Brussels to unveil new energy infrastructure vision

October 5, 2010 | 00:00

Brussels to unveil new energy infrastructure vision

A single European energy network. That is the goal towards which the European Commission is moving. Its new “infrastructure package”, set to be unveiled in November, will lay down plans and legislative proposals for connecting up offshore wind and hydropower to the European grid, developing new routes for gas imports, improving the liquidity of the European gas market, building new east-west gas and electricity interconnections, the development of a CO2-grid linking power stations to carbon storage facilities, the roll-out of smart grid technologies and even the development of a “supergrid” to bring the whole European network together. Together these plans amount to a revolution in the EU’s energy infrastructure. Our Brussels correspondents Hughes Belin lifts the veil and takes a look at the huge changes awaiting the European energy sector.

Until recently energy infrastructure did not receive much attention from the European Commission. It was, in fact, not much more than an afterthought in EU energy policy. Recently, however, Brussels has become increasingly aware of the crucial importance of new infrastructure investments. With good reason: EU energy policy has four overriding objectives – the further integration of national markets into a single European market, the promotion of energy interconnections, the transition to a low-CO2 energy future, and diversification of supply – and all four of these require major investments in pipelines, networks, storage facilities, and innovations in the grid if they are to be realised.

Jean-Arnold Vinois, Head of the Energy Policy, Security of Supply and Networks Unit at the European Commission, said at a recent conference: ‘Massive investment is needed in energy infrastructure in the coming years, but not all of it will be taken up by the market alone.’ This statement bears on the crucial question the EU is faced with: who will decide what the priorities are in infrastructure investments – and who will bear their costs? Or to put it differently, what are the responsibilities of the EU and national governments in this, and what may private investors expect to contribute?

To answer these questions, the Commission has been preparing a detailed “energy infrastructure package”. This major new package, which is set to be published on 17 November and will contain a mix of legislative proposals and strategy papers, will set forth the Commission’s “vision”of what the European energy infrastructure of the future will look like, in all of its aspects. Although the package has of course not been made public yet, EER has managed to put together an overview of what it will contain, on the basis of public presentations from – and private conversations with – policymakers.

Ten-year plans

The EU’s current energy infrastructure policy is embodied in the so-called guidelines for trans-European energy networks (TEN-E), which were established in 2006, but are now rapidly becoming obsolete. Nine of the 42 TEN-E projects (32 electricity and 10 gas projects) identified as of European interest three years ago, have been completed. Five of these are in the electricity sector and four in the gas sector. In addition, 12 projects have been underway (nine in electricity and three in the gas) since

‘Massive investment is needed in energy infrastructure in the coming years, but not all of it will be taken up by the market alone’
2007. Some of the remaining projects are not coming along as planned. An internal evaluation of the TEN-E project that was published in May concluded that ‘EU energy infrastructure strategic priorities need to be better defined.’ The Commission has come to the conclusion that it needs to focus on a more limited number of strategic projects that are of European priority. At the same time, the Commission says that ‘the definition of projects should be flexible to better respond to market development’.

The new infrastructure package that the Commission is now preparing differs from the TEN-E guidelines not only in that it will be much more comprehensive, it also has a basis in European law for the first time. The Lisbon Treaty, which entered into force in December 2009, lays down the four overall objectives of EU energy policy: better market integration, better interconnection between national grids across the EU, ensuring security of energy supply, and connecting renewable energies up to the grid and improving energy efficiency. None of these goals can be achieved without large investments in new energy infrastructure.

As far as market integration is concerned, the regulatory framework relating to gas and power grids has already considerably evolved with the adoption of the third internal energy market package in the summer of 2009. This legal framework provides new instruments for better cooperation between Transmission System Operators (TSOs) and Regulators. The Agency for the Cooperation of Energy Regulators (ACER) will start its operations in 2011. Its task is to coordinate rules on network access and investment across borders. The newly created European associations of TSOs – the European Network of Transmission System operators for gas (ENTSO-G) and electricity (ENTSO-E) – are tasked with providing a European view on network access and network investments. One of their key tasks is to draft ten-year network development plans. A first draft for gas was published in December 2009 and is now being discussed with regulators. A first draft for electricity was published in March 2010.

These plans and their hundreds of associated projects are only part of the whole plan, however. They are essentially based on all the TSO projects for development of grids and are mainly aimed at a better integration of the EU energy market. Nevertheless, they do represent an industrial vision of what should and will be the European gas and power grids within ten years and what will make the energy market more effective. Most key projects of European interest that will be in the new package will certainly stem from these plans. The ten-year plans do not, however, answer the question who is to pay for the plans or what the incentives are for private companies to finance investments.

