Lighting it Up: Securing the Future of Europe's Energy Supply

Abstract

Europe's economic growth has never been jeopardised by lack of energy security; however, that situation may have come to an abrupt end. Falling energy production, increasingly strict environmental standards and an ageing energy infrastructure are all threats to Europe's energy security. The EU has taken steps to ensure its energy security; however, the ‘Europeanisation’ of energy policy remains weak. Coordination among EU Member States is required not only to create an internal energy market, but also for the external dimension of the EU's energy policy. Liberalisation of energy markets and mediation of the Ukraine–Russia gas crisis have shown that such coordination is indeed possible.

These are testing times for energy policy. The Copenhagen climate summit did not result in a clear international framework, and the economic recession has pushed energy security and climate concerns down the political and economic agenda. Yet we have consistently argued that the current path is not sustainable and that we could be faced with a major energy crisis within ten years.

Security of energy supply has been a priority of energy policy since European integration began after the Second World War. It is now enshrined in the Lisbon Treaty. In general, energy has significantly improved the quality of life and standard of living of Europeans, and we can say that the energy system has served us well. In the last 50 years, the number of gas crises and electricity shortages have been few, although for the people affected these events have come as a shock and as a wake-up call to all of us. To take two recent examples: the interruption of electricity in Italy in 2003 and the gas crisis in Eastern Europe in January 2009 raised serious concerns.

One does not need to be a futurologist to see that the twofold challenge of security of supply and climate change puts a major responsibility on our shoulders.

The EU's energy system today is fragmented and less efficient than it should be. It is dominated by conventional fossil fuels of which the prices fluctuate widely; these fuels are high in carbon and pollute our cities, creating health, climate and safety risks, and make us dependent on a small number of suppliers.

The security challenge

Up to now security of supply has not been a major obstacle to European economic growth, but this might change. The International Energy Agency's (IEA) most recent World Energy Outlook sounded the alarm on oil supply prospects. Internal gas production in the EU is falling faster than expected. Coal's carbon footprint is recognised as unacceptable. Renewable technologies and energy efficient solutions risk becoming victims of the economic situation and the uncertainty over the future climate change framework. Meanwhile energy demand continues to rise.

Moreover, our energy distribution network is ageing and ill-adapted to the integration of renewable energy and alternative sources of supply. Our gas network lacks key interconnections in Eastern Europe. We saw the problems clearly during the gas crisis in January 2009. The EU is committed, through the Lisbon Treaty, to solidarity in energy supply, but our networks currently make this very difficult to achieve.

The EU's contribution

The EU has come a long way in recognising the challenges and in creating a consensus on the direction in which we must move. These are set out in the Commission's two Strategic Energy Reviews of March 2007 and November 2008, which established security of supply, together with sustainability and competitiveness, as the key goals of EU energy policy. The goals are embedded in the EU's 20-20-20 strategy: a 20% reduction in greenhouse gas emissions by 2020 compared to 1990, a 20% share for renewables in the energy mix by 2020, and a 20% reduction in anticipated energy demand by 2020. The new Commission fully supports these objectives and targets.

Since 2000, the EU has made significant moves towards a more efficient energy system. New legislation that requires the use of renewable energy and greater energy efficiency, together with greater transparency and unbundling in energy markets, and updated emergency provisions and coordinated network planning at the European level have prepared the ground for high levels of investment in alternative energy sources, new technologies and additional infrastructure and interconnections. An additional €4 billion in funding from the European Energy Programme for Recovery will go to help tackle some of the difficulties which the sector is facing.

Making the next move

It is time now to update the energy policy for the next five to ten years. The recently adopted Europe 2020 strategy provides us with the right framework. The 20-20-20 objectives will remain the foundation of EU energy policy and measures. Ensuring prompt implementation of existing legislation will be one of my top priorities. In this respect, the internal market is crucial. The Commission will ensure that the third internal energy market package is properly implemented. A properly functioning, well-regulated, transparent and interconnected market, with market price signals and investment incentives, is the most effective instrument to ensure security of supply. The guiding principle for EU energy policy must be the efficient functioning of the market.

Towards a more secure European energy union

There are three glaring weaknesses in our current framework. One is political, the second is economic and the final is international relations.

Politically, we need a better understanding of what European interests are in energy policy. Despite the development of the internal energy market and the consensus on the 20-20-20 goals, this ‘Europeanisation’ of energy policy is unfinished. Energy continues to be perceived largely as a national security issue rather than an instrument of European growth and stability. This is starting to change but not fast enough. In today's European energy market, the interests of the EU and national interests coincide more than ever before. We share an integrated market. The EU promotes the interests of all Member States and has greater leverage in negotiations. Europe's energy companies have understood this very well and have greatly benefited from the opportunities which European integration brings. We need a similar European understanding at the political level. The Renewable Energy Directive is an important move in this direction. It translates the 20% renewable target for 2020 into individual commitments for each Member State. It recognises that some Member States are able to move more quickly than others, but that an equivalent effort is ultimately required from all.

