October 07, 2016
BRUSSELS INSIDER by Sonja van Renssen
Interview Maroš Šefčovič, EU VP Energy Union
“I made the promise that 2016 would be the year of delivery and I intend to keep it”
October 07, 2016
“If we want a cost-effective transition to a low-carbon economy, we have to create an internal energy market where European rules apply”, says Maroš Šefčovič, the European Commission’s Vice President for the Energy Union, in an exclusive interview with Energy Post. According to Šefčovič, “big parts of our energy market are [still] overregulated”. To take a decisive leap towards the Energy Union, the Commission has decided to put all its energy eggs in one basket and come up with a big “winter package” of energy proposals before the end of the year. “I made the promise that 2016 would be the year of delivery”, says Šefčovič, “and I intend to keep that promise.”
This was a big week for Europe. The EU agreed to ratify the Paris Climate Agreement – ahead of individual Member States – and thereby ushered in its entry into force. After migration, Brexit and the troublesome trade agreement with Canada, it was embraced as a welcome sign of European unity.
But it does not mean all is going swimmingly for the Energy Union. The energy efficiency package due in mid-October has been postponed to the end of the year and both national governments and senior energy execs (see our interviews with the CEO’s of Eon and Enel Green Power) seem to have less faith in a European approach to energy policy.
Nevertheless, the European Commission’s Vice President in charge of the Energy Union, Maroš Šefčovič, is stubbornly optimistic. He explains that one “winter package” of policy proposals, incorporating energy efficiency, makes a lot of sense. His vision is still for a European internal energy market where price signals are leading. He says national capacity markets are expensive and there are too many of them. He expects Member States to see sense on security of gas supplies and approve new EU legislation in this area. He views energy efficiency as a game-changer for Ukraine and is very enthusiastic about the Central East South Europe Gas Connectivity (CESEC) group which met for the first time in September.
Q: After all the recent setbacks for European unity, how significant is the ratification of the Paris Climate Agreement by the EU ahead of its Member States?
A: Europe is where it should be. For many years we’ve been one of the main drivers and shapers of global climate policy. So it’s right that we are the Party to the Agreement that triggers its entry into force.
I also believe it will positively affect discussions planned for [the next UN climate conference in] Marrakesh [from 7-18 November] because we will not be focused on how to ratify but how to implement. We will sort out our internal ratification procedures among ourselves. I don’t believe anybody will doubt our seriousness in treating this Agreement as approved.
Q: Where do we stand on the Energy Union however? European Commission President Jean-Claude Juncker did not mention “energy” in his annual State of the European Union speech.
A: It’s going very well. You would of course find it in the roadmap and action plan attached to his speech. And it also made it into the Bratislava Roadmap adopted at the extraordinary meeting of leaders of the EU-27 [to discuss the EU post-Brexit on 16 September].
I made the promise that 2016 would be the year of delivery and I intend to keep this promise. So I hope that by the end of the year, when it comes to the legislative proposals linked to the Energy Union, I can declare “mission accomplished”. But I can tell you that it’s not easy.
We are working on completing the energy efficiency package and the package that will be built around the new electricity market design. We want to propose a new governance system. We also have to revise our directive on renewables. We are looking into how we can improve the work of the Agency for the Cooperation of European Regulators (ACER). And we want to add, just to make sure we can have a full debate, a report on the costs and prices of energy in all EU Member States.
I hope we will be able to complete all that in this semester. We need to move from this planning and legislative phase to very concrete action in Member States.
I would plead with Member States to start planning and drafting national climate and energy plans [in parallel to negotiations in Parliament and Council] because investors say: the global agreement is there, we understand that Europe is modernising its legislative framework, we see enthusiasm from cities, but what we still need to see is Member State strategies. I tell Member States, the sooner you do it, the more investment you will get in your countries.
Q: The energy efficiency package was originally due in October. Are we now expecting just one “winter package” by the end of the year?
