Preparing today for the energy networks of tomorrow

by GUNTHER OETTINGER, EU Commissioner for Energy

We have recently witnessed two energy related accidents which constitute a turning point in the energy world: the Gulf of Mexico oil spill one year ago and most recently the nuclear accident in Fukushima. It is unclear what the energy mix of the future will be; one thing is clear, however: energy infrastructure will be key to optimise any energy mix.

Energy networks are at the heart of our energy system

Without secure, intelligent and sustainable energy networks we cannot meet our energy and climate targets in Europe. Within the horizon of the next decades our energy system, notably thanks to technological progress, will go through a deep transformation process, with huge challenges, but also opportunities in particular in the way we generate, transport, distribute and consume electricity. Europe's current energy infrastructure is ageing and not prepared for these future challenges.

By 2014, as confirmed by the February European Council, the internal electricity market should be completed, and by 2015, no Member State should remain isolated from the electricity and Gas networks. This, in addition, to the previous established goals for 2020 on renewables and greenhouse gas emissions. By 2050, EU emissions are to be reduced by 80-95%.

This transition process has already begun, notably thanks to EU legislation on the internal market, on emission reductions, renewable energy and soon on energy efficiency. But, because it takes a long time to overturn existing infrastructure and reorient our patterns of energy use, we must redouble our efforts today. The recent events make it the more compelling to address the energy infrastructure challenges.

The challenges for our energy infrastructures are clear

Electricity grids will have to cope with steadily increasing demand, with increasing electrification of energy, changing demand patterns and increasingly variable supplies both from centralised production as well as from many small (decentralised) producers. Our gas networks will have to reach out to new sources and become more diversified and interconnected, to maintain and increase our current levels of security of supply, but also to serve, one day, as a buffer system for electricity storage thanks to power-to-gas technologies.

The share of renewables in electricity could grow from 19.5% today to around 35% in 2020, with about half of this increase coming from variable energy sources, such as wind and solar. Over 40 GW of installed capacity are foreseen for offshore wind alone, mostly in the Northern Seas. This will create unprecedented challenges for the grid, and bigger risks for our energy systems and our economies, if we are not unable to deliver on them.

Just remember the November 2006 black-out, which originated in Central- Western Europe and hit several EU countries from Austria to Spain with around 15 million people literally "sitting in the dark". For a country like Germany, it is estimated that a full black-out would cost about 500 million euro per hour!

Or think about the day when the supplies of Russian gas through the Ukrainian pipeline system to South-Eastern Europe came to a halt in January 2009 and there were no sufficient reserve storages or other pipelines capable of bringing gas from Western Europe to ensure the uninterrupted supply of countries like Bulgaria, Hungary or Slovakia. The economic price the region has paid is estimated to be about 2 billion Euros, and this for just a couple of days!

The facts are clear: We need new, smarter energy infrastructures. They will be vital for our energy system, for our economies, for our well-being as citizens. For electricity alone, we are talking about something like 45,000 km of new or upgraded lines for the next ten years.

I have therefore been working, since my arrival as European Commissioner in charge of energy, on a new energy infrastructure policy for Europe that will make our energy grids fit for 2020, but that will also allow us to plan ahead and make our networks "future proof". In November 2010, the Commission has proposed European infrastructure priorities, which have been endorsed by the Heads of State and Government in February 2011.
We now know what we need:

• Offshore grids connecting the huge offshore wind energy potential in the Northern Seas and onshore networks transporting this energy to consumption centres in Central Europe and storage hubs;

• Diversification of our gas supplies, sources, counterparts and routes with the construction of the Southern Corridor;
• To develop electricity and gas interconnections in South-Western Europe, notably with a view to integrate renewable energies and increase the flexibility of gas flows in the region;

• To fully integrate the Baltic electricity and gas markets into the European market;

• To reinforce North-South electricity and gas interconnections in Central-Eastern Europe and South-Eastern Europe;

• To rapidly deploying smart grid technologies across the distribution and transmission networks in electricity;

• To reinforce the interoperability of the oil pipeline system in Central-Eastern Europe to increase security of supply and reduce environmental risks due to vessel transport in the region.
We need to start preparing today for the energy networks of tomorrow, notably by providing for:

• "electricity highways" to transport renewable electricity from North to South and East and to West;

• CO2 transport networks in order to enable future CCS technology.

