Future challenges for European energy supply: Positions of the FECER

Preamble :

The FECER, the European Federation of Executives in the Sectors of Energy and related Research, is a member of the CEC (Confédération Européenne des Cadres) and represents the energy expertise within the CEC, when the CEC is consulted by the European Commission or other European authorities. The FECER has organized a large number of events and published a large number of papers and statements. These publications cover aspects concerning all energy sources, specific energy policy and social matters. Members of the FECER are national federations of energy managers from all over Europe, covering a total of more than 20.000 individuals.

Recent developments in the European energy supply situation, the discussions about changes in European energy policies, and publications such as the European Commission’s communication of 10 January 2007 “An Energy Policy for Europe” are reason for the FECER to update existing position papers and provide an input to the evaluation of future challenges for European energy supply.

1. Among the priorities for future energy policy are

  • security of supply,
  • the development of a coherent foreign policy of the EU in energy matters (while sticking to the principle of subsidiarity, thus leaving responsibility for energy policy as far as possible at national levels),
  • opening of the national energy markets for competition (thus completing the European Internal Energy Market), providing for more competitive prices at consumer level,
  • climate protection (achieved by significant improvements in the efficiency of the production and utilization of energy, and also achieved by the increased utilization of renewable energy sources),
  • the careful consideration of the social consequences of changes in energy policy (including jobs, the creation of which should be stimulated).

2. By basing energy supply on a mix of energy sources (fossil fuels, renewable energy sources and nuclear energy), an overall optimum can be achieved in terms of

  • security of supply,
  • competitiveness of supply (taking external costs into account),
  • safety and environmental acceptability  –  as well as social acceptability  –  of production and utilization.

3. The FECER is worried about the increasing energy import dependency of the EU, mainly due to the fact that a significant share of imports comes from Russia, Arabian and OPEC countries and other potentially “unstable” regions. In particular, the continuing rise in the consumption of natural gas more and more has to be covered by imports from outside of the EU, leading to an import dependency of the EU-27 growing from 57 % in 2005 to 84 % in 2030 in the “business as usual” case (referred to in the communication from the Commission of 10 January 2007 “An Energy Policy for Europe”). Coal imports too will significantly rise in the 15 “old” EU countries, due to an ongoing reduction in indigenous production, with some of the “new” East European member countries, however, having significant indigenous production levels. But even including those countries, the European Commission expects coal import dependency of the EU-27 in the “business as usual” case to increase from 57 % in 2005 to 84 % in 2030. Even oil imports, already at a very high level, will rise further (from 82 to 93 %).

Considering such situation, a wider geopolitical diversification of sources (including more liquefied natural gas, LNG) and of import routes, as well as a focus on contracts with increased reliability, should be a top priority. Of equal importance, however, are improvements in the efficiency of energy production and utilization, and in energy savings in the EU, which significantly can help to limit energy import dependency.

4. In this context, it is of great importance for the EU to intensify endeavours towards cooperation with a larger number of energy exporting countries, which can help to limit energy import dependency of the EU. This includes the support of investments in energy projects in countries such as Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tadzhikistan, Turkey, Ukraine and Uzbekistan (as agreed by energy commissioner Andris Piebalgs and the energy ministers of the countries mentioned).

The FECER welcomes the intention of the European Commission to improve relations with a large number of neighbouring countries and other energy producers and transit countries, as listed in the communication of 10 January 2007 “An Energy Policy for Europe”. While such improvements certainly would limit risks, geopolitical diversification of energy sources must be the priority.

Countries with political stability and reliability of energy supplies such as Norway should play a major role in the EU’s import balance.

5. The FECER is in favour of a balanced energy mix to cover the energy needs in Europe. In this energy mix, fossil fuels, renewable energy sources and nuclear energies will continue to play important roles for the foreseeable future. As part of this energy mix, nuclear energy will continue to be an important energy source for electricity generation for several decades to come. On a worldwide basis, the utilization of nuclear energy is set to grow. Therefore research in nuclear technology should receive appropriate support. The high standards in technology and in safety, the low fuel supply risks and the contribution of nuclear energy to the reduction of CO2-emissions, should be a basis for both, the continued utilization in the EU and the export of nuclear technology and standards, to other countries with a durable level of political stability.

