The future of electricity and gas

The Rosa-Luxemburg-Stiftung, Brussels Office organised a workshop on European energy policies on 5-6 October 2015 in Brussels. Participants from Spain, France, Great Britain, the Netherlands, Belgium and Germany exchanged views on the current European energy strategies, discussed approaches to an alternative energy policy and discovered a new challenge: Instead of an energy revolution – away from fossil fuel sources – natural gas will play an increasingly important role in politics and the economy in Europe.

EU energy union

The policy analyst Fabian Hübner (transit*europe) presented the current European energy policy debate and the strategies of the EU Energy Union. He took a look at the new concept for the EU electricity market, the legal field of EU energy policy as well as the efforts for a European integration of the Energy Union. With the principle of “conferral authorization” (Lisbon Treaty, Article 5) the new energy policy is influenced by a conflict between coordination and communitarisation, argued Fabian Hübner. According to the Lisbon Treaty the EU can promote the following objectives: It aims to ensure the functioning of the energy market and the security of energy supply in the EU. Their policy should promote energy efficiency, savings on energy and support as well as the expansion of new and renewable energy sources. In addition, they can take care of a better interconnection of energy networks.

The goal to ensure “energy security” represents the largest substantive change at the legal basis for energy policy measures. It was so far mostly a national task. This fact reflects the impact of the crisis in the Ukraine and is exemplary of the increasing influence of European players in the context of public services. In 2014, the current EU Commission President Jean-Claude Juncker ranged the project “energy security” among the top five priorities. Previously, the European Council had appointed the Energy Union as an important item on its strategic agenda and had set the five priorities (security of energy supply, integrated internal energy market, energy efficiency, decarbonisation of the economy, and research).

Central in the energy security strategy of the European Union is the joint purchasing of natural gas as well as the development of liquefied natural gas (LNG) storage and its necessary infrastructure. These goals are realised by financing “Projects of Common Interest” (PCIs). The promotion of renewable energies in the announced Energy Union must be in accordance with the guidelines on national environmental and energy aid “through market-based mechanisms” at the expense of community energy projects.

The framework strategy that is formulated deliberately ambiguous conceals profound conflicts of interests within the EU climate and energy policy. The project of the Energy Union faces the problem that the majority of the Member States so far hold the primacy of national sovereignty in the energy policy. On the other hand the EU treaties’ basis is sufficient for the proposed regulations in the energy policy, so the assessment of Fabian Hübner. The challenges for a European Left are to deal with the development of the Energy Union, the planned EU electricity market and its impact on the regulatory capacity of Member States in the energy system. Currently these conflicts are present especially in the European debates about price regulation and energy poverty as well as in the eligibility criteria and objective provisions for renewable energy, in Governance issues and in the funding of infrastructure projects.

Case study Spain

Pablo Cotarelo and Alfons Pérez of the Catalan Observatori del Deute en la Globalització (ODG) described the impact of such mega-projects on the national energy infrastructure in its latest study on energy costs in Spain and the EU electricity market. In the past 15 years, a high oversupply of natural gas developed due to a wrong focus of national energy policy, and also due to a blockade of other EU countries in particular France. Spain and its five dominant energy companies signed numerous long-term contracts for imports of natural gas in the years 2002 to 2004, and the overcapacity cannot be sold to other EU countries.

Four pipeline compounds over the Pyrenees are planned in the context of Projects of Common Interest (PCIs), but so far the nuclear state France blocks possible gas imports over the already existing Midcat pipeline. Despite the resulting oversupply of about 6 billion cubic meters of gas per year, Spanish people pay the highest electricity prices. And not only that, companies had been compensated their economic shortcomings, resulting from natural gas surpluses being re-exported at lower prices, by tax revenues, amounting to about 80 billion euros of “illegitime payments” (Cotarelo, Pérez) between 1998 and 2013.

