Middle East Economic Survey

 

VOL. XLVIII

No 43

24-October-2005

 

Developing And Diversifying Energy Systems

 

By Andris Piebalgs

 

The following speech was delivered by EU Energy Commissioner Andris Piebalgs to the Amsterdam Sustainable Energy Forum on 14 October.

 

Let me first of all extend my warm thanks to the Dutch authorities for their hospitality and the impeccable organization of the Forum. It is my firm intention that the Amsterdam Forum will become the venue for the discussion of sustainable energy matters in Europe.

 

The next years will be a watershed period for both European and global energy policy as a result of a changing market. We will need to make a number of important decisions about our energy systems. We should make these decisions and take action, where appropriate, in a coordinated and cohesive fashion. We want to continue to develop and diversify our energy supply. And we should increase the efficiency of our energy systems, of energy supply and distribution as well as of energy end use.

 

In order to meet the challenges, we should systematically reexamine our objectives and tools of our energy policies. We then need to ensure that each and every available instrument we have at our disposal makes the maximum possible contribution to our overall energy strategy.

 

For the EU, the objectives are sustainable development, security of supply and competitiveness. The issues of the Forum (renewable energy and energy efficiency) link up perfectly with these objectives. The work of the past two days directly follows on from the global framework I have just sketched. This first Amsterdam Forum has been an important meeting as it is the first structured consultation where Member States, European Parliament and stakeholders are gathered.

 

The Commission will use the results of this meeting, together with other consultations that are being held in the framework of the Green Paper on Energy Efficiency in June. The public consultation lasts until the end of March, but today is a milestone in this consultation process. Along this process and taking into account the suggestions made, the Commission will prepare an action plan with concrete measures to reinforce energy savings in Europe.

 

European Action Plan

The current high prices have led the Commission to adopt a five point action plan to address this situation which is becoming increasingly urgent. Both, renewable energy as well as energy efficiency and demand management are key elements of this five point action plan. They have three advantages in common: they create employment in promising sectors in which Europe can take or maintain the lead. In addition, they are a significant contribution to tackling climate change and reducing emissions of greenhouse gases. Finally, they reduce our dependency on imported energy sources.

 

Our first action must be to save energy, to reduce demand. Since I took office I have made this my first priority. The Commission adopted a Green Paper on Energy Efficiency in June 2005 which identifies the potential for Europe to save as much as 20% of its existing energy use in a cost effective manner. Existing legislation, when fully implemented, could already generate some 10% energy saving.

 

Renewable Energy Sources

Europe also needs to increase its use of alternative forms of energy. This was the topic of yesterday’s discussion. The most logical response to high oil prices is to switch to using alternative, competitive and, more environmentally friendly energy sources. For instance, the enormous energy potential of biomass in the EU needs to be developed.

 

The Commission will adopt a Biomass Action Plan very soon. This Action Plan will include both biofuels for transport and biomass in electricity generation, including co-generation. With regard to biofuels, the EU has set a target of 5.75% for national share of biofuels in 2010. Against the current background of high oil prices, the Commission will announce more ambitious policy orientations for biofuels in the EU in early 2006. The proper implementation of the biofuels Directive will also be crucial in this sense.

 

We should also boost research on wind, wave and solar, small-hydro, hydrogen (in particular with respect to transport) and on clean coal and carbon sequestration, and I shall be arguing for appropriate funding of this in the 7th Framework Program. I want to thank you for the interesting discussion on the important subject of support schemes on renewable energy sources. As you know, renewable energies are one of my priorities. The Commission wanted to have your views on the financing of renewables before it adopts a Communication on this issue in the following weeks. As we have heard from yesterday’s discussions, there is not only one magic value for analyzing how the support schemes are implemented. Effectiveness in terms of energy delivered, the cost of renewable energy, the technology development, the internal market aspects, etc must all be considered. The recent Resolution of the European Parliament underlines this diversity and shows the need for a proper analysis of the existing situation in Europe.

 

Overcoming Barriers

It is obvious that direct support measures will remain essential in the future to ensure sufficient penetration of green electricity in the market and in order to meet our agreed targets. It is also true that Member States have to address the barriers – administrative and grid – which are hampering the development of renewable energies. Complex licensing procedures and poor integration of renewable energy in the local planning persist around Europe. At this stage, as I said in other occasions, I believe that it is premature to propose a harmonized European support scheme. While gaining significant experience in the EU with renewable support schemes, competing national schemes could be seen as healthy at least in a transitional period. On the short and medium term, however, we need to coordinate the existing systems on European level.

 

Summing up yesterday’s meeting, there seems to be a clear majority in favor of maintaining the different support schemes alongside each other for the time being. Moving towards a harmonized support system would simply be too early now. This is also in the interest of regulatory stability, which industry most needs to develop renewables. We have to make the best use of the experiences we are gaining at present, and in the meantime also start thinking about issues that need to be addressed, especially when the share of electricity from renewables continues to grow.

