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MEMO/09/437

Brussels, 7 October 2009

Questions and answers on the European Strategic Energy Technology Plan (SET-Plan) and its financing

What is the SET-Plan?

The SET-Plan is the technology pillar of the EU's energy and climate policy. It is a blueprint for Europe to develop a world-class portfolio of affordable, clean, efficient and low emission energy technologies through coordinated research. It has been proposed by the Commission in 2007 and endorsed by Member States and the European Parliament as the appropriate way forward. It lays out the EU's strategy to accelerate the development of these technologies and to bring them more quickly to the market.

The SET-Plan describes concrete actions to build a coherent energy research landscape in Europe. The idea is to better organize research efforts across Europe, selecting technologies with the greatest potential and planning together how money should be invested.

How is the coordination between different sectors organized?

The implementation of the SET-Plan is coordinated by the European Commission. Member States are in the driving seat and are represented in the Steering Group on Strategic Energy Technologies (see MEMO/08/657 ).

On the research side, the SET-Plan brings together the research capacities of the major European institutes and universities which joined on 28 October 2008 in the European Energy Research Alliance (EERA) (see IP/08/1587 ).

Industry is also involved in the building up of six technological European Industrial Initiatives in the areas of wind, solar and bio-energy, electricity networks, carbon capture and storage and nuclear fission.

A new initiative is being proposed in the new Communication, the Smart Cities Initiatives, which focuses on energy efficiency in European cities.

How were the 6 energy sectors selected for the industrial initiatives?

Th e 6 technology avenues included in the SET Plan for European Industrial Initiatives (Wind, solar, CCS, bio-energy, Nuclear, Grids) have been identified by the Commission and the industry as those for which working at Community level will add most value – technologies for which the barriers, the scale of the investment and risk involved can be better tackled collectively. Furthermore for the 6 sectors the actors expressed their willingness to join forces and work together . The choice was based on an extensive consultation process involving the Information system of the SET Plan (SETIS) which provided data and analysis on the current state of the art of the technologies and their anticipated technological development and market potential. However, the Communication also includes estimates on already existing initiatives on fuel cells and hydrogen, energy efficiency and basic research.

What are low-carbon energy technologies?

Low-carbon energy technologies refer to technologies that emit less carbon dioxide (CO 2 ) than the energy technologies that rely on traditional fossil fuels (oil, coal, and gas). They are based on renewable resources (like wind, sun and biomass) or enable the sustainable use of fossil fuels (like carbon capture and storage). Examples of low carbon energy technologies are the ones created through wind power, solar energy (including photovoltaïcs and concentrated solar power), bioenergy, new electricity grids, carbon capture and storage (CCS), nuclear fission and fusion energy, fuel cells and hydrogen, energy efficiency in buildings or transport.

Why does Europe need to move to a "low-carbon economy"?

There are several reasons why Europe should move to a "low-carbon" economy:

  • To fight against climate chan ge: fossil fuels are the chief culprits in the production of greenhouse gases. According to the International Energy Agency, limiting the temperature increase to 2ºC will require that CO2 emissions be reduced globally by at least 50% by 2050. The IEA estimates that this reduction in the energy sector will have to be achieved with increased energy efficiency, renewable energy, nuclear power and Carbon Capture Storage.

  • To ensur e our energy security: today, in the EU, our primary energy supply is 80% dependent on fossil fuels and most of them are imported from outside the EU. Moreover, supplies from fossil fuels are becoming scarcer, more expensive and less secure. On the contrary, the majority low-carbon energy sources, like wind, solar or energy efficiency are locally produced and far less dependent from abroad.

  • To create growth and jobs: the development of low-carbon technologies can reduce our foreign energy bill and put Europe at the forefront of the fast-growing economic sector of clean and efficient technologies. They will create many new jobs. For example, a recent study of the Commission concluded that the 20% EU's objective on Renewable Sources is likely to create more than 600,000 additional jobs in the EU, and the RES sector will employ 2,8 million people by 2020.

What are the obstacles to the development of low carbon technologies?

The problem lies i n the fact that the abundant availability of resources, such as oil, gas and coal, has held back Member States and the industry from investing in energy research. Indeed, public and private energy research budgets have decreased since 1980s. We have to act now and to urgently increase the level of investment in research to develop low carbon technologies.

We are aware that markets and energy companies acting on their own are unlikely to be able to deliver the needed technological breakthroughs within a sufficiently short time span . Locked-in investments, vested interests, as well as the high risks and need for significant investments in less profitable alternatives, mean that change will be slow without a major push. Public policy and public investment partnering with the private sector is the only credible route to meet our goals, established for the public good.

How much additional investment is needed?

With today's level of knowledge, the Commission believes that investment in the EU has to increase from the current €3 bn per year to around €8 bn per year to effectively move forward the SET-Plan actions 1 . This would represent an additional investment, public and private, of €50 bn over the next 10 years.

These estimates and actions required have been defined by the industry, the research community, the Commission and Member States. Together, they have drawn up Technology Roadmaps for the development of low carbon energy technologies that show the way up to 2020.

