February 6, 2018
BP hopes gas will make it big, market for gas turbine collapses, Ukraine has one last chance to stop Nord Stream 2
BRUSSELS INSIDER #1 by Sonja van Renssen
“Big electricity” and “big gas” get EU billions – smart grids “afterthought”
February 6, 2018
Electricity, not gas, won three-quarters of nearly €1 billion in energy infrastructure funds made available by the European Commission in January 2018. It’s a sign that electrification – increasingly promoted as the best way to decarbonise – is penetrating all levels of EU policy making. Yet NGOs criticised the nearly €200 million that still went to gas networks and pointed out that overall, gas remains the bigger recipient of EU funds. This contradicts the EU’s climate agenda, they say. Others are critical of the fact that all money goes to big centralized projects. Smart grids remain an afterthought.
On 25 January, the European Commission announced a €873-million investment in “clean energy infrastructure”. The problem for NGOs such as Friends of the Earth Europe is that “clean energy” includes investments in gas, which is a fossil fuel.
The money is going to 17 interconnection projects, eight in the electricity sector (€680 million) and nine in the gas sector (€193 million). It comes from a flagship EU fund called the Connecting Europe Facility (CEF) that was created to provide support to European “Projects of Common Interest” (PCIs) in energy, transport and ICT that lack a clear business case. The CEF sets aside €5.35 billion for energy PCIs from 2014-20. The PCI list is updated every two years, most recently in November 2017.
Until this latest funding call, most of the energy money went to gas networks. For the first time, that’s no longer the case: this time round, more than three-quarters of the money went to electricity projects.
The single biggest grant – in fact, the biggest CEF-grant ever, €578 million or two-thirds of the entire sum paid out in January – went to a project to connect up France and Spain via the Biscay Gulf. This electricity line, which continues to face formidable challenges, is seen as vital to integrate the Iberian peninsula with the rest of Europe. It will nearly double the interconnection capacity of both France and Spain to 5GW – and should enable a greater Europe-wide uptake of variable renewables.
There is also a smaller grant – €70 million – to help kickstart construction of the critical “SuedOstLink”, a north-south interconnector in Germany that will help wind power from the north reach demand in the south. And there is money for studies to support the synchronisation of the Baltic States with the central European electricity network, after ministers in December set a deadline of May 2018 for this to move forward.
The biggest gas grant – €101 million – went to a project to introduce natural gas to Cyprus (the CyprusGas2EU project). The idea is to switch its power generation from heavy fuel oil to gas. A much smaller sum – €3.7 million – went to Malta to also hook it up to the gas grid for the first time, in this case through a link to Italy.
“€200 million new subsidies for fossil fuel projects” shouted the headline of Friends of the Earth Europe’s press release on 25 January. It noted that despite the victory for electricity over gas this time round, almost all the electricity money went to just one project (the Biscay Gulf interconnector).
The gas money meanwhile benefited “absurd” projects that will create a new gas dependence where today there is none (Cyprus and Malta). Other gas projects either face civil society opposition (e.g. the Southern Gas Corridor) or aspire to open Europe up to “destructive shale gas imported from the US” (the Krk LNG terminal).
In total, the CEF is still biased towards gas, Friends of the Earth Europe calculates. With about half its budget spent, the EU has given €1.3 billion to gas vs. 1.2 billion to electricity projects. Until this latest call, that was €1 billion for gas vs. €530 million for electricity. (NB: The CEF regulation stipulates that most of the money should go to electricity projects.)
The premise for the NGO’s criticism is that the EU has no business investing in new gas infrastructure when it is committed to tackling global warming and phasing out fossil fuel subsidies. It has previously argued that ENTSO-G, the European association of transmission grid operators, is too heavily involved in EU policy-making.
A group of MEPs is challenging the list that renders EU projects eligible for regulatory fast-tracking and public support in the first place, the PCI list.
The initiative is being spearheaded by French Green MEP Michèle Rivasi and Spanish left-of-centre colleague Xavier Benito Ziluaga. They want the Parliament’s industry, energy and research (ITRE) committee to back a motion rejecting the latest list. If they succeed, the motion would proceed to a plenary vote – the first time the Parliament votes on the PCI list.
But that is not so likely to happen: even if this leftwing faction convinces enough MEPs in ITRE – which is itself far from certain – plenary support seems unlikely. This is especially so because MEPs can only reject or approve the list, not amend it. Rejecting it would mean delaying any support for electricity projects also.
One statistic that’s got little attention in the latest public relations battle is the amount of money going to smart grids, or local rather than big, trans-national grid projects. In total, the EU has spent just €72 million on two smart grid projects (compared to about €2.5 billion on 111 big electricity and gas projects) since 2014.
At a press lunch in Brussels earlier in January, E.ON CEO Johannes Teyssen summed it up nicely. “We need to stop always debating if we build a new transmission line across the Pyrenees, or the next LNG terminal, putting all European money always on the upstream,” he said. “We need to think about the energy transformation as locally as possible.” The challenge? “We need to change the whole thought process.”