 

The maintenance of the stability of the networks and the intermittent nature of some forms of renewable electricity merit consideration. It would maybe be a good idea to start a working group to look closely into this matter consisting of representatives of the transmission system operators and representatives of the wind industry. Another issue that needs to be looked at is what to do with a significant share of renewable electricity that is fed into the system at guaranteed prices on a competitive market. This is not a pressing issue at this point in time, as the share of renewables is still limited, but hopefully, this will become an issue in the foreseeable future.

 

Energy Efficiency

Turning to the topic of our discussions today, energy efficiency is my key priority for 2005. The Green Paper sets out an ambitious goal and starts from the assumption that by 2020 we can save 20% of our current energy consumption in the EU, in a cost-effective way.

 

Since the 1970s, improved energy efficiency has contributed more to our energy balance than any other single energy source except oil. More than coal, more than gas, and more than nuclear energy or renewables. These “negawatts” have been every bit as valuable in economic terms as the “produced watts” of energy they replaced. With today’s energy prices a negawatt of energy savings costs about half of what it costs to produce the same amount of energy. The cheapest, most competitive, cleanest and most secure form of energy for the European Union thus remains saved energy.

 

Energy efficiency improvements will continue in the future to make a major contribution to alleviating our security of supply problem and to improving competitiveness. Energy efficiency is also expected to contribute over half of the CO2 reductions necessary to meet the EU Kyoto commitment.

 

In fact half of the 20% potential can be realized if adopted legislation, like the Buildings Directive and the draft Directive on energy services, will be implemented by Member States on time and completely. The other half will have to come from new initiatives, some ideas for which are in the Green Paper.

 

The Green Paper quantifies the savings on energy to represent around €60bn, depending on the development of the price of energy. It is interesting to note that the savings were calculated with an oil price of $30/B in mind. It looks increasingly likely that we will not see a quick return to that price level and that savings will therefore exceed our expectations. In order to realize savings on energy, this money will have to be invested in the EU economy, which needs the capital investment to create growth and jobs: the fundamental goals of the Lisbon Strategy. However, since the options floated in the Green Paper only concern cost-effective actions, money will be left over as net gain.

 

Action on energy efficiency will reduce waste of scarce resources and strengthen our security of supply position. It will strengthen our competitive position in a sector in which Europe is one of the best placed. And it will give a new push to the innovation and research efforts in the European Union.

 

Creating Jobs

Furthermore, it creates jobs. Estimates from various studies indicate that if the EU is serious about improving energy efficiency by 20%, around a million jobs could be created. These jobs are often highly skilled and at the cutting edge of new technology. Equally important in this respect is that many jobs in energy services and in the construction sector, for instance, are created at regional and local level, thus contributing to the social and economic cohesion of the Union. My impression from the Forum discussions today is the following:

 

All participants agree that energy efficiency needs to be tackled with priority. They agree that improving energy efficiency is the quickest, most effective and most cost-effective manner to reduce greenhouse gas emissions and contribute to the EU’s international obligations to tackle climate change.

 

If I look at the results of the first formal consultation of the Member States on the Green Paper, which was held on 29 September last, a picture starts to emerge according to which some Member States would not really favor new initiatives from the Commission. They overwhelmingly prefer an approach where the focus is given to implementation of agreed policy.

 

It seems to me that many of the other participants, from the European Parliament and NGOs specifically, urge the Commission to come up with new initiatives. They point to the fact that, for instance, we would not have seen the development of renewable energy without a European Directive, nor a coordinated approach on the energy performance of buildings, on cogeneration and biofuels without a coordinated European approach.

 

There seems to be a difference between these two sides of the debate. While you all agree on the urgency and the necessity to improve energy efficiency, there is no consensus when it comes to the way in which to achieve this.

 

My main conclusions on the energy efficiency debate of today would therefore be the following:

There is a clear support for actions in the field of appliances by means of the ECO design directive and the updating and implementation of the Labelling Directives. However the rather conservative approach as regards additional initiatives, makes me wonder how the EU is going to capitalize on the additional energy savings, for instance in the energy production sector, but equally in the tertiary sector. Courage and long term vision to justify and undertake further actions and I am afraid that we are approaching a moment where we may be blamed for having reacted to slowly and not decisive enough to the challenges before us.

 

The fact, that we put those two areas together: renewables and energy efficiency, underlines the Commissions overall vision and approach to a coherent Sustainable EU-Energy Policy.

 

This first meeting of the Forum was not the last one. I really want to see it as an ongoing process and I expect constant and active participation of Member States, Parliament and all stakeholders with the view of developing a comprehensive Sustainable Energy Policy for Europe.