The European Strategic Energy Technology Plan (SET Plan) also takes us down the path of ‘Europeanisation’ in energy strategies. We know that the EU, Member States and industry invest large sums in energy research. But it is clear that we are not making the progress which we could to deliver our policy goals. Therefore the SET Plan anticipates a number of industrial initiatives to fully exploit the EU's potential for technology innovation. European collaboration should speed up the commercialisation of key technologies: biomass and second-generation bio-fuels, off-shore wind, solar and photovoltaic, fourth-generation nuclear power, fuel cells and carbon capture and storage.

The Commission's proposal for a regulation on the security of gas supply goes a step further. It also builds on what we already have—an internal gas market and the European Network of Transmission System Operators for gas, which is responsible for developing ten-year network development plans. The proposed regulation makes clear that the market will deal with emergency planning and crisis resolution as far as possible. However, it also develops the concept of solidarity more concretely.

The European Economic Recovery Plan for Energy is another major achievement towards European solidarity. Almost €4 billion are being allocated from EU funds by the end of this year for major projects in the areas of electricity and gas interconnections, offshore wind, and carbon capture and storage. Not only is this an unprecedented amount of funding from the EU budget, it is also a political statement on the wider benefits of European energy infrastructure investments. It demonstrates a common consensus among Member States on the need for an EU role in stimulating the investments which our energy system needs.

The European Council's endorsement of a number of major strategic energy projects, including the Baltic Energy Market and Interconnection Plan, the Mediterranean Energy Ring, the Southern Corridor, electricity and gas interconnections in Central and South Eastern Europe and an off-shore wind network, is another welcome move. These regional market initiatives will take the EU closer to its final goal of a fully interconnected gas and electricity market.

However, there is still a long way to go. On energy efficiency, for example, the national plans of Member States could be much more robust. In external relations, the EU is still learning how to speak with one voice; until we do so, our position and those of individual Member States will be weaker than they could be.

The energy dimension of the Europe 2020 strategy

The Europe 2020 strategy reinforces the aims of energy policy: economic growth, security, welfare and jobs for citizens, and a greener economy.

At the political level, if we can bring together our energy goals and Europe 2020, we will create a more consistent and credible framework to bring about the changes that will strengthen the security of supply in our energy system. Industry needs the confidence to plan for new projects, investors need certainty to provide credit and consumers need clear political signals to change energy use behaviour and buying patterns. Creating these conditions is a task not just for the energy sector. It requires mobilisation across the economy, including public opinion, to drive change forward. Broad political commitment is the first step in this process.

Preparing for the 2020 timeframe is just a start. An even greater challenge will be to build up a secure and truly low carbon energy network and economy for the longer term. The Commission is already committed to this in its stated ambition of a decarbonised transport and electricity sector by 2050.

By investing in our energy economy, we are also investing in our people. Low carbon energy networks, ‘green’ manufacturing and renewable technology and maintenance create the need for new skills and expertise. More efficient businesses will grow up alongside more efficient homes and transport. New technologies, such as carbon capture and storage, second-generation bio-fuels, off-shore wind, ‘intelligent’ grids and fourth-generation nuclear power, will create new markets for Europe's businesses.

The EU as an international negotiator

Finally, our external energy policy is a weak link in the energy supply chain. This is becoming a more serious concern as our import requirements are rising. We now import over 55% of our energy. This could rise to almost 70% by 2030. The EU urgently needs a common voice and a common message to assert EU interests beyond our borders.

The Ukraine–Russia gas crisis showed what we can achieve if all Member States come together. This enabled us to mediate an agreement between Russia and Ukraine and thus resolve a crisis which threatened to disrupt the whole European economy.

It is tempting for Member States to assume that dealing individually with external partners is more efficient. However, we need to be more aware of the global context, recognising the implications of high import dependence and, above all, of the opening of new energy consumer markets in Asia. In the past we have had little competition from other consumers, but this is changing fast. To ensure that we have access to the resources we will need and that the networks are in place to transport those resources, we need to develop EU energy diplomacy. The EU, representing half-a-billion consumers and 27 nations, has a strong hand. We need to use this to greater effect. The Nabucco Intergovernmental Agreement concluded in July 2009 in Ankara is a good example of what can be done.

To bolster our position, we must strengthen energy relations between the EU and its most important supplier and transit countries. We can learn lessons from the EU–Russia dialogue, which is celebrating its tenth anniversary this year. This dialogue was a pioneer in making the EU a single interlocutor in bilateral relations with a major energy partner. It has been successful in building confidence in our energy relations and resulted, inter alia, in the adoption of the Early Warning Mechanism last year. A comprehensive agreement between the EU and Russia would open a new chapter.

The world does not stop there. Relations have to be developed with new suppliers such as Azerbaijan, Kazakhstan and Turkmenistan. Relations with such key partners have to go well beyond a dialogue between suppliers and customers. To ensure a long-term partnership, we need to find innovative ways to tie these countries to the EU energy market. We have an example of close association with our direct neighbours—the Energy Community, which currently includes Ukraine, Moldova and Turkey. The widening and deepening of this community of states around energy will be a priority.