A: This is what we are currently discussing. Initially we were planning [a revised] energy efficiency [directive] for late October. Then we wanted to add an upgraded version of the energy performance of buildings directive and this new financing instrument, “Smart Financing for Smart Buildings”. But the more we looked at it, the more we saw how interlinked this is with the directive for renewables and market design, and how all is linked with the governance proposal. There are very strong arguments for one, comprehensive package.
Q: In the wider scheme of things, energy does not seem to a top political priority. Isn’t this a problem?
A: It’s a curse and a blessing. You’re absolutely right, Europe is going through very turbulent times and some of the crises take much more political attention and headlines. But on the positive side, it allows us to work without too much of the usual difficult noise you have when you initiate such structural changes.
Q: How much appetite is there still for a European approach to energy policy?
A: This has to be judged by proposal. The EU ETS [Emission Trading System] proposals last year elicited positive responses and I think they will be adopted quite soon. I hope that then we’ll see the market mechanism working in a much better way. The non-ETS sectors have come under less scrutiny until today, but it’s now clear that transport, agriculture and buildings will have to contribute much more than before. I also do not see a dispute on this issue.
Of course, when it comes to the new market design, I think we will see a lot of discussion among traditional incumbents and new market players. [Competition] Commissioner Vestager has studied capacity mechanisms [in Europe] – the final report is being prepared – and the first findings show us they are quite expensive, we have too many of them and of course in many cases we are absolutely convinced we can find a cheaper solution.
If we want a cost-effective transition to a low-carbon economy – which is now really the game, it’s not only about energy, it’s about a transformation of the European economy – we have to create an internal energy market where European rules apply. Big parts of our energy market are overregulated. What we need to do as the utmost priority is to restart the price signals in the market so make sure, for example, that the price of electricity varies from peak- to low-demand times.
Q: Calls for a more regional approach and solidarity between Member States have run into problems in the Council however, on your gas security of supply proposals.
A: I’m quite optimistic. Of course you always have discussions on expert level on how to avoid abuse of the system. I believe these can be resolved and Member States in the end will see we put it on the table because we want to show that we are much more resilient than before, we are open to trade, we have more diversified supplies and we are well prepared for any eventuality, so there is no way we can be pushed around politically or energy used as a lever against Europe.
That’s something all energy ministers and especially heads of state and government can relate to, so I believe we will conclude this [gas] security of supply package.
Q: Winter is coming. What is the outlook for Ukraine and relations with Russia?
A: When I was in Ukraine [at the start of September] we discussed reforms for the Ukrainian energy sector. Not only because these are absolutely needed for Ukraine, but also because we’ve been working on different instruments of financial support which are linked to them.
They will continue the unbundling of Naftogaz, we found a solution for an independent regulator, the Ukrainian parliament is discussing a new electricity law and we agreed on an energy efficiency fund, which could be a real game-changer because if they would get to the EU average level of energy efficiency, they would even become energy exporters!
This approach helps us to unlock the necessary financial support. There are still US$150 million from the EBRD [European Bank for Reconstruction and Development] and two weeks ago we had a video conference with the World Bank, European Investment Bank and Ukrainian authorities on another loan of US$500 million, which I believe would be available before the winter. And then if all the reforms are approved on time, the next tranche of macro-economic assistance from the EU budget of €600 million could be available as well. So I believe we will have the financial resources to help Ukraine also for this winter.
One figure which is very important for us is the level of gas storage filling in Ukraine. It was below 14 bcm, which is a little bit less than we would like to see, so I was happy to agree with Prime Minister [Volodymyr] Groysman that when winter starts, it should be at 17 bcm.
Q: Is there a new round of trilateral gas talks between the EU, Russia and Ukraine planned?
A: We are in contact with our Russian partners, clearly stating that we are ready to do that. We clearly heard on the Ukrainian side that they would like to have a trilateral protocol signed also for this winter. We are waiting for Russia’s response.
