The last time I appeared before your committee, the outlook for Europe and for energy policy was very different. Four months ago, the oil price was 51 euro per barrel. Last week it was only 31 euro, after turning negative for a short period. Electricity demand in countries like Italy and Spain dropped by more 20%. The offshore wind and solar industries were expected to grow last time we met by 6-8% this year. In the latest forecasts, orders are now projected to fall up to 33%.
Today, the energy landscape has changed, in many ways. Some are also surprisingly positive. In Spain in April, 47.9% of energy came from renewable sources. Attention to energy efficiency has increased. In some markets, electric cars make the most of new car sales.
This is the starting point for my intervention today. Other members of the College have described before this Committee the impact of the Covid crisis on Europe’s economy. Executive Vice-President Timmermans has made a strong argument why the Green Deal should guide our steps towards recovery. President Von der Leyen herself set out in front of the Parliament last week why Europe should respond through solidarity and cooperation, and presented the basic lines of a recovery plan to be unveiled next week. The Parliament has adopted a strong resolution calling for an ambitious recovery strategy, based on cohesion, competitiveness and resilience.
Against this background, I want to focus on how EU energy policy can drive a green recovery.
What I want to say is that it is normal to associate the word “crisis” with the word “loss”. Yet, we should look at our response to the crisis as an opportunity. An opportunity to accelerate the work that was set out to do at the beginning of this legislature. An opportunity to fast-forward the transition to the climate neutral energy system we want for 2050.
Let me first talk briefly about a reality we should not take for granted. Throughout this crisis, there has been no disruption of the supply of energy. The limitations on physical presence in workplaces, the closure of internal borders, the fall in electricity demand could have thrown the power sector into turmoil. They did not. The sector was remarkably resilient. If we were able to telework, if we could continue buying online or use services in confinement, it was thanks to the excellent preparedness of all the actors in the chain, to good contingency plans, and a well-functioning Single Energy Market.
However, there is no room for complacency. The test is not over yet. As I said at the Informal Energy Council in April, now we should take stock of the lessons learned, strengthen our preparedness and reinforce our ability to manage crises through regional cooperation. To guide this work, I will present before the June Energy Council an inventory of good practices to address pandemic risks.
ENERGY SYSTEM INTEGRATION AND HYDROGEN
I want now to turn to our planned initiatives in the context of the European recovery strategy.
Let me start with Energy System Integration. The COVID crisis has given us a snapshot of what the energy system of the future could look like: more reliant on renewable energy, more digitalised, more decentralised and with a strong focus on re-using waste. This is exactly what energy system integration stands for. If we want to achieve our higher decarbonisation goals for 2030 and climate neutrality by 2050, we need an energy system that is planned and operated as a whole across energy carriers and infrastructures.
In June I will present a Strategy to set out a vision of how the future integrated energy system should be. A more circular energy system, where waste streams are reused for our energy purposes, for example by making the most of waste heat from industrial processes or data centres. Second, a system allowing for greater direct electrification of end-use sectors. As more cost-effective renewable electricity becomes available, we must move forward with electrification of transport, heating or some industrial processes. And finally, a system using renewable and decarbonised fuels – including hydrogen – where electrification is simply not feasible, to decarbonise hard to abate sectors.
This strategy will be a compass to guide future actions. It will map out the existing obstacles for an integrated energy system and identify the concrete legislative and policy actions that the Commission will take to address them in 2021 and beyond. It will look into the many challenges of electrification of larger parts of our economy. It will also look into whether the gas market regulatory framework should be re-examined to facilitate the uptake of renewable gases and the empowerment of customers. It will set the scene for a more circular approach to energy production and consumption and look into the challenge of digitalisation.
Hydrogen is central to this discussion. It has strong potential to emerge as a key new energy carrier, a solution to decarbonise particularly difficult sectors like heavy industry and some parts of transport. In particular, renewable hydrogen, produced from water with renewable electricity can provide the missing link with multiple benefits, from grid management, to feedstock for industry to storage.
That’s why I will present, in parallel to our Energy System Integration, a stand-alone Communication on a strategic outlook for building a hydrogen economy in Europe. Everyone predicts a great future to hydrogen, even if today represents less than 2% of the energy mix. But this future will not happen, unless we deploy a strong policy support, in partnership with private sector.