Strategic Energy Review

Another important source for the infrastructure package are the six priority infrastructure actions identified the Commission set forth in its last Strategic Energy Review of November 2008: the Baltic Interconnection Plan, the Southern Gas Corridor (from Central Asia and the Middle East), North-South gas and electricity interconnections within Central and South-East Europe, the North Sea offshore grid, LNG-infrastructure and the Mediterranean Ring.

The Baltic Energy Market Interconnection Plan (BEMIP) looks at concrete measures to improve the way in which Lithuania, Latvia and Estonia are connected to wider EU energy networks. The electricity market design has been agreed and will be based on the Nordic electricity market model. Electricity

‘The major feature of the EU’s internal pipelines is the limited connections between the Western pipeline network and the Eastern infrastructure’
interconnection needs have been identified and numerous projects have gained support from the European recovery package. Gas grid needs have also been identified but need more support to materialise. Four continental member states (Finland, Estonia, Latvia and Lithuania) are not connected to the integrated EU gas network. The member states have enough day-to-day supplies from Russia, but there is no possibility for diversification. At the moment there are no firm plans and sponsors to develop these pipelines.

In order to strengthen the liquidity of the single European gas market, the Commission will assess all requirements in terms of reverse flows and access to liquefied natural gas (LNG) supplies and storage facilities at a regional level. Some of the projects to be included here will undoubtedly require public support, as they will not be commercially viable but are more aimed at the general interest.

The Commission will no doubt continue to follow its policy of trying to diversify its gas supplies away from Russia. It strongly supports the establishment of a southern supply corridor, to bring in gas from Central Asia through the Nabucco pipeline project, but also from east Mediterranean countries. The contribution of LNG to EU’s diversification policy will also be assessed.

More generally, the European Commission wants to end the historic east-west divide by strengthening all gas (and other energy) interconnections between western and eastern Europe. ‘The major feature of the EU’s internal pipelines is the limited connections between the Western pipeline network and the Eastern infrastructure. There are issues concerning the technical part of gas transmission, those related to reverse flow, energy efficiency and different standards,’ says a report entitled ‘An Assessment of the Gas and Oil Pipelines in Europe’ by Danish consultants COWI, published a year ago by the European Parliament industry committee.

With regard to electricity, the idea of a European supergrid has emerged recently, namely in the draft EU energy strategy proposed by the European Commission. The idea behind this is that the entire EU electricity network would be supplied by offshore wind from the North Sea and balanced by water storage pumps from Norway and the Alps, all of it to be supported and transported by a “supergrid”. To what extent this concept will be developed is not clear, but the Commission will no doubt produce a separate blueprint for offshore grids in the Northern seas of Europe. The potential contribution of solar power from southern Europe and North Africa, as well as its infrastructure requirements, will also be assessed.

In addition, the European Commission will issue a separate report on the development of smart grids and an impact assessment report detailing the economics of rolling out a smart grid. The total amount of investment in smart grids is estimated to come to €80 billion by 2020 (roughly half for smart meters and half for smart technologies for transmission and distribution).

The main strategy paper will also examine the options for – or at least emphasise the need to start to thinking about – the architecture of a future European CO2 grid. This should link coal-fired and gas-fired power plants equipped with carbon capture technology with CO2 storage fields, based on the forthcoming carbon capture and storage (CCS) demonstration programme.

The oil pipeline link between Eastern and Western Europe is considered to be weak
The Commission will also propose including oil pipelines in the general infrastructure policy. They would not get any funding from the EU but only political support. Oil pipelines have so far not been included in EU energy policy. In Europe, just 20% of oil product imports and transportation is done via pipelines (mainly the Druzhba network from Russia and Norpipe from Norway). 80% of the oil is transported by ship, truck and train. However, the oil pipeline link between Eastern and Western Europe is considered to be weak. The Western part of Europe is connected via pipelines to major European ports while most of the Central and Eastern European refineries are supplied through the Druzhba pipelines. Thus, Eastern Europe is seen as vulnerable and overly reliant on Russia. The COWI report says that ‘if the Russian policy of redirecting its oil exports from Druzhba continues, Central European countries might face difficulties and increased costs for their supply of oil and oil products through alternative routes’. Moreover, this would put pressure on alternative routes such as the Baltic Sea, the Black Sea and the Turkish straits, which are environmentally sensitive areas. The EU has so far strongly supported the Odessa-Brody-Plotz oil pipeline route to diversify supplies from the Caspian Basin, but it has not yet been completed and is strongly opposed by Russia.

Financial instrument

Total investment needed in energy infrastructure up to 2020 is estimated by the Commission to be around €100 billion for power infrastructure and €30-50 billion for gas (transmission, storage and LNG). This excludes the investments in smart grids. It is not clear at this stage who will pay for what. In March 2009, EU leaders called on the Commission to develop a new financial instrument for Energy Security and Infrastructure. The Commission will now issue a proposal which will repeal the current TEN-E financial regulation. This new proposal should make it possible to scale up EU subsidies for European priority infrastructure to some €15 billion in total. The timing to discuss this instrument is good, as discussions on the budget of the EU for 2014-2020 are just starting.