Each Roadmap presents the technology objectives that are critical for making each low-carbon technology fully cost-competitive, more efficient and proven at the right scale for market roll-out. Investment should cover basic and applied research, pilot projects (small scale trials), demonstration programmes (actual large scale trials) and market replication measures (successful transfer into fully viable, profitable low carbon technologies available for public use). Costs of deployment are excluded in these estimates.

The assessment and monitoring of these technologies can be found on the new online Strategic Energy Technologies Information System (SETIS)-

http://setis.ec.europa.eu .

What is the current level of investment in research in low carbon technologies?

Investment s dedicated to R&D in non-nuclear SET-Plan priority technologies amounted to €2.38 billion in 2007 with a division that is roughly balanced across individual technologies. If one adds research in nuclear SET plan priority technologies, the investment amounts to a total of around €3.3bn.

The R&D investments dedicated to CCS, smart grids, biofuels, wind energy and photovoltaics are in-between €270 million and €380 million each. The share between public and private participation depends on the maturity level reached by these technologies, but the overall breakdown in 2007 was 70% private and 30% public sector. 80% of the public investment in R&D was at national level. The larger investments for hydrogen and fuel cells research (€616 million) may be explained by the diversity of technologies that are subsumed, thus attracting R&D investments from many large and small companies from a broad variety of sectors (e.g. car manufacturers, electric utilities, chemical companies and component suppliers). At the same time, few countries and companies are active in research on concentrating solar power technologies (CSP), explaining the comparatively low R&D investments in this field (€86 million). This level of investment is not sufficient if we are to achieve our ambition to shift our current energy system into a low carbon model.

What would these additional investments finance?

Investments should remove the bottlenecks in the development of low-carbon technologies. Together with the industry, the Commission identified the following priorities up to 2020:

Six European Industrial Initiatives: these public-private initiatives , bringing together researchers and the industry, target sectors for which working together at EU level will add most value.

  • The European wind initiative has to accelerate the reduction of costs, increasingly move offshore and resolve the associated grid integration issues if it is to fulfil its huge potential.

Objective: up to 20% of EU electricity to be produced wind energy technologies by 2020. The programme is estimated at 6b€ over the next 10 years. More than 250 000 skilled jobs could be created.

  • The solar Europe Initiative including photovoltaics and concentrated solar power has to help these technologies become more competitive and gain mass market appeal. Objective: up to 15% of EU electricity to be generated by solar power in 2020. The programme would cost an estimated 16b € over the next 10 years. More than 200 000 skilled jobs could be created.

  • The European electricity grid initiative has to respond to three interrelated challenges – creating a real internal market; integrating a massive increase of intermittent energy sources; and managing complex interactions between suppliers and customers.

Objective: by 2020, 50% of networks in Europe operate along "smart principle" effectively matching supply and demand. The programme is estimated at 2 b €.

  • The sustainable bio-energy Europe initiative has to bring to commercial maturity the most promising technologies, in order to permit large-scale, sustainable production of advanced biofuels and highly efficient combined heat and power from biomass.

Obje ctive: At least 14% of the EU energy mix would be from cost-competitive, sustainable bio-energy by 2020. The initiative will need about 9 b€ for its implementation. More than 200 000 local jobs could be created.

  • The European CO2 capture, transport and storage initiative has to allow a wide commercialisation of Carbon capture and storage (CCS) technologies. The pressing need is to demonstrate at industrial scale the full CCS chain for a representative portfolio of different capture, transport and storage options.

Objective: to reduce the costs of CCS by 2020. The total public and private investment needed in Europe over the next 10 years is estimated as 13 b €.

  • The sustainable nuclear fission initiative has to move towards long-term sustainability with a new generation of reactor type that improves safety measures, optimise the use of fuel and reduce the volume of radioactive waste – the Generation-IV reactor. They will be designed to maximise inherent safety, increase efficiency, produce less radioactive waste and minimise proliferation risks. Commercial deployment of these reactors is foreseen for 2040, but to achieve that target, work has to start now.

Objective: the first Generation-IV prototypes should be in operation in 2020. The investment for the next 10 years to come will be about 7 b €.

Other initiatives have been launched by the Commission and are included within the additional financing for their contribution to developing clean energy technologies.

  • The Joint Technology Initiative (JTI) on fuel cells and hydrogen was established for 2008-2013 with a budget of 470 M€ of Community funding to be at least matched by industry. The JTI has the minimum critical mass needed to develop and validate efficient and cost-competitive technologies for the various applications. However, meeting the market entry targets set by industry will require substantial additional effort. Additional funding is estimated at 5 b € in the next decade.

  • Energy efficiency is the simplest and cheapest alternative to reduce CO2 and improve energy security. In transport, buildings and industry, available technology opportunities must be turned into business opportunities. This new European initiative – called Smart Cities – has the objective to create the conditions to trigger the mass market take-up of energy efficiency technologies. The programme envisages 25 to 30 smart cities which will be the starting points from which small networks, a new generation of buildings and alternative transport means will develop into European wide realities. Around 11 b € will be needed in the next ten years.