In the EU, there seems to be limited potential, due to public acceptance problems and political pressure, to build new nuclear power stations. Existing stations, however, should not be closed before their calculated life time (up to 60 years), if they can continue to produce electricity with high safety standards and low costs (which usually is the case).

The safe storage of radioactive waste for an indefinite period of time remains to be a major concern, and the reversibility of the storage should be one of the key issues. Further research and development in this area, as well as the development of technologies reducing the amounts of waste produced, have to be carried out.

6. As far as the role of renewable energies in primary energy consumption is concerned, the FECER welcomes a binding target of 20 %, to be achieved by 2020 within the EU (as defined by the European Commission in its communication of 10 January 2007 “An Energy Policy for Europe”).

The FECER is worried, however, about the risk that the simple addition of national policies regarding renewable energies will not lead to an overall quota of 20 %. There are significant differences between the individual conditions for an economic utilization of renewable energy sources between the member countries, as far as the availability of wind, sun, or simply space for the production of biomass is concerned. The European Commission could play a useful role to direct funds to regions with the best conditions. Binding targets for each individual country have to be set to reach the overall goal.

In order to enable a strong increase in the utilization of renewable energies in power generation, international measures are required such as improved cooperation in power generation and transmission, the development of bidirectional transmission networks, the implementation of more sophisticated supply-and-demand management systems, and the development of storage systems. Since the volume of cross-border electricity transport will increase, more attention needs to be paid to common and harmonized network security standards, and to the promotion of investments in new cross-border networks.

The current level of investment into cross-border networks, however, does seem to be insufficient, not just to enable more electricity from renewable energy sources to be exchanged, but also to provide for a higher security against power disruptions and black outs, and for increased competition on a European level.

7. Although the importance of renewable energies should  –  and will  –  grow significantly, fossil fuels will continue to cover a major share of energy consumption for the foreseeable future. Therefore the efficient and environmentally friendly utilization of fossil fuels (”clean coal technology”) has to be a cornerstone of any energy policy. There still is a high potential to further improve the efficiency of power generation in fossil fuel powered plants. This potential has to be utilized now, when new power stations are being built. Further research in the area of CO2-separation and CO2-storage (”CO2-sequestration”) is sensible and should be promoted, while an obligation  –  starting 2020  –  to fit all new coal-fired plants with CO2-separation and CO2-storage, seems unrealistic. As far as the risks of import dependency is concerned, the FECER favours the utilization of indigenous fossil fuel resources, if the economic conditions of such utilization are acceptable, considering the likelihood of long term price increases on the world markets.

8. Climate change is one of the greatest challenges of the future. Industrialized countries have been responsible for most of the man-made CO2-emissions in the past, therefore they should now help poor countries to finance measures to deal with climate change. The EU should take a leading role to design a follow-up of the Kyoto-protocol, which will phase out in 2012. Of great importance in this respect will be the involvement of all major CO2-emitting countries, particularly the USA, but also China, India and the member countries of the “Asia-Pacific Partnership on Clean Development and Climate”, since the EU in future will account for only 15 % of new CO2-emissions. Other greenhouse gases should be included too in a follow-up of the Kyoto-protocol. While climate protection has to be a top priority, the international competitiveness of the European industry should not be impaired by inappropriate unilateral European climate protection measures.

The FECER welcomes the proposal of the European Commission (in the communication of 10 January 2007 “An Energy Policy for Europe”) to set a target of 20 % reduction in the emissions of greenhouse gases by 2020 (compared to 1990), although the FECER considers this target to be ambitious, and realizes that even a reduction of 8 % in the 15 EU countries by 2012, being the target under the Kyoto protocol, will be very difficult to achieve. The FECER agrees that with the implementation of appropriate measures to achieve this target, the EU will gain significant advantages in terms of limited import dependency, the creation of new jobs and the provision for a technological lead in low carbon technologies.