Precisely because of this negative experiences with the oligopoly, Pablo Cotarelo and Alfonso Pérez consider a stronger integration in the European energy market not as a solution. This would only give artificial attractiveness to large infrastructures and benefit to the large energy companies. History has shown that such integration rather weakens peripheral regions, argue Cotarelo and Pérez, as decision-making is shifted away from affected people and therewith weakens the local economy.

The Observatori del Deute en la Globalització (ODG) proposes instead a fundamentally different approach of energy policy. At the center of interest should be the energy supply of the districts and municipalities. Citizens' groups and cooperatives need a straightforward financing framework in which they can confidently solve the local supply situation. Because of shorter transport routes and a focus on renewable energy, such decentralised and democratic structures prove to be a meaningful way in climate and energy policies.

Natural gas and LNG in Europe

Jonathan Gaventa from Third Generation Environmentalism (E3G) presented the current situation in the gas supply and the EU strategies. Already a big part of the investment in the new infrastructure for natural gas – the Southern gas corridor, Nord Stream and Turkstream – is intended to be publicly funded as PCIs. This funding by the taxpayer would cover a large part of the required total costs, according to estimates by Jonathan Gaventa.

On the other hand, the demand for natural gas decreases strongly since many years. The year 2014 was the weakest in terms of gas consumption since 1995. The reasons for that are structural changes in the European economic structure and the growing share of renewable energies in electricity production. In addition, there are only certain EU countries, which have a high dependence on natural gas: only in Germany and Greece increases the consumption; the Eastern European and some Scandinavian countries receive more than two-thirds of its natural gas from the Russian Federation and thus are central to the current debate about the security of supply. Germany, Great Britain, Italy, France, the Netherlands and Spain together consume about 75 percent of all natural gas burnt in the EU.

Liquefied Natural Gas (LNG) plays a special role for the European Commission. It is being discussed as an alternative to pipeline import and should guarantee “greater independence in the supply” - especially from Russia. LNG imports currently count for about 7 percent of the total consumption of natural gas. Large import capacities are so far available mainly in Western Europe. Only 24 percent of these liquidation and gasification capacities are currently used. The new LNG terminals are extremely durable and very expensive. The EU Commission has presented a new LNG strategy beginning of 2016.

Although the gas demand decreases since several years, the EU's plans are based on a projection of a continued rising demand, and thus justify major infrastructure planning. As already the case in Spain, this entails the danger of institutional oversupply and suggests an “energy security” strategy that is focused on fossil fuels. The high level of investment in infrastructures will most probably result in wasting public funds in unprofitable projects. As a consequence, the EU's current energy strategy conflicts with its own objective of “decarbonisation”.

The objectives of the energy strategy of the European Commission must therefore go through a reality check, recommends Jonathan Gaventa. It must be ensured that the selection and prioritization of PCIs are based on realistic scenarios. Concrete activities are needed to evaluate the projects for gas imports.

Ways for regulation

What limits the legislator meets when laws are changed was explained by the lawyer Dörte Fouquet from the law firm Becker Büttner Held. The law firm mainly represented public institutions in cases with large energy and infrastructure projects on the part of public institutions. The current legal basis for agency in energy policy dates from the liberalisation of the energy market in the mid-nineties with the first liberalisation directives in the electricity and the gas sector. Europe wants to ensure “free competition” and to prevent “discrimination” of certain market participants, recognising that natural monopolies when it comes to the grid mechanisms are inherent. The liberalisation was connected with the unbundling of former integrated utilities on the TSO level, starting from internal unbundling to ownership unbundling over the years.

