A New Industrial Revolution?
Following on from
the drama of Russia and Belarus the European Commission announced on
January 10th a major package of energy and climate policy
proposals, that call for Europe to cut greenhouse gas emissions by 20%
by 2020 as well as a big shake-up of EU electricity and gas markets.
Although the
primary focus is quite clearly to promote the shift to low-carbon
energy, other objectives also include limiting the EU’s dependence on
external gas and oil imports as well as stimulating technology by
encouraging jobs and growth.
Europe, like the
rest of the developed world, depends on energy to function. Dependence
on imports is growing fast and raises the risk of higher energy prices.
To combat these rising costs the European Commission’s proposals will
need serious consideration by all member states. It is ambitious and it
is urgent, but the benefits, should they succeed will inspire the world
and make Europe all the more secure in its desire for growth and
prosperity.
According to the
International Energy Agency (IEA) the global demand for oil is expected
to grow by 41% by 2030. There is a growing uncertainty that the major
oil and gas producers are able, or even willing to increase investment
to meet this rising demand, which means that the risk of supply failure
is becoming more of a possibility.
Competitiveness
As Europe’s
dependence on imports grows, so also does its exposure to the effects of
price volatility and price increases. This can have a dramatic effect on
the economy, as Belarus found out last month, before Russia agreed to
help them with a large injection of cash.
A competitive
market should allow both citizens and companies alike to purchase
cheaper energy, as well as assisting the emissions trading mechanism to
work properly. To assist this process the EC put into place a series of
measures to create an Internal Energy Market, designed to deliver real
choice to all EU consumers.
The Internal
Energy Market has the potential to stimulate fair and competitive energy
prices, along with savings and higher investment. But the conditions
needed to achieve this are not in place and will require a completely
liberalised market for the benefits to be received by all. A truly
single market will promote diversity, allowing non-conventional supply
to connect to existing networks and so securing supply and sustainable
energy.
The Internal Energy Market
After much
consultation the EC are no longer prepared to allow the forming of this
single market to drag its heels any longer and is now putting into place
a framework that, within the next three years, should see a European Gas
and Electricity Grid representing a competitive European-wide energy
market.
In order to
achieve this, the Commission is expected to implement the following
requirements:
Ownership
unbundling (splitting up energy supply and transportation businesses
into separately owned companies) has been proved to be the most
effective means to encourage investment and ensure choice for energy
users. This is because separate network companies are not influenced by
overlapping supply/generation interests in regards of investment
decisions. This would also avoid much detailed and complex regulation
and heavy administrative burdens.
The levels of
powers and independence of energy regulators need to be harmonised, and
they need to promote the effective development of their national market
as well as the Internal Energy Market.
Additionally there
needs to be a harmonisation of technical standards for cross-border
trading to function. Even though The European Regulators’ Group for
Electricity and Gas (ERGEG) has failed to provide the governance
required the Commission feels that by formalising its role, a European
network of independent regulators (ERGEG+) would still be the best way
to make rapid and effective progress in harmonising the technical issues
necessary to make cross-border trading work effectively.
A minimum level of
transparency needs to be established and adhered to by all Transmission
System Operators (TSOs), to enable new entrants to compete and to
prevent price manipulation. This is very necessary to make this market
work properly.
There are five
priorities for the Interconnector Plan that have been identified,
namely:
-
Identify
the most significant missing infrastructure up to 2013 and
ensure political support fills the gaps.
-
Appoint
co-ordinators to pursue the following projects:
The Power-Link
between Germany, Poland and Lithuania;
Connections to
off-shore wind power in N. Europe;
Electricity
interconnections between France and Spain, and
Nabucco Pipeline,
bringing gas from the Caspian to central Europe.
-
Agree a
maximum of five years between planning and approval for projects
that are considered to be of “European interest”.
-
Increase,
if necessary, funding for Energy Trans-European networks,
particularly to integrate renewable electricity into the grid.
-
Establish
a new community mechanism and structure for TSOs responsible for
co-ordinated network planning
To prevent
black-outs and improve the reliability of the EU’s electricity system,
the new community for TSOs should propose common minimum security
standards that will become binding after approval by energy regulators.
-
Adequacy of
electricity generation and gas supply capacity
Europe expects to
invest around €900 billion on new electricity generation and €150
billion on gas-fired plant over the next 25 years. In addition to €220
billion on gas infrastructure. With the Internal Energy Market
functioning properly correct investment signals will be given, along
with the demand/supply balance.
