May 2 2017 brussels

May 2, 2017

One analyst calls it “the first structural change in Europe’s energy security framework”. Energy Post is the first to have the details on the deal made by MEPs and member states on a new gas security of supply regulation on 26 April.

The new gas security of supply deal updates an original law dating back to 2010 that was created in response to the European gas supply crises of 2006 and 2009.

“This is a clear improvement on the current situation because it makes cooperation [between member states] compulsory,” said the MEP who led the negotiations with member states on behalf of the European Parliament, Jerzy Buzek from Poland. “Solidarity is no longer just a slogan. Now we explain in a regulation what “solidarity” is.”

“Structural change”

This is the second piece of legislation to be agreed under the European Energy Union project launched in February 2015. It follows an agreement last December on a complementary law that gives the European Commission the right to scrutinise intergovernmental agreements (IGAs) on gas and oil with non-EU states such as Russia before they are signed.

For Severin Fischer, a Senior Researcher at the Centre for Security Studies (CSS) in Zürich, Switzerland, the latest agreement is the bigger deal. It is a “first structural change” in Europe’s energy security framework.

Fischer highlighted in particular Germany’s apparent willingness to back a law that strengthens European solidarity on gas supplies and the transparency of commercial gas contracts (in practice, these are mainly with Gazprom) as significant.

Gazprom on the rise

The deal comes against the backdrop of controversial plans for Nord Stream 2, a new Gazprom-led Russian-German pipeline project that is vigorously opposed by Eastern Europe.

Two days before the deal, Nord Stream 2 announced that five European energy companies would put up half of the project’s total estimated cost of €9.5 billion. A day after the deal, Gazprom reported a 21% rise in profits for 2016 and said it would continue to target increased gas sales in Europe. Russian gas deliveries to the EU are up 15% this year so far, the company said on 27 April.

Gazprom looks set to emerge unscathed from an EU anti-trust case and to benefit from an EU decision last November – still under legal challenge – on use of the OPAL pipeline.

No wonder Polish utility PGNiG welcomed the new security of supply regulation as a means of “bringing cooperation between member states to a new level”.

Political realities

Back in 2011 member states rejected any notion of Brussels getting directly involved in gas security of supply, for example via helping negotiate energy IGAs. But with the problems in Ukraine, unrest in North Africa and the Middle East, the end of South Stream and the rise of Nord Stream 2 and Turkstream, the Commission has won fresh powers.

The three issues at the heart of the gas security of supply regulation are: regional cooperation, a solidarity clause to protect vulnerable customers and the transparency of commercial gas contracts.

The Parliament had its position ready by October 2016 but member states only followed suit with the outline of a Council position in December. Four lengthy negotiating sessions were needed to bridge significant differences. The provisional deal reached on 26 April must now be rubber-stamped by the Council of Ministers and European Parliament to become law.

The result is the best that could be expected under the political realities of today. For Fischer, the heavy lifting was done by the 2010 regulation. The revised version prepares Europe for a “worst case scenario” that is “very unlikely to ever arise”.

That makes it no less important: for the first time ever, countries are obliged to work together to minimise gas supply risks, help one another out in emergencies, and the Commission can request full access to gas contracts that it considers important for security of supply (as well as details of related commercial agreements – this is in there because of Nord Stream 2).

• Regional approach:

The new regulation introduces mandatory cooperation between member states. Countries are grouped into 13 regional groups defined according to the biggest supply risks and potential emergency supply corridors. These groups fall under four headings: Eastern gas, North Sea gas, North-African gas and South-East gas.

Member states can belong to more than one group, for example Germany is in no less than seven – three Eastern groups (Ukraine, Belarus and the Baltic Sea) and all four North Sea groups (Norway, Denmark, UK and “low-calorific gas”).

Member states can draw up national preventive action and emergency reaction plans, but these must include commonly agreed regional chapters. The Commission may facilitate this cooperation. It also has the power to block “non-market measures” that it believes would endanger security of supply e.g. the use of strategic storage.

Energy efficiency is recognised as a tool to prevent gas supply crises by reducing gas demand.

• Solidarity:

The new regulation introduces a harmonised definition of a “solidarity protected customer”. Member states are obliged to give priority to these customers (households, essential social services, district heating and certain gas-fired power plants) in neighbouring states when called upon to do so in a gas supply crisis. They will be duly compensated.

The regulation distinguishes “solidarity protected customers” from “protected customers”. The latter is more loosely defined – member states may choose to include SMEs for example – and may be used for all non-solidarity purposes.

Member states are supposed to agree solidarity arrangements amongst themselves by 1 October 2018. Failing that, the Commission has the right to step in to help to finalise these arrangements by 1 December 2018. Until that time member states may call for ad hoc help.

The solidarity arrangements will provide member states with all the information they need on gas volumes, prices, interconnectors etc to call in the “most advantageous offer” during a crisis. Ideally, the solidarity mechanism will never need to be deployed.

• Transparency:

The new regulation introduces three levels of notification of commercial gas contracts to public authorities. First, companies must pass on key data from contracts, such as supply volumes (not prices!) to national authorities, who will pass them on to the Commission in anonymised form.

