On November 30th 2016 the European Commission presented its plan for the next steps in the Energy Union, to speed up the clean energy transition and boost growth and job creation in the EU. The plan embraces the European energy strategy for the 2021-2030 horizon and it was named “Clean Energy for all Europeans”.

The proposal includes different directives and exhortatory communications that still have to be discussed by the European Parliament, but it seems that the measures the EU’s Commission is taking are pointing to an irreversible global energy transition to clean energy and it wants the EU to lead it, not only adapt to it.

The package, apart from offering a legislation on energy efficiency and renewable energy, has also the aim to design the future of the electricity markets of the Union, proposing new governance rules.

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European Comission’s Presentation of the Clean Energy Package during the Winter Seminar of Funseam 2016, organized by Funseam and Gas Natural Fenosa.

The three main goals set by the Commission are:

  • Achieving global leadership in renewable energies
  • Reaching a 30% energy efficiency target
  • Providing a fair deal for consumers

The package proposed a revised directive for renewables, setting for Europe a target to reach a share of at least 27% renewables in the final energy consumption by 2030.

The strongest new push, is related to heating and transport sectors where the penetration of renewables has so far been disappointing, compared with what has been achieved with electricity. The declared aim is that close to half of the contribution to the EU’s renewables target should come from heating and cooling by 2030.

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European Comission’s Presentation of the Clean Energy Package during the Winter Seminar of Funseam 2016, organized by Funseam and Gas Natural Fenosa.

Regarding the energy efficiency issue, the measures the Commission has been focusing on are:

  1. Setting the framework for improving energy efficiency in general;
  2. Improving energy efficiency in buildings;
  3. Improving the energy performance of products (Ecodesign) and informing consumers (energy labelling);
  4. Financing for energy efficiency with the smart finance for smart buildings proposal.

According to the Commission, the energy efficiency legislation unlocks the energy savings that can boost growth in the EU’s economy, investments and job creation.

As an encompassing element, the Commission proposed a binding EU-wide target of 30% for energy efficiency by 2030, emphasizing the EU’s commitment to put energy efficiency first. This translates into a 30% reduction in the energy consumption of the Union, extending the target of 20% to be reached in 2020, set in 2007.

A reasonable question rises on the future of carbon prices on the ETS system, if these efficiency targets will be met. The ETS system nowadays provides very weak incentives for new low-carbon generation, and could hardly survive to further weakening.

The goals set on renewables and energy efficiency, go hand in hand with the targets of consistent reduction of greenhouse emissions, set by the Cop21 agreement.

The timing is also propitious, as the EU can prove now that the decarbonization goals and the fight against climate change remained unchanged despite the policy’s change proposed by new USA President, Donald Trump.

Considering also the progressive electrification of the economy of the Union, one of the goals set by the Commission’s is the decarbonization of power generation.

It has become clear that despite current overcapacity in the EU as a whole, there are widespread concerns that, due to a lack of storage mechanisms, there is still not enough baseload generation from renewable sources to guarantee supply security, nor there will be in the near future.

The Commission proposed some reforms to improve the functioning of EU electricity markets that will require Member States to implement plans to introduce new capacity mechanism. Examples of key reforms put forward by the package are the removal of price caps on the wholesale market.

In the past, the Commission tried to promote free energy markets, but it did not turn out as a success since distortion coming from both the demand and supply sides kept affecting the market. This is particularly true if we think that almost 60% of the countries of the Union are still regulating or putting caps on power prices, both in the retail and in the wholesale markets.

Another factor of distortion is the influence of subsidies on renewable electricity, that allow them to have a zero-marginal cost, smashing the traditional cost-based merit order used to determine the sequence in which grid operators dispatch different sources of generation to the market.

The goal of the Commission is to impose the same market disciplines on renewables generators and conventional ones, removing the dispatch privilege that renewables have enjoyed so far.

The question to be asked is: is it feasible?

The first problem is, will then the market be able to reach the price level needed to cover the initial investment? And how is it possible to distinguish the rise in price from an abusing dominant position? The main risk related to this approach is that the biggest generators could take advantage of this situation and try to turn themselves into monopolists.

The second problem to be faced is the fact that some governments of the Union do not want to deny themselves the opportunity of interfering with energy pricing. Some of the representatives in fact, point to ensure fair and stable energy prices, in a populistic attempt to please their voters.

All these themes are vital for the Energy Union project: regulatory coordination is still on the basis of cooperation between nations, although it is usually managed by national regulators rather than a European one.

In this regard, the disruptive element ( included in the “winter package”) that makes it different from previous directives, is given by the proposal of a governance of the Energy Union.

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European Comission’s Presentation of the Clean Energy Package during the Winter Seminar of Funseam 2016, organized by Funseam and Gas Natural Fenosa.

In practice this translates into the requirements for all EU states to have an integrated energy and climate plan, that can help monitor the work of every European country towards the targets set under the Paris climate agreement.

Member states are to submit in 2018 the first draft of their national plans which are then to be developed in an ‘iterative process’ with the Commission and then finalized in 2019.

The Renewable Energy Directive, together with the proposals on the New Electricity Market Design and governance, are expected to set a regulatory framework that will lead to investor certainty and allows a level playing field for all technologies without jeopardizing the climate and energy targets of the Union.

Obviously the “winter package” must not be considered the definitive bible on Energy Union: the proposals have still to be approved by the EU Parliament and many topics are still quite controversial and object of discussion between EU members, but it can be definitely defined as the starting point for Europe to a clean energy transition and a valuable strategy for jobs and growth in the energy industry.

Maria Mura | Energy Consultant

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