An  Energy  Union  for  the  Future      

     Nick  Mabey  E3G,  May  2015  

E3G   1  

5  Key  Points  

•  Back  the  Demand  Revolu?on:  the  EU  demand  revolu?on  is  happening,  has  huge  poten?al  and  is  reshaping  the  energy  landscape.    

•  Measure  what  you  Manage:  new  metrics  are  needed  to  reward  the  security  and  economic  benefits  of  efficiency  and  low  carbon  supply.  

•  Invest  in  Value:  orderly  transi?on  requires  avoiding  risky  high  carbon  investments  while  de-­‐risking  and  enabling  clean,  efficient  infrastructure.  

•  Deliver  World  Bea?ng  Energy  Market  Reform:  a  con?nental  electricity  market  with  a  level-­‐playing  field  for  demand,  infrastructure  and  supply  investment  would  give  the  EU  a  strategic  compe??ve  advantage  

•  Re-­‐balance  External  Policy:  secure  &  affordable  EU  energy  depends  as  much  on  global  clean  technology  markets  as  securing  fossil  fuels  

E3G   2  

EU  is  in  a  demand  revolu?on  driven  by  policy,  technology  and  demographics  

E3G   3  

•  EU gas demand peaked in 2005 and has been falling for 4 years

•  80% of EU gas used in six large countries with strong EE policies •  EU gas demand forecasts for 2015 have fallen by 23% in ten years •  EU electricity demand has fallen 1% per year since 2010

•  EU passenger road transport demand is falling now at 2006 levels

E-U needs single market and regulatory reforms for energy efficiency goods and services

Current  differences  in  energy  inensity  gives  huge  poten?al  for  con?nuing  these  trends  

4  

0 0.05

0.1 0.15

0.2 0.25

0.3 0.35

0.4 0.45

0.5

Relative energy intensity (toe/€1000), 2012

Source:  Eurostat  2014  

4  E3G  

Energy  security  is  poorly  defined  -­‐  so  investments  are  poorly  targeted    

E3G   5  

EU-27 GDP– effect of a simulated oil price spike

0.80.6

-0.8

-0.2-0.4

-1.6

Decarbonizedpathway – price shock

-1.4

-1.0

-0.6

1.0

0.40.2 Baseline - price shock

-1.8

-1.2

2010 2020 2030

Difference in GDP (%) from non shocked GDP path – for each year

€ 300 bln losses avoided over the crisis

Effect of a simulated fossil

fuel spike

EU-27 GDP– effect of a simulated oil price spike

0.80.6

-0.8

-0.2-0.4

-1.6

Decarbonizedpathway – price shock

-1.4

-1.0

-0.6

1.0

0.40.2 Baseline - price shock

-1.8

-1.2

2010 2020 2030

Difference in GDP (%) from non shocked GDP path – for each year

€ 300 bln losses avoided over the crisis

Effect of a simulated fossil

fuel spike

SOURCE: Oxford Economics

•  Economic resilience

benefits of low carbon investment not measured

•  Oil security ignored – undervalues electro- mobility

•  Fuel source diversity ignores geopolitical risks and undervalues indigenous energy services

•  Import dependency ratio obscures security benefits of energy efficiency

E-U needs better energy security metrics

EU  policy  needs  to  drive  high  value  investment  and  avoid  stranded  assets  

•  €200bn  pa  needed  to  meet  EU  climate  and  energy  goals.  EU  investment  15%  below  2007  peak  

•  European  Fund  for  Strategic  Investment  (EFSI)  to  leverage  €315bn  over  3  years.  “Pipeline”  of  €624bn  low  carbon  projects  proposed  by  MS  

•  High  carbon  projects  economically  risky  given  demand  reduc?on  and  carbon  constraints,  but  easier  to  prepare.  

•  EFSI  selec?on  and  pipeline  process  must  screen  high  carbon  support  complex/small  low  carbon  projects   E3G   6  

Current  investment  biased  towards  gas  and  against  smart  power  infrastructure  •  Total  cost  savings  of  €426  billion  by  2030  

are  achievable  as  a  result  of  increased  system  efficiencies  through  more  interconnected  power  markets  

•  EU  funding  for  gas  pipelines  is  being    assessed    on  demand  70%  higher  than  if    EU  met  30%  EE  goal  in  2030.          

