Energy Transition 2014
The impact of changing energy patterns on EU competitiveness
2014 will be a critical year for both the EU and its energy policy. Therefore, Egmont – Royal Institute for International Relations and the Development Group are going to hold a series of three “EU Energy Symposiums” followed by a “High Level Energy Conference” in Brussels. The four events will address key issues that are currently at the core of the future European energy governance.
The 1st Symposium took place on 30 April 2014. In light of the recent Commission’s proposal on the 2030 climate and energy framework, its Communication on energy prices and costs in Europe, as well as its Communication for a European Industrial Renaissance, and with regards to the conclusions of the March European Council, around 80 participants from the European Energy Community and beyond discussed “The impact of changing energy patterns on EU competitiveness.”
The European energy policy in a global context
The Symposium was opened up by Dominique Ristori, director-general at the European Commission’s DG Energy. He shortly outlined the next steps not only towards an agreed 2030 climate and energy framework but also towards the climate conference in Paris 2015. Then he pointed out EU’s key priorities, which integrate competitiveness, security of supply and sustainability aspects.
What is the impact of changing patterns in energy markets on EU competitiveness?
Giovanni Brianza (Edison S.p.A) opened the 1st session explaining that the EU energy market and the utilities are facing major challenges but there are opportunities to overcome this situation both in the gas and power markets. Afterwards, Baudouin Kelecom (ExxonMobil) presented the perspective of the refining industry, which is an essential and integrated part of many other European industries. Inge Bernaerts (DG Energy, European Commission) presented the main findings of the Commission’s report on energy prices and costs. Against this backdrop Discussant Jayesh Parmar (Baringa Partners) explained that many companies base their investment decisions on the fact that the price differential between the US and the EU is a sustained trend.
How to handle and mitigate the impact of high energy costs on EU competitiveness?
The 2nd Session was opened up by Matthew Gordon (Honeywell Europe), who stressed that the first priority should be to do more with less thanks to energy efficiency, instead of focusing on energy costs. Wolfram Vogel (European Power Exchange - EPEX SPOT SE) explained why power exchanges and market coupling are important tools for mitigating energy costs, favouring EU competitiveness. Afterwards, Alexandre Affre (BusinessEurope) outlined the lessons learned from the implementation of the 2020 framework before he stated his recommendations for the adoption of the 2030 framework.
Finally, Discussant Claude Mandil (former Executive Director of the IEA) underlined that the first way to mitigate the consequences of high energy prices is to reduce the energy costs. In order to do so, we have to let the market work and deliver least-cost options.
How can the 2030 energy and climaet package foster EU competitiveness?
To conclude this Symposium, Sandrine Dixon-Declève (Prince of Wales’ EU Corporate Leaders Group and Executive Director of Green Growth Group) enumerated some reflections of the Business Green Growth Group for the 2030 package. Then, she highlighted that it is economically counter-productive to avoid ambitious low-carbon actions. According to the IEA, every year of delayed mitigation action adds €500 billion to the global low-carbon energy investment bill between 2010 and 2030.
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How can we finance the EU energy transition towards a low-carbon economy?
2014 will be a critical year for both the EU and its energy policy. Therefore on 11th of June 2014, Egmont – The Royal Institute for International Relations and the Development Group organized a symposium entitled ‘How can we finance the EU energy transition towards a low-carbon economy?’. The symposium was the second of a series of events related to the multifaceted challenges of the EU energy transition towards a low-carbon economy.
In light of the ongoing revisions of the EU regulations and instruments, which will inevitably impact investment decisions in the energy sector (e.g. the revision of the EU environmental and energy state aid guidelines, the reform of the EU ETS, the proposal on the 2030 framework for energy and climate policies, the Communication on the Long-Term Financing of the European Economy, or the implementation of the list of "projects of common interest" (PCI)) more than 70 experts discussed the main factors that affect investment in the EU energy sector.
Keynote address: What is the role of finance in the transition towards a low-carbon economy?
Juan Alario (European Investment Bank) pointed out that although the current context is not favourable to low-carbon technologies, it seems favourable for investments in energy efficiency. Energy efficiency has considerable potential to expand, but policy actions are needed. He also outlined issues to finance future investments, including the lack of certainty on the development of energy and climate policies, constrained corporate finance, limited public budgets, new banking rules and the mobilisation of relatively new players such as households and Energy Service Companies to invest in energy efficiency.
Session 1: Why is it currently difficult to invest both public and private funds in the European energy transition?
Michel Matheu (EDF) stressed that a stable framework is needed to give robust signals to industry and encourage investment, but the current situation is far removed from this target. Afterwards, Beate Raabe (Eurogas) added that energy suppliers need to know what will be the targets of the 2030 framework, under what conditions shale gas will be allowed, if CCS will be rolled out, and how the various issues of the internal energy market will be addressed. Finally, Jayesh Parmar (Baringa Partners) reminded that the energy revolution represents huge opportunities, and there is no shortage of money. In order to balance risk and return, the risk for infrastructure investments must be reduced and merchant investments must own responsibility for the remaining risks.
Discussant Mechthild Wörsdörfer (European Commission) explained that the Commission has tried to propose a credible 2030 energy and climate framework that ought to reduce uncertainty. Now it is up to Member States to discuss this framework before adopting it by October.
Session 2: How to promote the necessary investment in the European energy transition?
Opening the 2nd Session, Dr Dominik Thumfart (Deutsche Bank) explained that energy infrastructure is made up of long-lived assets which need long-term financing, including project financing. He also emphasized that there are substantial pools of capital to invest in the energy transition, including equity funds, pension funds and sovereign wealth funds. Gerd Schräder (RWE Innogy) explained that the growth of renewables is changing the shape of the electricity system in Europe. RWE Innogy is therefore developing a competitive renewable energy expertise on the basis of partnering, services and green products. Afterwards, Karim Dahou (OECD) presented the OECD’s work on clean energy investment. He outlined the barriers to clean energy infrastructure investment and stressed the priorities to unlock private investment.
