The European Commission and the Hungarian government have organised a ministerial meeting for today in Budapest to discuss current energy policy issues of South-east Europe’s natural gas market, with the focus on strengthening energy security of the region. The event will host Miguel Arias Cañete, EU Commissioner for Energy and Climate Action who has talked with Portfolio in an exclusive interview before the meeting. Cañete said the energy strategy of Brussels did not change even after the Russian annexation of the Crimea, and although Germany’s Energiewende is making promising progress Europe’s largest economy is still facing several challenges. The Commissioner also said the expansion of the Paks nuclear power plant in Hungary could increase the nuclear share in the Hungarian electricity production to about 70% from about 40% currently. He also believes that Hungary can achieve both its renewable energy and emission reduction targets.
How was the energy strategy of the EU affected by the Russian annexation of Crimea? Where are the most important changes?
The European Union's energy strategy, which is based on open markets, secure supply and a sustainable energy mix is valid independently of recent developments impacting our relation with the Russian Federation. The commitment to build a Resilient Energy Union with a Forward-Looking Climate Change Policy is a continuation of our efforts in that direction.
The Energy Union is an ambitious project and one of the key priorities of the European Commission led by President Juncker. Our energy policy is not designed to disadvantage any of our partners. Instead, it seeks to achieve a number of positive objectives. It aims to improve supply security by diversifying Europe's sources of energy and making better, more efficient use of energy consumed in the EU.
With the Energy Union, we seek to achieve a fully integrated internal energy market, with interconnectors enabling free flow of energy across the EU without any technical or regulatory barriers. We also seek to improve energy efficiency by consuming less energy in order to reduce pollution and preserve domestic energy sources. This will reduce the EU's need for energy imports.
How strong the EU’s energy dependency on Russian supplies?
For many years, Russia and the EU have cooperated in the energy sector, in a context of mutual interdependence. Energy has truly been a cornerstone of our economic relations with the Russian Federation and interdependence around energy will not change overnight. Although security of natural gas supply, transit and demand dominates today's discussions and is the immediate focus of attention, EU energy relations with Russia are not limited to gas.
We trade oil and oil products, we trade coal, we buy nuclear reactors, fuel and fuel cycle services, etc. In the future, the EU will remain Russia's biggest customer of oil and gas, as it will continue to buy Russian coal, oil and oil products, nuclear materials and services.
The EU will consider, when the conditions are right, reframing the energy relationship with Russia based on a level playing field in terms of market opening, fair competition, environmental protection and safety for the mutual benefits of both sides.
How does the creation of the EU Energy Union go along? What are the main issues in regulation, technology and foreign policy?
The EU and its Member States have already made significant progress towards the objectives of the Energy Union, but we are still in the beginning of the implementation process. 2016 is the year of delivery for the Commission and before the end of the year we will have come forward with important initiatives across all five dimensions of the strategy.
In the beginning of the year, we came forward with an ambitious package centred around energy security (notably with regard to gas) and in July we presented a strategy to address GHG emissions from transport and a new Regulation on national GHG targets for 2030 in the sectors outside the ETS.
Later on this year, we will come forward with legislative proposals on e.g. energy efficiency, renewable energy, the internal market, and not the least the Governance of the Energy Union to ensure that the objectives are met through a coherent set of actions at EU and national level.
As regards foreign policy, we continue to prioritise close relations with our main partners such as Algeria, Norway, Turkey, Iran, US and Canada to diversify of energy import sources. We are also cooperating with major economies and multilateral fora, notably the G7, the G20 and the Clean Energy Ministerial, to defend the European interests.
Could you briefly describe the EU’s current energy model? What are the main import sources outside the Union?
The EU as such and all its Member States are going through a transition towards low-carbon energy, driven by the targets for GHG reductions, renewable energy and energy efficiency set for the years 2020 and 2030. The achievement of these targets will also make a sizeable contribution to improved energy security and reduced import dependency, while at the same time leaving sufficient room for manoeuvre to Member States to adapt to national specificities and preferences.
The EU's energy model is also characterised by an ongoing process of market integration and improved competition on energy market. For consumers to fully reap the benefits of this in terms of affordable energy and improved energy security, more investments in cross border energy infrastructure as well as further harmonisation and coordination of the regulatory framework is needed.
The total energy import dependency rate in the EU-28 was 53.5% in 2014, implying that a little bit more than half of the EU's energy consumption need had to be satisfied from import sources. In the same year the EU-28 imported most of its fossil fuel needs, as domestic production is dwindling since several years. The import dependency was 68% in the case of hard coal, 88% in the case of crude oil, and it amounted to 67% in the case of natural gas. In the case of renewables and waste the share of imports within the consumption was practically negligible.
Gas and electricity interconnectors are crucial parts of the EU’s energy infrastructure. How did these projects appreciated in the last couple of years? Which are the largest interconnector projects that are under construction in the European Union? Do these investments bring returns at all?