BRUSSELS INSIDER #2 by Sonja van Renssen
Gas under fire in Europe: do we need the Southern Gas Corridor?
February 6, 2018
The European Investment Bank (EIB) has approved a €1.5-billion loan for TAP – the Trans-Adriatic Pipeline – part of the Southern Gas Corridor that the European Commission wants to see built. But environmentalist NGOs are strongly opposed to the projects, arguing that they are bad for the climate and won’t do anything for security of energy supply. The EIB’s decision will not make or break the pipeline but illustrates just how controversial gas is in Europe – and how hard Eurocrats are trying to control it.
It’s not Nord Stream 2, but the Trans-Adriatic Pipeline (TAP) is another pipeline that has dominated the airwaves recently. TAP is one of three pipelines – the other two are TANAP and SCPX – that together make up the “Southern Gas Corridor” (see Figure below). This is a 3,500 km pipeline that is supposed to bring gas from the Caspian Sea to Europe from 2020.
Credit: TAP AG
The Southern Gas Corridor has the EU’s backing as a vital diversification of gas supplies away from Russia. In terms of total imports, TAP’s 10 bcm is a drop in the ocean – the EU imported over ten times that from Russia in 2015 (see the Energy Post/Shell EUenergy app) – but it opens up a new supply route to the east. It can moreover make a difference locally: Greece and Bulgaria will each siphon off 1 bcm, equivalent to a third and about 40% of their gas use respectively.
But as vigorously as the EU defends it, NGOs led by Counter Balance and the CEE Bankwatch Network (Bankwatch), attack it. They argue that it threatens local tourism and farming, flies in the face of climate action, and ultimately risks transporting Russian gas (nullifying the security of supply argument). Their concerns are succinctly laid out in this 3-min video released by Counter Balance on 1 February.
The video came ahead of an important decision on TAP. On 6 February, the European Investment Bank (EIB) decided on a €1.5 billion loan to the project. It’s a big sum of money, not just in absolute terms but in terms of the project’s reported total cost, €4.5 billion. Separately, the bank is also considering a loan to TANAP, although an EIB spokesperson would not confirm for how much or when a decision on that is due.
From Nabucco to TAP
The European Commission has not been shy about its support for TAP – seemingly oblivious to Azerbaijan’s (and increasingly also Turkey’s) questionable human rights record. Back in December, Climate Home revealed that the EU’s top energy officials – Vice-President for the Energy Union Maroš Šefčovič and Climate and Energy Commissioner Miguel Arias Cañete – had written to the EIB’s President, Werner Hoyer, urging him to support the Southern Gas Corridor.
They called the project “vital” for security of supply and said they hoped the bank would give financial backing “to exemplify that EU patronage over the Southern Gas Corridor continues”. TAP has been designated a European “Project of Common Interest” (PCI), which basically means it gets an easy ride on the regulatory front because it’s a political priority.
It wasn’t always so. Not so long ago, Nabucco was the Commission’s project of choice. This was the EU’s original big idea for bringing gas from the Caspian Sea to Europe. It was a wildly ambitious (read: expensive) project to rival the Russia-backed South Stream pipeline (see below). Nabucco was also labelled a project of strategic importance for the EU.
But neither Nabucco or South Stream ever happened. In 2013, the Shah Deniz consortium in Azerbaijan decided it wanted TAP, not Nabucco-West, to connect up with TANAP and transport its gas to Europe. That was the end of Nabucco. Russia subsequently abandoned South Stream in December 2014.
TAP is due to be delivered at the end of 2019. “It is on schedule,” said Lisa-Jane Givert, Head of Communications for TAP the company (TAP AG), in an interview with Energy Post. “It’s over halfway – 65% – constructed. This means that between Greece and Albania, TAP has now cleared and graded 90% of its corridor, or approximately 687 out of 765km. Additionally, we have welded 80% of steel line pipes and around 65% pipes are already in the ground (back-filled).
TAP AG consists of shareholders emanating from six different countries: SOCAR (Azerbaijan), Snam (Italy) BP (UK), Fluxys (Belgium), Enagas (Spain) and Axpo (Switzerland). Since winning access to the Shah Deniz gas back in 2013, it says it has cleared all regulatory hurdles. “We have all relevant permits required,” said Givert. “These include permits from landowners, local authorities and national authorities.”
In practice, TAP AG has had to engage tens of thousands of landowners, most of them in Greece and Albania, to get the right to cross their land. This explains in part why the pipeline has taken until now to build, despite Shah Deniz closing sales deals for all the gas TAP will transport to Europe back in September 2013 (its 10 bcm a year have been sold for the next 25 years, primarily to Italian buyers).
“It’s 898km of pipeline, the majority onshore apart from the subsea section of the Adriatic Sea,” says Givert of the construction challenge. She adds: “We’ve promised to return the land we cross to its original state afterwards.” A pipeline like Nord Stream 2, being offshore, has none of this to deal with.
TAP’s delivery schedule has also been pushed back to accommodate delays in actually getting the Shah Deniz gas onstream.
