Geopolitical issues in energy market: strategic European “re-powering”

Accelerating clean energy transition, increasing energy independence from unreliable suppliers and reducing volatile fossil fuels’ import, coped with climate obligations, etc. are the burning issues in the present EU integration process. Besides, new geopolitical and energy market realities require prompt and radical measures at both the EU and the member states’ levels. 

Following Russia-Ukraine crisis, rapid and effective measures towards energy sufficiency and clean energy transition have never been so urgent and necessary in the EU member states. Present situation, however, is such that the EU imports 90% of its gas consumption, and Russia provides around 45% of the European needs, though in varying levels across the member states; besides, Russia accounts for around 25% of European oil imports and 45% of imported coal still used in some states. Other main gas suppliers to the EU are: Norway -23%, Algeria -12%, the United States -6% and Qatar -5%.
Source: Commission press release in: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1511

Aggravating political situation due to Russia-Ukraine military conflict has led recently to high energy prices making citizens and businesses lives complicated: most of the EU states since mid-2021 have already adopted measures towards easing energy bills for over 70 million household customers and several million SMEs. The EU’s fossil fuel dependencies as well as long term climate goals require drastic measures and effort to provide for a kind of emergency synchronization among the states in both energy and electricity grids.
The EU is reliant on fossil fuel (gas, oil and coal) imports for our energy needs, amounting to 57% to 60% of gross energy consumption in the past 5 years. Although domestic production of renewable energy sources has increased significantly in recent years, the declining production of EU coal, lignite and gas has meant that the EU remains dependent on imports for gas (90% of consumption), oil (97%) and hard coal (70%).
More in: https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_1512.

Commission’s REPowerEU plan
This month the Commission adopted a plan – called REPowerEU- outlining a series of measures to respond to rising energy prices in Europe and to replenish gas stocks for next winter. Europe has been facing increased energy prices for several months, but now uncertainty on supply is exacerbating the problem. REPowerEU 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 can reduce EU demand for Russian gas by two thirds before the end of 2022.

In this regard, Commission’s opinion is quite interesting: thus, by adopting the plan, Commission President Ursula von der Leyen mentioned that said that becoming independent from Russian oil, coal and gas the EU had to mitigate the impact of rising energy prices, diversify gas supply for next winter and accelerate the clean energy transition. She also mentioned some paths: i.e. quick switch to renewables and hydrogen, combined with energy efficiency, and swift implementation.
Commission Executive Vice-President, responsible for the European “green deal”, Frans Timmermans argued that in tackling the EU’s vulnerabilities and becoming energy-independent progress in renewable energy and clean energy transition: renewables are cheap, clean, and potentially endless source of energy.
Commissioner for energy issues, Kadri Simson said that for the remaining weeks of winter-2022, Europe has sufficient amounts of gas, though the states needed replenishing reserves urgently for the next year. Thus, the Commission propose that by October 2022, gas storage in the EU states has to be filled up to at least 90%; besides, the Commission also outlined price regulation, state aid and tax measures to protect European households and businesses against the impact of the exceptionally high prices.
Energy price shocks expected to reduce European GDP growth by around 0.5 percentage points in 2022.

Emergency measures on energy prices and gas storage
Already in October 2021, the Commission suggested for the states some measures to mitigate the impact of high prices on vulnerable consumers, which remained important for national actions. Present plan provides additional guidance, confirming the states’ possibility to regulate prices in exceptional circumstances, and redistribute revenue from high energy sector profits and emissions trading to consumers. EU state aid rules also offer states options to provide short-term support to companies affected by high energy prices, and help reduce their exposure to energy price volatility in the medium to long term. Besides, the EU is consulting the states on the needs for a new “State aid Temporary Crisis Framework” to grant aid to companies affected by the crisis, in particular those facing high energy costs.
To address the skyrocketing energy prices, the Commission will look into all possible options for emergency measures to limit the contagion effect of gas prices on electricity (such as temporary price limits). It will also assess options to optimise the electricity market taking into account the benefits and drawbacks of alternative pricing mechanisms to keep electricity affordable, without disrupting supply and further investment in the green transition.
REPowerEU’s main goal is to eliminate and phasing out European dependence on gas and other fossil fuels before 2030: Commission proposes 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, and larger volumes of biomethane and renewable hydrogen production and imports; and
b) faster reduction the use of fossil fuels in homes, buildings, industry, and power system, by boosting energy efficiency, increasing renewables and electrification, and addressing infrastructure bottlenecks.
To boost the EU production of biomethane, the REPowerEU plan aims for 35 bcm of biomethane production by 2030, doubling the current EU ambition, using sustainable biomass sources such as agricultural wastes and residues. Additional 15 million tons, mt of renewable hydrogen can replace 25-50 bcm per year of imported Russian gas by 2030: including 10 mt imported renewable hydrogen from diverse sources and 5 mt more renewable hydrogen produced in Europe, in addition to the 5 mt already planned.
Full implementation of the Commission’s “Fit for 55” proposals would already reduce the states’ annual fossil gas consumption by 30%, equivalent to 100 billion cubic meters (bcm), by 2030. With the measures in the REPowerEU plan, the EU could gradually remove at least 155 bcm of fossil gas use, which is equivalent to the volume imported from Russia in 2021. Nearly two thirds of that reduction can be achieved within a year, ending the EU’s overdependence on a single supplier.
Together with the states, the Commission will soon 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 (8.03.2022)

Additional information on the issue in the following Commission web-sites: = Communication on REPowerEU: Joint European action for more affordable, secure and sustainable energy; = Questions & Answers; = Factsheet – REPowerEU; = European Green Deal website; = EU Support to Ukraine website.

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