this is something we will definitely encourage.

Again, it’s related to dependency. One way to reduce our energy dependence and to increase our energy security is to use domestic energy sources that we have, like wind power, solar power, biomass and so on.

This is related to the idea of the energy market as a whole. Because if you make sure that you have good interconnections, then you can solve one of the problems that we now have with renewables, they are intermittent, but if you have solar energy, if you have good storage capacity – and this is something we, as Europe, will have to invest in to have technological leadership in energy storage – it is feasible. We have to stimulate research, we have to focus our research.

So you need the storage and you need better interconnections – and if you have better interconnections, if you have your internal energy market, then renewables are an option. Then you can use the strength of one region in Europe to produce green energy and send it to places where you have less opportunity for certain types of renewable energy.

What would creating a common energy market entail?

As I said, now we have 28 different energy markets. Energy cannot flow freely. We want to make sure that we treat energy as if it were a fifth freedom. We now have the four freedoms in the European Union, movement of people, services, goods and capital. We want to treat energy as if it were a fifth freedom, meaning that we have to get rid of technical barriers that still exist, obstacles like a lack of interconnections.

We will invest quite a lot into interconnections within European Added Value to basically make sure that if you are an energy provider, you can supply energy to anyone, anywhere in Europe. That you don’t have any barriers any more. What happens now is that you still have many technical barriers that make it impossible to connect the energy markets.

So we want to make sure that we get rid of those. An important part of that is the Third Energy Package. We will also make sure that member states implement the Third Energy Package and all existing legislation, be it in the energy efficiency, renewables directive and so on. We will revise existing legislation, but we will also have to come up with new legislation, e.g., in the field of our electricity market. We will next year come up with a proposal to redesign the electricity market, for example, to have one common space in which electricity can flow freely.

While countries in Western Europe, like Germany, are enthusiastic to invest into renewable energy sources, eastern members like Poland are more focused on growth and fear that transition may drain their economies. How would such different interest be reconciled?

If you look at the energy union strategy, we have five dimensions that we focus on. The first is energy security. The second one is the internal energy market, we really have to make the internal energy market happen. The third one is: energy efficiency first. So basically we put energy efficiency as an energy source in itself, one that can compete with other energy sources. Fourth, the decarbonisation, a radical choice for decarbonising our economy and society. And fifth, research and innovation.

So these are the five dimensions of the energy union and I think for each member state there is something that is very appealing. Some member states have a lot to gain with the internal energy market. Others have a strong focus on energy security, especially if you look at Central and Eastern European countries, they put a lot of emphasis on energy security and becoming less dependent. But I think if you look at all the five dimensions, every member state has something appealing in the energy union strategy. That’s why it was also endorsed by the European Council, by all the leaders, in such a strong manner.

Energy union will not be established next year, so we’re not proposing a radical change from 2015 to 2016. It’s a gradual process, but we give the directions. We know where Europe wants to be in 2020, we know where Europe wants to be in 2030, and I think that all member-states, including those that now heavily rely on fossil fuels, see that they have an interest in moving towards energy efficiency and towards more renewable energy, because it is more cost-effective, because also we have some climate obligations as well.

In October 2014, the European Council committed to reduce greenhouse gas emissions by at least 40 percent by 2030, compared to 1990. So we have climate change obligations to which all member states have committed and we can save a lot of energy and a lot of additional costs through energy efficiency. And I think this is an economic interest that all member states begin to understand very well.

It is very interesting to see that if you talk to business leaders, the more progressive among them, big companies, they don’t consider, say, climate change obligations as a burden, they consider it as a business opportunity. And I think renewables are a good example. If we manage to develop them, to become the global hub of the next stage of advanced renewable energy technology, then I think we have a strong business case. Because in the rest of the world, if we are serious about the fight against climate change, all countries will have to put effort, including the countries that are extremely polluting at this moment. It’s better that they transform their energy systems and economies with European technologies.

Does nuclear energy have a place in this vision for the future?