Now, we need to get from broad priorities to concrete projects of European interest, and from plans for projects on drawing boards to consultations, permit granting, financing and construction on the ground.

First, we need a new method of identification and selection of projects of European interest, based on regional cooperation. We have the broad priorities I just mentioned. We can count on regional fora such as BEMIP, the North Seas Countries' Offshore Grid Initiative or the recently established North-South High-Level Group. We now want transmission system operators, regulators and Member States in these regions to sit together and work out, which projects are really essential if we want to achieve our energy policy objectives and turn our infrastructure priorities into reality by 2020. These will be cross border projects of European interest. In order to identify these projects, the Commission will propose criteria. There will be transparent, measurable indicators that will make projects comparable. Each project should also provide for a broader socio-economic cost-benefit analysis, including indirect effects of new infrastructure on the energy system. If consistent with the objectives and criteria and coherent among themselves, the projects from the regions will be labelled "projects of European interest".

Permit granting is another essential element that we need to tackle. That is the key for a successful integrated infrastructure. We need to increase the efficiency and transparency in the planning and permit granting process. We all agree that we cannot accept anymore that some electricity overhead line projects drag on for 10, 15 or even 20 years before a final decision is taken. We have worked a lot to understand in more detail, which exact issues are leading to delays. We have also identified many examples of good practice. For instance, the Dutch authorities have pushed the duration of the procedures down from 15 years to 6 years for certain projects. I know that subsidiarity has to be accounted for, and that the problems are not the same in federal states and states that are more centrally organised. Yet, there can be solutions that take these elements into account while allowing to meet the common European interest.

We could act on the procedures by proposing, for instance:

• That projects of European interest are also granted necessity and priority status at national level, with all procedural consequences that this entails;

• That an authority responsible for the overall coordination and facilitation of permit granting for projects of European interest is designated, without undermining the decision-making competence of the authorities involved;

• That all interested parties in a project – the promoter, the regulatory authority, the authorities involved in the permit granting and other relevant stakeholders – agree on an appropriate permit granting schedule, which will not exceed a certain duration and serve as reference, to measure progress and delivery of a given infrastructure;

• And that measures are taken at the highest level possible, if this schedule is not respected with due justification.
The first thing to do is to address the much bigger issue behind the procedures themselves, which is the acceptability of the infrastructures we want to build. We need to take along our citizens and raise awareness among them, explain the benefits, but also the costs of new projects, listen to legitimate concerns and objections of stakeholders and, most of all, be transparent at every step of the process. This is why we will propose guidelines applicable to all projects of European interest to increase transparency towards and involvement of stakeholders early on in the process.

Last but definitely not least, financing is the remaining magic word: we need to create a sound and stable regulatory and financing framework for these projects of European interest. The investment challenge ahead of us is huge: 200 billion euro until 2020 for renewal and extension of transmission networks in electricity and gas, beyond storage and smarter grids. In electricity in particular, this means more than doubling investments compared to the last decade. We believe that we can count on existing market and regulatory conditions to make most of this investment up to 2020 happen. But the future will not be business-as-usual. Therefore existing instruments alone will not deliver.

• Let us be clear: the rule will remain that project need to be borne by the market!

Nevertheless, in a limited number of cases, regulation alone will not suffice to do the trick and the project may not be commercially interesting. This seems to be particularly true for projects serving security of supply or solidarity purposes in gas or projects addressing loop flows in electricity. The European Council recognised this. In these cases, innovative ways of financing or direct public funding will be necessary. Our intention is to limit this public support to those projects with the biggest EU added value and to maximize the impact we can get from these projects on the entire system.

The Commission is in the final phase of preparing a legislative proposal on energy infrastructure development for the European Union, which will contain the elements outlined and which should be adopted in October.