Analysis: EU Energy Union continues

Even as the UK is negotiating its exit from the EU, the bloc pursue’s Energy Union with the same vigour as before. Liz Newmark reports on the latest energy package to emerge from the EU.

The European Commission’s bumper energy package presented on 30 November has been largely welcomed by utilities, boasting as it did measures to promote renewable energy, deregulate electricity prices and achieve a more co-ordinated grid system. An ambitious mandatory energy efficiency target was less welcome.

There was a thumbs-up to the commitment to remove regulatory interventions and ensure energy prices reflect scarcity situations. Industry body Eurelectric also liked the move towards a “regional approach to system operation, renewables and security of supply”.

However, Eurelectric not only opposed the mandatory 30 per cent energy efficiency target but said it was disappointed that “the key issues of policy support costs weighing on consumers’ electricity bills and evolving pricing structures are not tackled”. The group argued that to realise competitive retail markets, “a more flexible regulatory framework is needed” across Europe.

“We would like to see the development of more integrated solutions, including strong collaboration with retailers, distribution system operators (DSOs) and generators, while always respecting the relevant unbundling requirements,” said Eurelectric secretary general Hans ten Berge.

The Commission made eight legislative proposals (four on electricity, two on energy efficiency and one each on renewable energy and governance) in the package, which was entitled “Clean Energy for All Europeans”. None dealt with gas.

Such an approach has its critics. “It is deeply frustrating that too often policy­makers concentrate on electricity when talking about energy,” Mike Foster, chief executive of the Energy & Utilities Alliance (EUA), told Utility Week. “Heating and transport are major energy users and contributors to climate change. Decarbonisation of heat and transport, using low carbon gas, should be higher up the political agenda.”

European gas industry association Eurogas secretary general Beate Raabe agrees. She says most of the retail issues in the package (consumer rights, smart metering, data handling, cyber-security and storage) are the same for gas as electricity and so “should be discussed in parallel”. Indeed, the Commission has called for the formation of a group of local grid operators to provide advice on distribution issues, so “electricity DSOs will need to work closely with gas DSOs”, she says.

She concedes that “the Commission stops short of spelling this out” but says “the package provides ample opportunity for gas to play its trump cards”. Raabe lists these as being low carbon, flexible, storable and renewable.

“It will benefit not just gas utilities, but also small producers of renewable gas and equipment manufacturers,” she says. “For example, the emissions performance standard [a limit of 550 grams of CO2 per kilowatt-hour] for capacity mechanisms is principally good for the climate and for gas. There are opportunities for renewable gas throughout the package.”

The Commission will now only subsidise generators if their plants meet this standard. Eurelectric, more cautious, says capacity mechanisms should be “market-based, technology-neutral and open to cross-border participation”.

Regarding “priority dispatch”, Eurelectric supports the Commission’s proposal to stop giving renewable generators priority when selling power to the grid. Adding “exemptions should be considered carefully,” it says. Greenpeace calls this “scandalous”.

Looking at other elements of the package, Eurelectric and Eurogas welcomed the Commission’s decision to review an “outdated” primary energy factor, which is used to compare the energy efficiency of electricity, gas or heat products.

Other important issues in the 4,300-page package proclaimed by the Commission’s Energy Union vice president Maros Sefcovic include extending the requirement for energy suppliers and distributors to save 1.5 per cent energy a year from 2021 to 2030. On the other had, the obligation on heating and cooling suppliers to increase their renewables portfolio by 1 per cent a year is now voluntary.

Meanwhile, the EUA’s Foster says he is unsure whether any measure will be adopted before the anticipated Brexit in 2019 – although the EU legislative process with the European Parliament and Council of Ministers will take at least that long to complete. “Our position within the EU is secure for two years but after that, frankly, who knows,” he tells Utility Week.

A UK government spokesman would only say: “The government is committed to ensuring the UK has a reliable, low cost and clean energy system. This is in line with the EU’s Energy Union ambition.”

And there is doubt whether money from the package’s European Fund for Strategic Investment (which promises €500 billion by 2020 with 40 per cent reserved for climate goals) or the EU Smart Financing for Smart Buildings initiative will go to the UK.

“The UK’s relationship with the EU post-June 23 means it’s unlikely any EU funding will find its way to the UK,” Foster says, although he adds: “The UK government and our regulator, Ofgem, can direct resources to where they are needed.”