All market participants need to be provided the same possibility of access, so Dorte Fouquet. The Commission has the role, obligation and competence to screen and to deny respectively authorise state aid given in this sector. Conflicts of interest are normally regulated by national institutions or the European Commission. In view of current retroactive changes in many member states of their support mechanism for renewable energies, many European investors from EU Member States who lost money and business now try to use the provisions for arbitration and dispute settlement under the Energy Charter Treaty. The European Commission denies access to the ECT procedure for EU companies against EU Member states and uses its position as “Amicus curiae” in these proceedings to ask not to pursue the tribunal when it comes to inner EU case. Because of alleged “illegal state aid” it came in recent years to several lawsuits against individual member states, For example, the investor group Micula sued Romania, when the legislator abolished certain subsidies in their favour. An ICSID ruled that the plaintiff receives 82 million euros in compensation from tax revenues. The EU Commission classified this compensation later as “illegal state aid”.

In the case Vattenfall vs. Germany (2009), the company sued under the ECT before an international arbitration tribunal ICSID against subsequently adopted environmental regulations against the coal power plant in Hamburg-Moorburg. In the legal proceeding, in which interestingly enough, the European Commission did not take part as Amicus Curiae, the parties agreed informally on a “compensation” for the company of 1.4 billion euros from tax revenues. Because of this successful course of action for the company, Vattenfall sued subsequently – also before an ICSID and under the ECT – against the government decision to phase out nuclear power (ARB/12/12). Vattenfall claims now an alleged loss of 4.7 billion. In this case the EU Commission now appeared as amicus curiae asking not to pursue the case further before the tribunal.

On the other hand, the European Commission also has the task of protecting European companies in the European market against “unfair competition”. This concerns for example dumping prices and ‘illegal state aid’ by other states. This affected in the energy sector the photovoltaic industry, where the Commission issued import duties against some types of PV technology from China.

Decentralised and renewable

Dirk Vansintjan from RESCoop, Antwerp, presented a decentralised strategy of cooperatives in Europe. 2400 cooperatives throughout Europe are organised in a federation of initiatives related to renewable energy. The common feature of these “Community Power Initiatives” is that they are neither private sector nor public companies in the classical sense. These people’s initiatives have joined forces at the local and regional level in order to achieve an energy supply from renewable energy sources and greater energy efficiency – with lower prices.

Dirk Vansintjan presented the typical problems of communities that are only partially or not at all connected to the major energy infrastructures, by referring to examples from Greece and Austria. Here, until today oil and natural gas is burnt, brought in by road or by boat. This leads to extremely high costs and environmental impacts. A consequence of a centralised energy infrastructure that was only enforced in the advent of nuclear power plants in the 1960s and 1970s, so Vansintjan.

Finally, regional and public providers were pushed back with the unification and liberalisation of the EU internal market. Through technological advances in the renewables energy sector, however, the price of the regional production of renewables decreases drastically. Also the consumption in the households dropped due to technical and architectural advances. In this respect, according to Dirk Vansintjan, the current situation – the crisis of the big energy companies – is an important moment to advance an energy shift towards decentralised structures and renewable energy. Unlike fossil fuels, the resources of renewable energy can be treated in principle as public or communal property. The result is that in Germany, only 25 percent of the renewable energy is generated by large companies and investment funds in the year of 2010. The rest are produced by households, agricultural enterprises and smaller companies.

Solar energy by private companies

James Watson, CEO of Solar Power Europe, discussed what role renewable energies play for the private sector. The Network of the European photovoltaic industry organises 130 individual companies, including big companies such as Du Pont, Enel Green Power and Total. At the global level, the share of solar energy increased to about 40 gigawatts in 2014. China, Japan and the United States experienced the strongest growth in recent years.

The omission of public support since 2011 limits clearly the growth of the solar market in Europe. According to James Watson, the costs of photovoltaic power generation in Europe are at a similar level compared with wind power. At the same time, the European electricity market is in a transitional phase. Germany, Britain and France represent the largest share of a total of 7 percent of electricity generated by solar power in the past year.

Decentralised systems on rooftops still play an important role. However, the spectrum of the operators shifted in recent years from homeowners to commercial and industrial operators. Solar Power Europe is projecting significant opportunities for increase.