  • Additional investment should support the European Energy Research Alliance (EERA) which will launch and implement joint programmes addressing the key challenges of the SET-Plan with concrete technological objectives. The Alliance could expand its activities to effectively manage an additional public investment, EU and national, of around 5 b € over 10 years.

  • To lay the foundations of the EU future competitiveness a further investment of around 1 b € should be made in basic research in the area of energy related programs.

What is the link between the SET-Plan and the European Energy Programme for Recovery (EEPR)?

The EEPR has as its primary objective to help in getting our economy going, after the downturn we have suffered. However, the intelligent investment decisions taken by the European Union with this programme goes beyond recovery and puts in place key building-blocks for the CCS and the Wind European Industrial Initiatives of the SET-Plan. € 1.6 bn have been allocated to get started with the first demonstration plants for carbon capture and storage and to boost innovation in Off-shore Wind. The first projects supported by this programme will be signed before the end of 2009. This programme confirms the commitment of the EU to low carbon technologies.

Who will contribute to the additional investment needed?

The massive need for additional investment can't be supported by a sole actor, be it from the public or private sector. A European approach is essential to realise our ambition. The bulk of the funds required will have to come from the private sector and from Member States, with a contribution from the EU budget towards some of it. In this way, the limited resources available from the EU budget can be used to leverage a step change in the investment provided for the research and demonstration of low carbon technologies. The EIB would also be involved.

The level of risk faced by low carbon technologies at different stages of their development calls for a risk-sharing approach in which all relevant actors, public and private, take on the part of the risk corresponding to their own field of activity. In general terms, the higher the technological uncertainties, the more public support is needed. But the Commission also wants the industry to take greater technological and market risks as well as banks and private investors.

Where will the extra public funding come from?

Times are difficult now and public spending and budget deficits are under pressure in the Member States. This limitation should act as incentive to prioritise public investments. Investment in energy technology development has to increase substantially – starting immediately. Focused public finance on the development of low carbon technologies is in line with achieving public policy goals

For the time being, it has been agreed that the ETS will help financing the SET Plan in two ways. Firstly, the 300 million EU Allowances set aside from the New Entrants Reserve of the ETS will be used to support carbon capture and storage and innovative renewables. These allowances will be distributed by Member States for demonstration projects selected according to European Community criteria.

Secondly, from 2013, the auctioning revenues from the ETS can be reinvested at national level in the development of more efficient and lower cost clean technologies. The use of the revenues is determined by the Member States. At least 50% should be used for climate change related activities, including in developing countries.

Is an intervention at Community level appropriate?

In the EU landscape of publicly funded research, the funding consists of a European 'common pot' managed by the Commission , the Research Framework Programme, and national programmes managed independently by the Member States. In this way, each can capitalise on their own strengths and opportunities. Action at EU level can take on high risk, high cost, long-term programmes beyond the reach of individual nations. This would allow risk-sharing and generate a breadth of scope and economies of scale that could not be achieved otherwise.

Combining public resources effectively and creating flexible Public-Private Partnerships with industry should be the future model for pan-European energy research cooperation.

What will be the contribution of the European Investment Bank (EIB)?

The EIB increased its overall lending target in the field of energy to €9.5bn in 2009 and €10.3bn in 2010 (compared to €6.5bn in 2008), including energy efficiency and renewable energy. This also includes the new equity fund (the “2020 Fund – Marguerite”) dedicated to investments in Members States’ renewable energy, TEN-T and TEN-E.

Which is the timeline for the implementation?

Overall, the SET Plan has originally been designed both to reach the 2020 targets of reducing the emission of greenhouse gases by 20% and increasing the share of renewable energy sources by 20% and to move forward towards the vision of a complete decarbonisation of the energy system by 2050. However, the technology and financial roadmaps of this communication cover specifically the next 10 years, i.e. 2010-2020.

What's next?

In the 21-22 October 2009, the second European Energy Technology Summit will take place in Stockholm. During the summit, the European Industrial Initiatives will meet in eight parallel sessions to discuss and review the technology roadmaps of the SET Plan. The participants will represent European actors in the innovation system for energy technology – financial community, industry, researchers, customers and public policy makers, as well as representatives from the European institutions and international partners. The initiatives will subsequently be launched in 2010.

Background

Today, 80% of EU energy supply comes from fossil fuels. These sources of energy are the chief source of greenhouse gases. To achieve the EU's environmental and energy goals, the EU has to focus on the development of low carbon technologies using renewable resources (e.g. wind, sun and biomass), enabling the sustainable use of fossil fuels (like carbon capture and storage), and promoting energy efficiency. The SET-Plan, adopted in November 2007, is designed to optimize and coordinate the EU's effort to develop these technologies.

See also IP/09/1431 on the SET-Plan

Annex:

KEY MILESTONES FOR THE EUROPEAN INDUSTRIAL INITIATIVES

The global roadmap that appears below shows the key milestones of each EII, assuming that all activities start in 2010. More details are given in the individual roadmaps.





1 :

A detailed explanation of these figures is presented in the accompanying Impact Assessment SEC(2009)1297 of 07.10.2009.


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