Second, companies are required to notify national authorities in full of cross-border contracts which deliver more than 28% of the annual gas consumption in a member state. This obligation applies to existing as well as new contracts. The lowering of the threshold from the Commission’s originally proposed 40% is expected to grow the volume to a few dozen contracts at most. If national authorities suspect a threat to security of supply, they will notify the Commission.

Finally, the Commission or national authorities can demand to see any contract – and details of other commercial agreements that underpin it, e.g. on infrastructure – that they suspect endangers security of supply. Unlike the new IGA law, the gas security of supply regulation does not give the Commission any powers to “correct” worrisome contracts. It only gives policymakers information to better assess security of supply.

The new regulation introduces a system of penalties – the details are left to member states – if companies fail to comply with any form of notification or request for information.

The gas security of supply regulation was the last file that current EU presidency holder Malta inherited from its predecessor Slovakia (the other was energy labelling, which was concluded at the end of March). The gas agreement clears the way for a full embrace by EU lawmakers of the Clean Energy Package on power market design, renewables and energy efficiency for 2030.

May 2, 2017

EU member states backed tougher air pollution standards for Large Combustion Plants (LCPs) in Europe on 28 April despite opposition from eight countries, including environmental frontrunner Germany. The new rule could lead to the closure of old lignite plants in particular, although member states can choose to exempt plants that face disproportionate compliance costs.

The new standards, which have been six years in the making and were also opposed by Bulgaria, the Czech Republic, Finland, Hungary, Poland, Romania and Slovakia, are set out in a so-called LCP “bref”, or reference document for best available techniques in the sector, which underpins national permits to LCPs under the EU’s 2010 Industrial Emissions Directive (IED). LCPs are plants with at least 50MW of thermal input. They include all kinds of power plants and industrial combustion installations.

As a result of the vote, member states will have to impose stricter limits for emissions of NOx, SOx and particulate matter from 2021 for some 2,900 LCPs in the EU. They will also have to set mercury emission limits for the first time. Nearly 300 experts from member states, industry and environmental NGOs have worked together in the “Sevilla Process” since 2011 to help the European Commission develop the new bref.

Face-off

Germany was strongly criticised by air quality campaigners in the run-up to the vote for objecting to a new 175 mg/m3 NOx cap for existing lignite plants, down from 200 mg/m3 today. This is the most significant change in the new bref compared to its predecessor from 2006 (which was also non-binding at the time).

Environmental NGOs said the new rules could “save more than 20,000 lives every year” from coal plants alone. “Today’s decision will ensure that the dirtiest plants either clean up or close down,” said Christian Schaible, an expert at NGO the European Environmental Bureau (EEB), in a reaction on Friday. LCPs account for 80% of NOx pollution in Europe, a European Commission spokesman told journalists.

Poland’s deputy environment minister Paweł Sałek warned in a press release however, that the new regulation could cost Polish companies 10 billion zloty (€2.4 billion). He rejected the new NOx limit in particular. Enforcing the new bref in just four years could jeopardise security of electricity supply in Poland, he added. “It is surprising… that countries that do not have lignite decide how other member states with these resources will use them.”

An unpublished legal analysis commissioned by the German Lignite Association (DEBRIV) argues that the new emission limits violate the IED, which requires them to be technically and economically achievable.

Last October, Germany reportedly asked for the NOx limit to be raised to 190 mg/m3. At the same time, Poland, the Czech Republic, Finland, Greece and the UK wrote a joint letter to EU environment commissioner Karmenu Vella expressing concern about the draft bref. Bulgaria spoke out more recently, even as Greece and the UK apparently shifted their stance.

Derogation

The final draft bref was adopted on 28 April with very few changes: heavy oil plants on Greek islands won a last-minute exemption from the new standards out to 2030, to give Greece time to build interconnectors to the mainland grid, while combined heat and power plants for district heating (up to 200MWth) will also get an extra three years to comply.

To quell criticism of the new bref, the Commission spokesman pointed out that the IED lets countries exempt LCPs facing disproportionate compliance costs.

The European Power Plant Suppliers Association (EPPSA) said in a reaction that “for most of the existing LCPs” the implementation of the new LCP bref is “economically and technical feasible”. Some power plants would find it “challenging” to meet the new emission limits – mainly lignite power plants built before 1990 – but these could benefit from the IED’s provision for an exemption, it concurred.

“Member states may decide if this would be the best solution in relation to the national and European electricity system,” EPPSA concluded, rather enigmatically.

NGOs said that it would now be up to member states to decide how strictly they implement the new rules. The EEB suggested that for many lignite plants, investments to meet the new standards are “highly unlikely” to represent value for money. An EEB spokesperson told Energy Post that he expected it would be “very difficult” for member states to justify derogations for lignite plants “given the massive impact of coal combustion on our health and environment”.

Brian Ricketts, Secretary General of Euracoal, representing the European coal industry, warned in the run-up to the vote that “plant closures will follow if the bref limits are applied without exemptions”. He suggested that the LCP bref was being used to attack coal because of concern about climate change, even though climate change is not within the IED’s remit.