-
Energy as a
public service
The EU is also
committed to tackling energy poverty and will:
-
assist in
establishing schemes to help the vulnerable with energy prices
-
improve
information available to customers to help them chose between
suppliers and supply options
-
reduce
paperwork when switching and
-
protect
customers from unfair selling practises
The Internal
Energy Market should increase the interdependence of Member States in
energy supply for both electricity and gas. This is particularly
important as oil and gas is still expected to meet over half of the EU’s
energy needs despite the targets on energy efficiency and renewables.
Climate Change
As time has gone
on and more studies have taken place it is becoming more evident that
climate change is something that we are going to have to live with for
the foreseeable future. That this is a serious situation there is no
doubt, evidence shows that temperature is rising and glaciers are
melting. We can expect more flooding and droughts, stronger winds and
waves as well as many millions of people being displaced around the
globe. "our actions over the coming few decades could create risks of
major disruption to economic and social activity, later in this century
and in the next, on a scale similar to those associated with the great
wars and the economic depression of the first half of the 20th Century",
says Sir Nicholas Stern in his report, the Stern Review.
Even though we
cannot immediately stop what has begun, we can limit how far this goes
and to a certain extent how long it lasts. Maybe it was the Stern
Review, requested by the British government, or the other studies
commissioned by the EU, but it seems as though the lights are coming on
and the EU Commission are waking up to the fact that something must be
done about the way we live now in order to preserve the way we live in
the future.
All ready a global
leader in renewable technologies, Europe has the potential to lead the
way in the rapidly growing global market for low carbon technologies, as
well as the fight against climate change, which has already provided
jobs for over 300,000 people.
Renewables Targets
In 1997 the EU
made a start to reach a target of 12% renewable energy in its energy mix
by 2010. Although big steps have been taken, it is unlikely to exceed
10% by 2010. Nonetheless, determined to make a difference, and increase
innovation and jobs, the EU has set a new target of 20% renewables in
the energy mix by 2020.
The price gap
between using renewable energy and hydrocarbons is narrowing, especially
when you take the costs of climate change into account. But major
investment is still needed to make renewable energy more affordable. And
by introducing more renewable energy into the general mix you start to
loosen your dependence on imports, which has got to be good for security
of supply.
So having learned
some lessons from the past, the Commission is proposing a binding
target, in an attempt to encourage Member States to play their part in
fulfilling this ambitious but very necessary project.
But, as Denmark
has shown, it is not impossible. Around 20% of their power comes from
wind. Sweden has over 185,000 installed geothermal heat pumps, whilst
Germany and Austria have led the way with solar heating.
As for transport,
Sweden already have a market share of 4% of the petrol market, using bio
ethanol and Germany leads the way in the diesel market with 6%
bio-diesel. This is a start towards the target of 10% for biofuels by
2020.
As already
mentioned, renewables is one way of reducing the EU CO2 emissions, but
it isn’t the only way.
Nuclear
At present around
15% of electricity used in Europe comes from nuclear generation. This is
one of the largest sources of CO2 free energy in Europe and the
Commission has no reason to insist Member States withdraw them from use.
The EU wants to maintain its technological lead in fourth generation
fission nuclear reactors as well as future fusion technology, not only
to boost the competitiveness, safety and security of nuclear
electricity, but to reduce the level of waste as well.
A Low CO2 Fossil Fuel Future
As already
mentioned, fossil fuels are expected to play a major part of the EU
energy mix for many years to come. At present coal and gas make up about
50% of the EU’s energy mix and the IEA expects twice as much electricity
to be produced from coal by 2030. At today’s standards that is an
increase of 5bn tonnes of CO2 which is 40% of the expected increase in
global energy-related CO2 emissions.
In an effort to
clean this up the EU needs to provide a clear vision for the
introduction of Carbon Capture and Storage (CCS), whereby carbon
emissions from power generation are captured and stored typically in a
geological structure such as an old oil or gas field. With investment,
regulation, research as well as incorporating it into the EU Emissions
Trading Scheme (ETS).
The Commission
intends this year to encourage the construction and operation by 2015 of
12 large scale demonstrations of fossil fuel plants using latest
technology including CCS in commercial power generation within the EU.
The intention is then that by 2020 all new coal-fired plants should be
fitted with CCS and existing plants should follow their lead.
With One Voice
The Commission
recognises that even with the entire EU working together and bringing
about the changes suggested that it is not enough to save the world from
global climate change. The EU in the future will only account for 15% of
new CO2 emissions and, with the new objectives, only consume less than
10% of the world’s energy.
By working
together and making these objectives a reality the EU will lead both
developed and developing countries into a future of low-carbon power
generation and help to avert global climate change on a catastrophic
scale. The time for talk is over; the time for action has come.
Researched and
written by Paul Cassar, MJMEnergy Ltd.
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