Power to the people

Finally Molly Walsh presented the campaign Power to the People of the activist network Friends of the Earth. The network intervenes with numerous public campaigns in various fields of energy policy. In addition, the network is working to advance concrete projects of renewable energy at the community level that are publicly owned. Municipalities are supported with concrete assistance in project management, for example in legal advice, considering current legislative changes. Equally, Friends of the Earth helps in financial planning and establishes contacts with existing projects and environmental networks. Friends of the Earth organises so far 12 organisations in 8 different countries.

Molly Walsh also projects a breakthrough of renewable energies, like the previous speakers, prevailing in the long run against fossil fuels. Only within the past five years, more photovoltaic capacity was installed worldwide than altogether before. While in Europe the share of fossil fuels decreases, the renewables are rising rapidly.

Molly Walsh also introduced projects that go far beyond narrow environmental issues. Friends of the Earth supports in British towns projects against energy poverty. Based on decentralised and renewable energy it becomes possible for low-income communities such as Brixton to produce sufficient affordable energy. An Energy Democracy must in addition to the narrow environmental issues also be able to solve social problems, so Molly Walsh.

An energy strategy from below

A challenge for left energy policy is that the various traditions of the historic left partially pursue very different concepts. A challenge for left energy policy is that the various traditions of the historic left partially pursue very different concepts. Manuela Kropp from the Brussels office of the GUE/NGL Member of Parliament Cornelia Ernst points out that some member parties of the European left do not oppose large central infrastructures and accept fossil fuels and nuclear power due to concerns regarding the employment situation. On the other hand, many activists do not consider the commercial providers of renewable energy, such as companies organised in Solar Power Europe, as allies for an alternative energy policy, as emphasised Tom Kucharz from Ecologistas en Acción.

Among all participants, however, there has been a consensus that in the framework of the European energy union, the critical analysis of natural gas will become more important in the near future. A central demand concerning planned new infrastructure for gas transportation should be: No public funding for fossil energy! In addition, the alleged climate favourable conditions of natural gas need to be addressed critically. In the production of natural gas, numerous climate-damaging gases are leaking through flaring and uncontrolled methane leaks next to the calorific value, so that natural gas cannot be considered as a climate-friendly bridge fuel. In this context, Demosthenes Papastamopoulos from Syriza, working in the Greek Ministry of environment and energy, pointed out to the fact that the geopolitical implications of the different strategies for gas supply – from Russia or as LNG from North America – must be considered. It was assumed by the participants that fracking will not play an important role as producing method in Europe. However, the LNG strategy of the European Union possibly aims at imports from fracked gas from the United States and North Africa on a large scale. The resistance against another round of fossil fuels principally needs to support renewable and preferably decentralised approaches for the energy supply.

The author:
Malte Daniljuk is Fellow of the Institute for Social Analysis, Rosa-Luxemburg-Stiftung, for Energy Policies and Geostrategy.

Contact:
Marlis Gensler, Rosa-Luxemburg-Stiftung, Brussels Office, marlis.gensler(at)rosalux(dot)org

Website of event with presentations of the participants and background material:
The future of electricity and gas

Publications:

A Bright Future for Fossil Fuel in the EU? - Fabian Hübner

A Bright Future for Fossil Fuel in the EU? - Fabian Hübner
A Bright Future for Fossil Fuel in the EU? - Fabian Hübner
Download A Bright Future for Fossil Fuel in the EU? - Fabian Hübner

The Energy Union. What's Behind It? - Malte Fiedler

The Energy Union. What's Behind It? - Malte Fiedler
The Energy Union. What's Behind It? - Malte Fiedler
Download The Energy Union. What's Behind It? - Malte Fiedler

The Making of the EU Internal Energy Market - Malte Fiedler

The Making of the EU Internal Energy Market - Malte Fiedler
The Making of the EU Internal Energy Market - Malte Fiedler
Download The Making of the EU Internal Energy Market - Malte Fiedler