231 olive trees
In spite of all the permits, there is local opposition to TAP. A citizens’ group called the “No TAP Committee” for example, based around the pipeline’s landing point in Italy, argues that it will damage the environment and local economy, which depends on tourism and agriculture. Demonstrators have physically held up construction work. They say the permits are not in order. They have launched legal battles against TAP AG and the Italian government. In January, they paid a visit to the European Parliament.
In another example, at the end of November 2017, Bankwatch published a report on a “fact-finding mission” to Albania that found farmers were not being properly compensated – or indeed respectfully treated – by TAP AG and its representatives. The report’s press release doesn’t mince its words: “Albanian farmers receive peanuts after losing land and livelihoods to gas pipeline”.
To illustrate, one farmer (identified only as Arjan) says he received one year’s worth of olive production income, though it will take 15-20 years for newly planted trees to yield a harvest and even then, it will only be 10-15% of his current yield. “We will invest the money we got to plant new trees,” he told the NGO. “But until they become productive, I don’t know what we will be doing.” Farmers complained about a lack of information and support, and intimidation.
TAP AG issued a detailed response to the Albania report last week. It “refutes the allegations” and insists it is “committed to ensuring that all land owners and users are engaged with in an open, transparent manner; and compensated at full replacement value for any land, crops, assets or restrictions on land use impacted by the Project”.
It cites 900 community and 85,000 individual meetings in Albania to help determine compensation payments. It is actually helping upgrade infrastructure it says e.g. 40 bridges will have been refurbished by the end of the project. More broadly, it is creating an independent external monitoring group to oversee all aspects of the project and spending €55 million on a social and environmental programme.
In Italy, TAP AG is also trying to build public acceptance. It is constructing a 1.5km micro-tunnel at the pipeline’s landing point to avoid a popular beach. To minimise harm to tourism, work is suspended during the summer months (July to September). Perhaps most striking however, is that 231 olive trees in the pipeline’s path have been dug up and moved to a nursery – and will be moved back again once the pipe is in the ground. With another 2000 trees to follow.
Worth noting too is that the pipeline is underground – this is usually the solution to public criticism in the world of high-voltage power lines.
The biggest gripe of the NGOs is that the EIB may be on the verge of funding a new fossil fuel project even as the EU and its institutions are supposedly commited to the Paris Climate Agreement, and phasing out fossil fuel subsidies. Counter Balance says its 3-min “This is not a pipe” video “presents the blatant contradictions of this EU-sponsored project locking us in to a fossil-fuel future”.
In a new report on 30 January, Bankwatch argues that the Southern Gas Corridor “could be as emissions-intensive as coal power or even more”. The researchers it commissioned, from the Observatori del Deute en la Globalització and the Polytechnic University of Catalonia, say that in over half of nine scenarios examined, the level of fugitive methane emissions make the project’s carbon footprint comparable to that of coal power.
In short, they say the project could exacerbate, not mitigate climate change and should therefore not benefit from public funds. Counter Balance says every $1 invested in the project will cost up to $13 in climate change and that it will end up a stranded asset.
TAP AG responded in an email that the methodologies Bankwatch uses “are not aligned with those used by TAP or recognised bodies such as the Intergovernmental Panel on Climate Change (IPCC)” and the pipeline gas flow rates “are not consistent with the design or capacity of TAP”. It adds that natural gas “is the cleanest fossil fuel and will continue to play an important role in Europe’s future energy mix”. The argument is that TAP can help lower CO2 emissions by bringing gas to replace coal in power generation.
It all comes down to how you see the role of gas in the energy transition. Bankwatch complains that the Commission, by its own admission, “has not undertaken any climate assessment of the Southern Gas Corridor”. An EIB spokesperson told Energy Post that the bank has assessed the project, based on decarbonisation scenarios from the International Energy Agency (IEA) and Commission “that we need gas in Europe for quite a while, while coal is phased out, as a bridge.” The bank is likely to explain its thinking on the project publicly once it has taken a decision on the loan.
“We remain confident that TAP will secure external funding,” Givert told Energy Post (before the EIB decision was made). So far, it has not received any funding from either the EIB or the European Bank for Reconstruction and Development (EBRD). The latter did announce a US$500 million loan to TANAP last October. TAP too has applied to the EBRD and expects to hear back in March or April.
Counter Balance ends its video with a warning on a different front: the Southern Gas Corridor may ultimately be used to bring more Russian gas to Europe. The plan is to double TAP’s capacity to 20 bcm in future, with the addition of two compressor stations. “The actual expansion will depend on the outcome of the open seasons,” explains the company in an email. ”TAP will conduct its next open season no later than the start of operations (2020) and then every two years thereafter.”
Where will this gas from from? So far, there has been less Azeri gas than foreseen, Counter Balance says. There are other potential suppliers in the region, notably Iran. But there is also Gazprom. Renewables is “the real threat to Russia’s oligarchy”, argues the NGO; the EU should invest in that and energy efficiency if it wants to improve energy security. The Southern Gas Corridor doesn’t depend on loans from the EIB or EBRD, but it does depend on an EU energy policy that believes in gas.