The Strategy will examine:
- How to facilitate hydrogen’s innovative use in a range of sectors,
- How to allow its production to reach the necessary scale to make it competitive and
- And how to accelerate research and development to reinforce European industrial leadership.
We intend to bring together different work-streams inside the Commission, from the industrial dimension to the research dimension, from regulatory and infrastructure aspects to the external projection. This work is very much rooted in the recovery strategy, as hydrogen development could spur growth and jobs, directly and indirectly, and an upswing in investment and innovation to ensure Europe’s industrial leadership position.
I also want to mention two other work-strands, to illustrate how energy policy can spur recovery.
First is renovation. Renovation and improving energy efficiency of buildings can bring huge climate benefits and at the same time is a very effective way to kick-start the economy. It is labour-intensive work that involves local companies across every Member State. The construction sector mobilises around 10% of EU GDP. This is therefore an area worth attention in the context of recovery. I intend to present, in September, an Action Plan for building renovation, to trigger a Renovation Wave across Europe.
We had already planned such an initiative in the context of the Green Deal, but now we are working hard to make it more ambitious and more concrete. The Action Plan will identify how to remove barriers hindering renovation, whether financial or regulatory, taking a comprehensive approach, with special attention also to vulnerable, low-income households. We will target residential buildings as well as hospitals, schools and apartment houses.
We are looking at different set of barriers and incentives, but obviously building a strong pipeline of renovation projects, strengthening technical assistance and ensuring financial support are key. The Recovery Plan will help frontload part of the support. Aside from that, we are taking a hard look at instruments already available and identifying possible new solutions, including how to leverage more resources by blending grants and loans backed by reinforced EU budget guarantees. We look with great interest to the work led in this Committee by Ciaran Cuffe. I am confident we are moving on a converging path.
The other work stream concerns Renewable Energy. New renewable projects provide at least twice as many jobs as fossil fuel alternatives. Yet, this industry has taken a hit with the crisis. I have called on Energy Ministers not to cancel auctions for renewable energy nor delay planned investment projects. If we want to preserve Europe’s global leading role in clean energy technologies we need to improve investor confidence and stimulate a pipeline of projects. Here, the Recovery Plan can provide a strong contribution.
Furthermore, I will present, after the Summer, an Offshore Renewable Energy Strategy. To reach our 2050 goals, we need to increase the contribution of wind energy in Europe twenty-fold. However, in the future, new offshore wind projects will often be cross border, will require more complex integration into grids, and will need to rely on accurate maritime planning to co-exist with other uses of marine spaces. The purpose of the Strategy will be to identify concrete responses to those challenges, with a view to preserving and promoting Europe’s leadership in offshore renewable energy at global level.
Another concrete way to support investment in renewable energy is to exploit all the potential of cross border cooperation. Two weeks ago, I presented the proposal for the implementing act setting out the details of the Renewable Energy Financing Mechanism. With this financing mechanism, Member States, who are limited by their geography or natural resources, can pay into a scheme that would fund renewable energy projects in other Member States who are better equipped for turning those investments into projects. And that contribution would count toward the EU-wide 2030 targets.
I have given an insight into what I see as the main repercussion of the crisis on energy policy. While energy security was not challenged, the clean energy sector was affected. There is a risk that supply chains are made more fragile, technology innovation and investment slow down, and export markets and international competitiveness will be lost.
So it is clear that Green Deal investment in renewable energy and energy efficiency can create jobs and growth across the EU, provide a high return per euro spent and deliver strong climate benefits. That’s why we must remain focused on our Green Deal objectives and we must maintain momentum on key policy initiatives in 2020.
To conclude, it is very clear that there is an element that connects all of those dots: these are the National Energy and Climate Plans. They are now more important than ever, to show where we are in relation to 2030, and how much we need to go and invest.
But because not all Member States have delivered their plans yet, for that reason, I will be able to present our assessment of the plans only after the Summer. I will ask Member States, and call also members of the European Parliament to ask the remaining governments, to deliver their plans as soon as they can.
I am looking forward to hearing your views today. I’m committed to working very closely with you on all these initiatives. I will update the ITRE committee regularly on the state of play of each of them.