In 2013 a new Regulation on Trans-European Energy Networks (TEN-E) came into force. The TEN-E Regulation sets out guidelines for the timely development of energy infrastructure of European relevance. It provides a framework consisting of various tailor-made measures which are to accelerate and facilitate the development of key energy infrastructure projects in the EU which are known as projects of common interest (PCI). These measures include an accelerated permit granting process, the early integration of environmental assessment, improved regulatory treatment, and, under specific conditions, financial assistance under the Connecting Europe Facility (CEF). Every two years the list of PCIs is updated, to reflect the evolving infrastructure priorities of the EU.
As infrastructure projects have by nature a significant lead time, the full impact of the Regulation will become increasingly visible in the coming years. A number of major projects have already been inaugurated or are currently under construction. These include in electricity the sub-sea cables which are being built to link the countries around the North Sea (NSL link Norway-UK, the world's longest subsea cable, Nordlink Norway-Germany, NEMO Belgium-UK), and the electricity lines to connect the Baltic states with their EU neighbours, of which LitPolLink (Lithuania-Poland) and NordBalt (Sweden Lithuania) are already in operation. The Inelfe link between France and Spain is a planned project that will improve the integration of the Iberian peninsula in the European energy market and that will allow for an increased uptake of renewable.
In the gas sector we have been making important efforts to end the gas isolation of the energy islands and to diversify gas sources, routes and counterparts of the Member States depended on a single gas supplier. For example, with substantial EU funding, two gas interconnectors having received a grant for works will for the first time in the history connect the gas networks of Poland, the Baltic States and Finland with the continental European network.
Our cooperation under the European Commission Initiative on Central Eastern and South-Eastern European Gas Connectivity (CESEC) was launched in 2015, and I'm glad that it has produced tangible results: Romania and Bulgaria are now interconnected, Bulgaria has access to LNG and deliveries can also reach Ukraine as of October, and reverse gas flows will be soon possible between Hungary and Croatia. Now we want to go further.
All of these projects show important benefits, by increasing security of supply, by bringing down gas and electricity (wholesale) prices, and by enabling a larger uptake of renewables.
What do you think of the EU’s energy security? Which are the factors that may increase energy security the most? LNG? Efficiency improvement?
In May 2014 the Commission set out in its Energy Security Strategy how the EU remains vulnerable to external energy shocks, and called on policy makers at national and EU level to make clear to citizens the choices involved in reducing our dependency on particular fuels, energy suppliers and routes. This is why 'Energy security, solidarity and trust' is one of the main pillars of the Energy Union and it cannot be looked at in isolation.
In order to increase our energy security we must act on all policy fields: (i) consume less by enhancing energy efficiency; (ii) diversify our external suppliers; it is here that we see indeed an important opportunity and role for LNG, (iii) use the full potential of storage (electricity, oil, gas); this is also highlighted by our LNG and storage strategy, (iv) rely more on our indigenous resources, especially sustainable ones; (v) promote the use of new technologies; (vi) and the one that brings all this together: to integrate our energy markets into one where energy can flow freely.
How the energy efficiency could be enhanced by green energy?
The application of renewable energy sources goes hand in hand with the improvement of energy efficiency. Energy Efficiency makes the use of renewable energy sources economic and cost-effective, and in many cases energy efficiency improvement is the first step to install renewable energy technologies. For example most renewable heating technologies in buildings can only be installed cost-effectively and/or technically, if the building at the same time undergoes high-quality or deep building renovation and its energy performance is improved.
That is why the EU energy efficiency and renewable legislation contain cross references to each other. For example, Member States are required to aim at high energy performance to reduce final energy consumption overall in their economy, in buildings and in heating equipment, especially for biomass to facilitate the attainment of the national energy efficiency target.
That is also the reason for the European Parliament to repeatedly stress the link between the principle of "energy efficiency first " enshrined in the Energy Union and the increased deployment of renewable energy. For example, the European Parliament ITRE Committee states in its draft resolution on the EU Heating and Cooling Strategy that "investment in energy efficiency in buildings should go hand in hand with investment in renewable heating and cooling".
As part of our legislative programme for the second half of this year we intend to table proposals to further significantly strengthen our legislation on both energy efficiency and renewables. These proposals will notably ensure that we can achieve the ambitious objectives for 2030 agreed in the European Council in a cost-efficient manner, as well as gaining world leadership in renewables.
What are your thoughts on Germany’s long term energy strategy? Can Europe’s largest economy switch to renewables successfully? What are the main risk factors?
The German Energiewende (Energy transition) project of moving to a low-carbon economy by 2050, while phasing out nuclear power by 2022, is certainly ambitious. At the same time, substantial progress can be observed since its launch in 2011, most notably the 32% share of renewable energy in electricity production (originating from 6% in the year 2000).