   

September  2014   E3G   7  

•     Electrifica?on  of  heat  and  transport  will    increase  in  electricity  demand  14%  by    2030  and  28%  by  2050,  further  reducing    imported  oil  and  gas  use  decline  

Long  term  value  of  electricity  networks  for  needs  to  be  be]er  assessed  through  EU  

Climate  and  Energy  Observatory    

Fundamental  Energy  Market  Reform  is  a  source  of  strategic  compe?veness  

E-­‐U  goal:  ‘energy  efficiency  and  demand-­‐side  response  can  compete  on  equal  terms  with  genera?on  capacity’  

•  EC  assess  poten?al  for  €100bn  per  annum  saving  from  full  electricity  demand  side  ac?va?on  

•  Value  increases  as  hea?ng/cooling  &transport  are  electrified  

•  US  grid  modernisa?on  hampered  by  1000+  regulators;  

•   China  reforming  and  inves?ng  in  smart  grid  but  price  controls  and  centralisa?on  of  State  Grid  makes  consumer  focused  market  very  difficult  to  implement  

EU  has  window  for  market  and  business  leadership  E3G   8  

Re-­‐balance  external  policy  between  supply  and  technology  markets    

•  Cost-­‐reduc?on  in  EU  clean  energy  has  been  driven  by  market  integra?on  with  China  in  solar,  LEDS,  wind  etc  

•  Bringing  down  global  clean  technology  costs  has  increased  support  for  global  climate  ac?on  lowering  climate  risk  to  EU  

•  Priority  needed  to  driving  demand  through  climate  diplomacy,  and  integra?ng  markets  through  TTIP  and  EU-­‐China  investment  agreement.  

•  Benefits  from  access  to  renewable  energy  and  storage  in  EU  neighbourhood  (W.  Balkans,  Turkey,  Ukraine,  Norway  etc)  

EEAS  energy  &  climate  diplomacy  low  priority  &  understaffed  E3G   9  

E3G  References  

Energy  Union:  –   hhp://e3g.org/showcase/energy-­‐union    –   hhp://e3g.org/library/delivering-­‐a-­‐resilient-­‐energy-­‐union-­‐six-­‐principles-­‐for-­‐success    

 EFSI:  hhp://e3g.org/news/media-­‐room/what-­‐should-­‐happen-­‐next-­‐making-­‐the-­‐investment-­‐plan-­‐work-­‐for-­‐europe     E3G   10  

Back  Up  Slides  

E3G   11  

Central  and  East  European  countries  to  benefit  most  from  energy  efficiency  

September  2014   E3G   12  

Low Efficiency/ High Import Dependency Countries

Proposed  low  carbon  investment  

E3G   13  

EFSI  Design:  direc?ng  investment  to  the  highest  value  projects  and  sectors  

E3G   14  

Project  Level  Criteria  1.  Exclude  the  most  damaging  projects  (e.g.  emissions  performance  standard)  2.  Priori?se  projects  of  par?cular  importance  for  EU  goals,  including  delivering  

Europe’s  Energy  Union  (e.g.  key  interconnectors  and  smart  grid  projects);    3.  Ensure  consistency  with  changing  demand  and  consump?on  paherns  as  Europe  

decarbonises  its  economy  (e.g.  common  demand  scenarios);    4.  Ensure  that  projects  are  economically  viable  once  climate  impacts  have  been  

included  (e.g.  use  “EU  social  cost  of  carbon”  in  project  assessment).      Poreolio  Design  and  Pipeline  Development  •   Priori?se  areas  where  underinvestment  is  due  to  large  market  failures  (e.g.  energy  efficiency),  and  largest  aggregate  private  sector  capital  leveraged  (not  roads).    •     Establish  ‘investment  plaeorms’  for  high  value  sectors  to  ensure  investable  project  pipelines.  Priority  areas  include:  energy  efficiency  retrofits,  offshore  grids  in  the  North  Seas,  smart  ci?es,  climate  resilient  infrastructure  and  SME  supply  chains