The FECER considers it to be important that all sectors, emitting greenhouse gases, such as industry, domestic energy consumption or transport, have a similar target to be achieved. No sector should be excluded.

The FECER welcomes the intention of the European Commission to aim for an even larger reduction of 30 % by 2020 in negotiations with other developed countries.

Emission certificate trading is an important means to stimulate low carbon technologies. All emitting sources, however, need to be included, and a better coordination with other instruments such as taxes or subsidies is required.

9. The FECER also welcomes the priorities, as defined by the energy ministers of the EU countries, confirmed by the Commission in its communication of 10 January 2007 “An Energy Policy for Europe”, to achieve energy savings of 20 % by 2020 (compared to the current level):

  • improvements in energy efficiency and energy savings in transport, in buildings and in the operation of electric appliances,
  • development of energy-efficient technology,
  • promotion of energy-saving behaviour.

10. Transport and house’s heating are responsible for a significant part of total energy consumption. Increasing wealth and increasing mobility of people will lead to a further increase in energy consumption in this sector, and to a further increase in CO2-emissions, if conventional technology is employed. For transport, the continued development of alternative fuels (natural gas, synthetic fuels and hydrogen), of electric drives with more efficient storage systems, and of optimized propulsion technologies, therefore is of great importance. In the medium term, biogenic fuels will play an increasing role, while in the long run, electricity (then mainly based on renewable energies) and hydrogen may be the first choice. For house’s heating systems, the EU should define more ambitious norms for buildings to increase energy savings significantly. The choice made by consumers to build in accordance with these norms should be supported by subsidies in each European country.

11. In electricity production, small and smallest decentral cogeneration plants will also play an increasing role. In this context, further R&D (research and development) in fuel cell technology is required, so that commercial utilization of this technology on a large scale will be possible by 2030.

12. It seems that national investments in power generation and power transmission during the past years were below the average level required to maintain a high level of security-of-supply and a low risk of interruptions. In order to promote future investments on an appropriate level, however, companies need a reliable long term legislative framework, which in some countries does not exist.

13. The FECER welcomes a full liberalization of the European electricity and gas markets, if this is based on strict reciprocity between countries, and if liberalization takes place at a harmonized and common pace. FECER does not accept any form of protection of national markets against competition from abroad. Cross-border cooperations, joint-ventures and acquisitions should not be hindered by protective measures. Since the completion of the European Internal Energy Market is the goal, this also needs to be the “relevant market”, if market control of a company is evaluated. Strong energy companies on a European  –  not a national  –  level are required to tackle the challenges of the future.

In a liberalized market, it will be important to generate sufficient investment in new power stations, when old stations are decommissioned.

14. While the European Commission is important in order to provide a framework for supra-national energy matters such as the harmonization of standards, the application of fair competition legislation across borders, the stimulation of developments allowing the common targets to be met, the completion of the European Internal Energy Market, the development of an appropriate foreign policy in energy matters, or the provision of funds, direct responsibility for energy policy should remain to be at a national level. The principle of subsidiarity should continue to be applied for the foreseeable future, while the FECER accepts that in the longer run, it might well make sense to develop a structural framework, under which the European Commission will obtain enlarged competencies in energy policy matters. A thorough investigation should be carried out about the advantages of such enlarged competencies, and about the necessary extent of such enlargement.

EU-legislation with the aim to force an unbundling of ownership of energy production, energy transmission and energy distribution is not considered necessary by the FECER. Competition, open markets and adequate investments in networks can be achieved without such legislation, and without the creation of a single European regulation authority, while a closer cooperation between independent national regulators seems helpful. In any case, the future experiences with legal unbundling in a liberalized and regulated market will have to be evaluated first, before further steps are taken.

15. All the challenges mentioned above, such as the continued worldwide strong increase in energy demand, the rising European energy import dependency and the climate change caused by CO2-emissions, require an expansion of R&D focused on innovative solutions. More money should be spent on such R&D by both public authorities  –  on a national and European level  –  and private industry. A further improvement of the technological standards in the European energy industry will not only have a positive effect on the energy supply situation in Europe, but also boost exports of advanced technology to other countries.

12 February 2007