Nevertheless, Germany faces four main challenges in going forward such as controlling the costs of renewable energy expansion including its impact on electricity prices, building the necessary electricity infrastructure (both internal and cross-border lines), stepping up efforts on energy efficiency in the buildings and transport sector, and enhancing regional coordination with neighbouring Member States, e.g. on renewable energy and security of electricity supply. Especially on the last point we note however that Germany has started to work in a number of promising initiatives with its neighbours that could lead to better coordination.
Capacity mechanisms are a hot issue in the EU right now, as the operating environment of traditional coal- and gas-fuelled power plants has changed substantially. Which countries are pioneers in these kinds of support? Which countries currently plan to introduce such mechanisms to support fossil plants?
Capacity mechanisms are not new to Europe. A number of Member States, such as Greece, Spain, Portugal or Ireland have all applied payments for the capacity or availability of their power plants for a number of years. Core power markets with the UK and France have recently introduced or are introducing such mechanisms while others such as Germany or the Nordic markets are for the moment going in the direction of reserve mechanisms.
In principle a well-functioning internal electricity market should be able so signal where and when investments in new generation capacities are necessary. However, existing market and regulatory barriers can limit markets' ability to deliver. When considering capacity mechanism, it is therefore important that Member States identify and address those barriers first. To underpin this process on the European level the Commission, within its Marked Design initiative, will propose new measures later this year. As a result prices will better signal the true cost of the power system and renewable energy producers and customers will be better equipped to react to those signals.
How do you see the energy priorities and emission reduction plans of Hungary? What do you think of the role of green and alternative energy in the country’s energy mix in the long run?
Hungary has always emphasised the importance of national sovereignty in deciding on its own future energy mix, and the country wants to opt for long term use of nuclear energy. If it is implemented in full compliance with all relevant EU and Euratom legislation, the Commission acknowledges the right of Hungary to build additional nuclear power plants.
For Hungary security of energy supply issues are also of particular importance; the country links in its argumentation the phase out of end user retail price regulation to the construction of all necessary infrastructure to assure competitive wholesale prices. Although in the Energy Union Strategy the Commission signalled the need of phasing out non-cost reflective end-user energy prices, Hungary is reluctant to accept the Commission's position on phasing out below-cost electricity and gas retail prices for household customers, primarily referring to affordability considerations. The Commission stands ready to continue its dialogue with the Hungarian side to help finding a solution that will be in the best interest of energy consumers.
The country is currently on track to fulfil its renewable energy target for 2020, however, most of its renewable sources come from biomass, and the role of wind and solar energies remains limited in its energy mix. Under existing policies and trends, the share of renewable energy forms in gross final energy consumption will meet the 2020 target (13%), in 2030 it will increase to 13.6% and by 2050, it will further increase to 18.1%.
In 2015, emissions in the economic sectors not covered by the EU Emissions Trading System (ETS) - such as buildings, agriculture, waste management and transport - were already 23% below their 2005 level. According to our projections, Hungary's GHG emissions are set to further decrease by 2030 so that the country is expected to meet its 2030 emissions reduction target for the non-ETS sectors. However, Hungary will need to put in place further mitigation policies in order to prepare for the transition to a low-carbon economy.
How does the Paks II project fit in the energy plans of other EU member countries and in the EU’s general energy strategy?
As you know, EU Member States are free to decide their energy mix, and they can decide to use nuclear energy. If they do so, for the European Commission, the priority is to ensure that they meet the highest standards on nuclear safety, radiation protection, radioactive waste management and non-proliferation. In addition, the nuclear fuel supplies should be diversified to ensure security of supply. All this was stressed by the Energy Union Strategy and the European Energy Security Strategy.
In August 2014, the Commission was notified about the Paks II project in line with the provisions of the Euratom Treaty. The project was deemed to fulfil the objectives of the Euratom Treaty subject to the successful resolution of the issues highlighted by the Commission.
The Commission notes that the addition of two nuclear units to the four existing ones would increase the nuclear share in the Hungarian electricity production from about 40% to about 70% (transitionally - Editor’s note). The Paks II business plan foresees the possibility to export a part of the production under specific conditions related to electricity domestic demand and prices.
This is Portfolio’s fifth exclusive interview (in writing) with a European Union Commissioner.
In April 2015, we have talked with Jyrki Katainen European Commission Vice-President for Jobs, Growth, Investment and Competitiveness about the European Investment Plan. In October 2015, Marianne Thyssen, Commissioner for Employment, Social Affairs, Skills and Labour Mobility, gave us an exclusive interview. In December 2015, we published a video interview with Phil Hogan, Commissioner for Agriculture and Rural Development, at Portfolio’s Agricultural Sector 2015 conference, and this April we run an interview with European Commissioner for Regional Policy Corina Cretu, in relation to an agreement between Budapest and Brussels on the so-called asphalt case.
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