The energy mix is a national competence, so it means that every member state according to the treaty can still decide on the right energy mix that it wants. Nuclear energy is now part of the energy mix. I think we have 16 member states that have chosen nuclear energy, 14 of which have chosen to continue with nuclear energy, while two of them are phasing out nuclear energy. But this is a decision that they will have to make, and if member states want to continue with nuclear energy, of course the treaty allows them to do it.

Having said that, it is of course important to know that all member states have also committed to some energy efficiency targets, at least 27 percent by 2030, and some renewable targets, at least 27 percent by 2030. So you have the energy mix, which is a national competence, but on the other hand you have a strong European framework – that is based on the member states’ own decision – that is driving them towards the targets that we have in the field of climate change, renewables and energy efficiency. And those targets have to be met. Regardless of the energy mix that you choose.

How easy was it to convince member states to sign up for the energy union plan?

It went surprisingly well, because I think there is a general understanding that this was the right time to act. This was not the first time that people were talking about an energy union or an energy community, Jacques Delors, the former president of the Commission (1985-1995), already launched the idea of an energy community some time ago. But I think the moment was not ripe. Now, President Juncker put it back on the political agenda.

What we see now is that the moment is ripe and this is also something that the European Council has stated quite repeatedly. First of all, because of global competitiveness. Look at what’s happening in the United States, with the shale gas revolution, which means that the prices of gas are much lower in the US than in Europe, which is a competitive disadvantage to our companies. So leaders know that they have to act.

Second, you have the geostrategic context, the events in Ukraine, which is also a game changer. And third, you have now the understanding that climate change is an important issue. You have the mobilization in the run-up to COP21 in Paris (the UN Climate Change Conference). So if you add everything up, this means that there is a momentum and this momentum made it easier to convince member states to go in this direction.

The real challenge right now, I think, will be the implementation. Because it is one thing to commit to a very ambitious transition in energy, but now we have to make sure that all these nice words are implemented.

What’s the roadmap for the implementation?

We have already started. We have attached to the Energy Union Strategy a pretty detailed roadmap with legislative and non-legislative proposals even for 2015. By the end of the year, we will come up with the first legislative proposals. This will continue in 2016 and later on. So basically the train has left the station and it will speed up – with revision of existing legislation, with new legislation, as I said we don’t have any time to waste.

Lithuania’s main energy concern right now is not being pushed around by Russia’s Gazprom, our sole gas provider. How will the energy union help solve that?

One of the things that the Commission proposes is to create more transparency in gas contracts. And this was strongly endorsed by the European Council of March 19. The European Council basically asked the Commission to come forward with an ambitious proposal to make sure that the gas contracts are more transparent, because what is happening now is that the negotiations of gas contracts – and very often these are long-term gas contracts – are completely non-transparent. They take place purely on a bilateral level, with our member states not really knowing what the real benchmarks are.

I think in this field the Commission can do a very useful job. The Commission can be associated at a very early stage with the negotiations, it can gather all information on gas contracts – for example, what is reasonable price, what is reasonable volume, what are reasonable contract clauses. The Commission, of course, fully respects the secrecy of commercial information and has extensive experience of how to treat certain information in a confidential manner; but if the Commission is aware what is in the gas contracts, it’s easier to establish some benchmarks and this will help individual member states in their negotiations with certain third parties. And this I think is one of the most promising elements in the Energy Union Strategy as far as energy security is concerned.

Can we expect that in the future the EU will be negotiating gas purchase with major providers like Gazprom on the part of the member states?

The negotiations are, of course, a competence of member states, they will negotiate, but the main difference will be that the Commission will be associated at an early stage.

Which is not the case now. What happens too often is that a member state is negotiating with a third party and, at a final stage, the Commission is involved, but then very often it’s too late, because the contract is almost finished. In this case, the Commission will be associated from the very beginning in the negotiations and the Commission will really give a hand to a member state that is negotiating. But of course it will not be the European Union as such that is negotiating, it will be a member state.

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