18 November 2010

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Energy infrastructure: Commission proposes EU priority corridors for power grids and gas pipelines

The European Commission presented yesterday its energy infrastructure priorities for the next two decades, aimed at making networks fit for the 21st century. In the Communication, the Commission defines EU priority corridors for the transport of electricity, gas and oil. This map of priorities will serve as a basis for future permit granting and financing decisions on concrete EU projects.

Günther Oettinger, Commissioner for Energy, said: "Energy infrastructure is key to all our energy goals: from security of supply, the integration of renewable energy sources and energy efficiency to the proper functioning of the internal market. It is therefore essential that we pull together our resources and accelerate the realisation of EU priority projects."
 

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Commission presents its new energy strategy towards 2020

Last week the Commission presented its new strategy for a competitive, sustainable and secure energy. The Communication "Energy 2020" defines the energy priorities for the next ten years and sets the actions to be taken in order to tackle the challenges of saving energy, achieving a market with competitive prices and secure supplies, boosting technological leadership, and effectively negotiate with our international partners.

Energy Commissioner Günther Oettinger said: "The energy challenge is one of the greatest tests for us all. Putting our energy system onto a new, more sustainable and secure path may take time but ambitious decisions need to be taken now. To have an efficient, competitive and low-carbon economy we have to europeanise our energy policy and focus on a few but pressing priorities."

In the Communication adopted today, the Commission identifies five top priorities. On the basis of these priorities and the action presented, the Commission will come forward with concrete legislative initiatives and proposals within the next 18 months.
 

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Background

Energy infrastructure: Questions & Answers

Why do we need new pipelines and power grids?

Energy infrastructure – pipelines, power grids – are key to all our climate and energy goals.
To increase the share of renewable energy to 20 percent of our final energy consumption by 2020, we need to bring the energy generated by wind parks and solar power stations to the consumers. For this, we need a more decentralised and differentiated network than exists today.
To save 20 percent of our estimated energy consumption in 2020 via technology, we need smart meters and smart grids, which allow consumers to control exactly their power consumption and to save money and energy by changing their habits.
To secure gas supply also in the event of a crisis, we need to diversify our sources and new pipelines which bring the gas from this region directly to Europe.
To have a functioning internal market with competition and fair and competitive prizes, we need the interconnections between member states, allowing companies to offer their services in all member states.

Why is there a need for the EU to become active?

It is estimated that the investments needed to achieve the 2020 goals will not be made on time, mainly because of two reasons:
- building permits take too long to obtain;
- not all the investments needed are commercially viable.
The strategy outlined in the Communication addresses this issue. A strategy at EU level is needed to coordinate and optimise the network development in Europe.

What is new?

The Communication defines a limited number of EU priority corridors. Based on these pre-defined corridors, concrete projects of "European interest" will be identified in 2012, which should benefit from financing and faster building permits, including a time limit for final decision while ensuring full respect of environmental legislation and public participation. In planning and implementing these projects, the Commission favours regional cooperation between countries.

What are these corridors?

In the electricity sector four EU priority corridors are identified:

- An offshore grid in the Northern Seas and connection to Northern and Central Europe to transport power produced by offshore wind parks to consumers in the big cities and to store power in the hydro electric power plants in the Alps and the Nordic countries.
- Interconnections in South Western Europe to transport power generated from wind, solar, hydro to the rest of the continent, including Spain-France interconnections.
- Connections in Central Eastern und South Eastern Europe, strengthening the regional network.
- Integration of the Baltic Energy Market into the European market.

In the gas sector, three EU priority corridors are identified:

- Southern Corridor to deliver gas directly from the Caspian Sea to Europe to diversify gas sources.
- Baltic Energy Market Integration and connection to Central and South East Europe
- North-South corridor in Western Europe to remove internal bottlenecks.

Why are these priorities needed?

Some examples:

The interconnections in South Western Europe are needed because the Iberian Peninsula is not sufficiently connected to the rest of Europe. To bring power generated from renewables in Spain to Western Europe and integrate Spain into the European network, the capacity of power lines between France and Spain needs to be increased from around 1400 MW today to 4000 MW in 2020.

The aim of the Southern Corridor is to import gas directly from the Caspian basin / Middle East, the largest deposit of gas in the world with estimated 90.6 billion cubic meters. This will diversify gas sources and increase security of supply. The objective is to get 45-90 bcm of gas per year, this is about 10-20% of EU gas demand by 2020.

How much money is needed? And who will pay it? The EU?

About 200 billion € of investments are needed for gas pipelines and power grids until 2020. It is estimated that 100 billion € of this total investment need will be delivered on time by the market alone, whereas the other 100 billion € will require public action on permitting and levering the necessary private capital.
In June, the Commission will propose a new financial instrument to support the projects of "European interest", for the new financial perspective after 2013. Beyond grants, innovative market-based solutions may be proposed, such as equity participations, guarantees and public private partnership loans.

If companies will pay the bulk of the infrastructure, will this increase prices for consumers?

Not necessarily. Costs for the infrastructure, including network costs, represent only 28% of total electricity bill the EU consumer has to pay, taxes and VAT make 23% on average, while energy itself is about 48%. For gas, the infrastructure costs, including distribution, amount to 26%, taxes 22% and energy 52%.
As EU legislation will foster competition between energy companies they will be careful when considering passing on higher costs to their consumers.

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