Grid investments are usually paid for by customers through transport tariffs. However, some priority investments will not generate enough revenues from tariffs alone and will thus need public support, e.g. reverse flow infrastructure, some cross-border interconnectors and offshore grids. EU money would also make a difference in cases where national interests may push the European interest down the priority list.

Currently, EU-funded support for TEN-E projects takes place through a number of instruments: TEN Financial Regulation (a budget of €155 million for the 2007-2013 budget period or a mere €22 million per year), loans from the European Investment Bank (from 2007 to 2009, these amounted to €2.5 billion and €3.4 billion respectively for gas and electricity projects), Structural Funds, Instruments for Pre-Accession (IPA) and European Neighbourhood Policy (European Neighbourhood and Partnership Instrument and Neighbourhood Investment Facility), and the RTD (Research Technology & Development) Framework Programme.

The idea is that the entire EU electricity network would be supplied by offshore wind from the North Sea and balanced by water storage pumps from Norway and the Alps, all of it to be supported and transported by a "supergrid"

In 2009, the EU exceptionally agreed to allocate €3.98 billion to energy infrastructure and technology in the European Energy Programme for Recovery (EEPR). Some 47 gas and electricity infrastructure projects received €2.4 billion: electricity interconnections received €915 million, gas interconnections received €1,255 million, gas reverse flow projects received €80 million, LNG received €80 million and gas storage facilities received €35 million. It is worth noting that it is the first time that the EU has decided to dedicate such a large amount of money to energy infrastructure projects, showing how much they are considered as a catalyst for economic recovery.
The Commission also believes that the energy infrastructure budget would be used more effectively by increasing coordination with other energy infrastructure activities and instruments in the EU. ‘The potential for more effective coordination, including with national measures, could be better structured to strengthen synergies and the delivery of results, not only in financial terms but also to ensure overall coherence of EU actions and policies,’ says the Commission’s May assessment report.

Taking action One of the biggest obstacles in energy infrastructure are authorisation procedures. To tackle this problem, the Commission will issue a ‘European interest regime’ that would allow for simplified procedures when a project has been agreed to be of European interest. This would mean a reduction in the number of competent authorities (ideally a ‘one-stop-shop’) and a limit to all the timeframes for the completion of the permitting phase. It would also mean preferential treatment from the countries involved and compensation provisions in case one of the countries fails to complete its permitting phase within the agreed timeframe.

Current TEN-E legislation has no authority to tackle this issue. Most, if not all, member states are aware of this problem and some have begun to tackle it through new national legal acts designed to accelerate or simplify the authorisation procedures. As this legislation is very new, its vulnerability to legal challenges and other practical problems has not yet been tested.

Of course, it is hard to imagine that just a few people within the European Commission would be able to set out a future master plan for Europe’s energy infrastructure. The European Commission may therefore propose setting up high level advisory groups to propose and define the required

It is hard to imagine that just a few people within the European Commission would be able to set out a future master plan for Europe’s energy infrastructure
infrastructure. Back in September 2007, the Commission did something similar when it appointed four European coordinators to accelerate the completion of projects of high European added value: Mario Monti for the French-Spanish electricity interconnection; Georg Wilhelm Adamowitsch for the "Salzburg-leitung" (Austrian Power link Salzach neu-Tauern) and then the Baltic and North Sea offshore wind connections; Jozias van Aartsen on the southern gas corridor (including Nabucco); and Wladislaw Mielczarski on the northern European power link.

The role of these coordinators is to mediate in strategic cross-border projects to resolve practical difficulties which are holding them up. Two years later, in 2009, two of the coordinators had successfully completed their mandate. The coordinators were most effective where they were able to bring member states together at the highest level to iron out political or administrative problems. This was possible due to their impartiality and political experience, their clear mandate, a tight time schedule and close interaction with the Commission and member states at the highest level. The Commission will retain the option to appoint such facilitators in case of conflicts and delays and this will be a full part of its proposal on the European interest regime.

Infrastructure development is one of the four main priorities of the EU’s future energy strategy. It is seen by EU leaders and all the parties in the European Parliament as being essential in supporting the goals of the EU’s energy policy and in the transition towards a low-carbon energy system. With its November ‘infrastructure package’, the European Commission is therefore setting the scene for a consistent approach to the development of the European energy grids. It will, however, only be a grand vision, which will simply set the scene and set out the complex issues at stake. The necessary investments will have to follow in good time. The single European energy network is still far from a reality.

Loading comments...
related items