Q: How much of a concern is Nordstream 2 now that Western European shareholders have pulled out of the project?
A: I think this was just another proof of how complex this project is from the point of view of the market. DG competition is already investigating Gazprom for some time for abuse as a dominant supplier so every anti-monopoly agency is looking into this very carefully. The second very important issue is compatibility with EU law. We have been repeating for quite some time that we can’t imagine this could be built in a legal void without respecting the core principles of EU energy law. We understand that the IGA [intergovernmental agreement] is not something which both Germany and Russia favour so we are discussing what could be an alternative, also to have this legal discussion. And then of course, it is important to talk about the cost efficiency of the project, how we use the capacities.
I heard that the Western companies are looking for other ways to support this project so I think we will be still be discussing it for some time in future.
Q: You spoke about the potential of energy efficiency for Ukraine, but you also decided to make this a priority for Central and South-Eastern Europe at the last CESEC [Central East South Europe Gas Connectivity] meeting on 8-9 September.
A: CESEC was one of the nicest surprises I’ve had since I started to work on the Energy Union. This group was formed as a reaction to the cancellation of the South Stream [gas pipeline] project. A lot of countries were very worried about energy security and gas supplies. We said let’s look at what we can do to make sure each country has access to at least three sources of gas. We identified ten projects, which are very quickly being implemented.
What we found was that decisions in the past were delayed because people didn’t know each other. Now we have a group, meeting regularly, and it’s easier to build trust and go for interconnectors that open up your market to neighbours. Now we want to work on electricity and efficiency. Energy efficiency is a goldmine for this part of Europe because efficiency levels are much lower than in Western Europe.
Q: Is energy efficiency now the number one priority for Europe?
A: I would say it’s clearly the number one priority from the point of view of how people would see the link to the financial situation. You can reduce energy bills and tackle energy poverty and at the same time, it really helps you lower greenhouse gas emissions.
We are trying to promote Efficiency First principles in all of our legislative proposals. It’s a bit of a new discipline. For example, if you have to assess new infrastructure or the construction of a new power plant, this clearly should be one of the criteria. We have to learn to do it because when we see how quickly the renewables industry is evolving and what kind of advancements there are in energy efficiency technologies, I believe quite a few companies may end up with stranded assets otherwise.
Q: The International Energy Agency (IEA) has estimated that nearly 70% of the EU’s emission reductions to stay below 2 degrees would need to come from energy efficiency. Is the 27%/30% efficiency target for 2030 enough?
A: Even that is seen by many in our Member States as very ambitious as very costly. I understand the prudent approach from Member States. At the same time, if they would spend as much time in labs and innovative companies as I did over the last year, they would be much more optimistic. With all these technologies being developed across Europe, I think we will be able to achieve higher targets.
Q: Are you considering sectoral efficiency targets, for example for buildings?
A: For buildings, we will have special proposals: a new energy performance of buildings directive. We want to bring in technology advances and we want to see how much we can look beyond efficiency. Today, especially bigger buildings in cities can serve as poles of a new energy infrastructure for the 21st century big data economy. Buildings are able not only to consume but to produce and store energy. They could help us roll out a charging infrastructure for electric and hydrogen cars. They could be used as transmission towers for high-quality wifi signals.
We are thinking about what kinds of intelligent benchmarks we can introduce, what incentives would get buildings built to these new standards, and how we can make sure that renovated buildings get as close as possible to them.
Q: What will the “Smart Financing for Smart Buildings” initiative deliver?
A: We are pulling together all of the financing possibilities in different EU programmes, for example for urban policies, programmes under the structural/cohesion [regional development] funds and some EU-wide, energy efficiency focused programmes. We want to make it all much more concrete and link it up with the European Fund for Strategic Investments [Juncker Plan]. We want to make it much more user-friendly. Hopefully, with interest from the private sector, we can start an energy efficiency wave across Europe.