Finally Discussant Tudor Constantinescu (European Commission) pointed out some key challenges towards a successful energy transition and stressed that the energy policy framework must not only be predictable and coherent but also flexible in order to adapt to new developments and new innovative technologies in the energy landscape.
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Energy efficiency in the EU from 2020 to 2030– bridging the gap between expectations and realities
The objective of this third symposium was to discuss publically the need to bridge the gap between expectations and realities regarding energy efficiency in the 2030 framework. All the participants agreed on the numerous benefits of energy efficiency, i.e. reducing dependency from foreign gas, fostering growth and competitiveness, creating jobs and decreasing CO2 emissions.
After a short introduction of Viscount Etienne Davignon, President of the Egmont Institute, the keynote address was provided by Peter Van Kemseke, Special Advisor to the President of the European Council, Herman van Rompuy. He began by pointing out the member states’ high mobilisation and the stakeholders’ high expectations for the next European Council on 23-24 October 2014. He outlined the four priorities of the 2030 energy and climate framework: (1) turning our mosaic of 28 energy markets into a single internal energy market; (2) replacing our aging infrastructure via important investments, particularly from the private sector; (3) tackling the EU energy dependency – which costs the EU €400 billion per year for fossil fuel imports – by diversifying our energy resources and improving the coordination between member states; (4) setting energy efficiency (EE) as a top priority. He finished by explaining that despite positive developments, the potential of EE remains largely untapped.
Frank DONKERS (Managing Director Benelux, Kingspan Insulated Panels), Harry VERHAAR (Head of Global Public & Government Affairs, Philips Lighting) and Martin BORNHOLDT (Managing Director, DENEFF – German business initiative for energy efficiency) started the first session explaining the 'energy efficiency gap' and the lessons learned from the 2020 implementation. Their findings were discussed by Monica FRASSONI (President of the European Alliance to Save Energy).
During the second Session Robert DURDILLY (President, French Union of Electricity), Dr Amal LOTFI (Director Basics, Products Department, ista International) and Ingrid HOLMES (Associate Director, E3G – Third Generation Environmentalism) pointed out how the EU can bridge the 'energy efficiency gap' in the 2030 Energy and Climate Framework. Paul HODSON (Head of Unit on Energy Efficiency, DG Energy, European Commission) then concluded the Symposium by discussing the various points made by the speakers.
The European Commission proposed an energy efficiency target of 30% by 2030 but the jury is still out regarding whether this target should be binding or not. Most of the speakers shared the view that this target will leave a great share of Europe’s cost effective energy saving potential untapped. They thus wish for a more ambitious and binding target. It is now into the hands of the European Council to discuss energy efficiency as a major component of the new 2030 climate and energy framework, which ought to be adopted by the end of October 2014.
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The 2030 Energy & Climate Package for the EU: the challenges that lie ahead
The High Level Conference on 3rd December 2014 was opened up with a keynote provided by Jos DELBEKE, Director-General of the DG Climate at the European Commission who presented the view of the European Commission towards the 2030 Climate and Energy Policy Framework.
On 23 October 2014, the European Council finally agreed on the new 2030 Climate and Energy Policy Framework. This Policy Framework aims at making the European Union’s energy system more competitive, secure and sustainable. However, the various presentations and discussions have shown that reconciling these three objectives in the new 2030 package will not be easy. While energy security concerns are on the rise, the EU must take care of the impact of its climate policies on the competitiveness of its industry, ensures affordable energy for all consumers, increases the security of the EU’s energy supplies, reduces its dependence on energy imports, creates new opportunities for growth and jobs, while trying to be a global climate leader. Dominique RISTORI, Director-General of the DG Energy at the European Commission again underlined the importance of these challenges.
The first Session on "The necessary balance: Can the 2030 Energy & Climate package reconcile competitiveness, security of supply and sustainability in the EU" featured Hans BÜNTING (RWE Innogy GmbH), Simon BAKER (ALCOA Europe), Robert DURDILLY (French Union of Electricity (UFE)) and David MACLEAN (ExxonMobil Gas & Power Marketing) as speakers.
The most important lesson learned from the 2020 package is that if the EU wants an effective energy and climate policy, it has to be comprehensive and not simply tied to sustainability. Most of the stakeholders present at the conference agreed on the fact that the strategy of the new 2030 package is rather good. In order to prevent competitions between the various targets, the package envisages one main target, i.e. a reduction of 40% of CO2 emissions by 2030 compared to 1990, and a central tool to achieve it, i.e. the EU Emission Trading Scheme (ETS). Of course, the EU could have committed to a more ambitious target but it can be considered as a rather good compromise, given other concerns from countries about competitiveness and coal burning. Moreover, the deal provides a valuable momentum for the international climate negotiations in Paris in 2015.
The second Session focussed on "The necessary governance and policy instruments: How can the 2030 Energy & Climate Package be implemented in a cost-effective and collective way?" Konstantin STASCHUS (ENTSO-E), Pekka SAURI (Energy Cities) and Jean-Arnold VINOIS (European Commission) presented their views which were discussed by Jayesh PARMAR (Baringa Partners).
However, in a continuously changing global and European energy landscape, it is key to anticipate tomorrow’s problems and to provide predictability for investors. The strategy of the 2030 package is therefore not sufficient. Now, the challenge will be to develop the right policy instruments, particularly the EU ETS, efficient implementation mechanisms, and a strong governance at all levels (local, national, regional, European, and global). This will require political will.
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