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Brussels, 17 November 2010
Questions & Answers: Energy infrastructure
Why do we need new pipelines and power grids?
Energy infrastructure – pipelines, power grids – are key to all our climate and energy goals.
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:
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:
In the gas sector, three EU priority corridors are identified:
Why are these priorities needed?
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.
Why can some projects not be financed by the private sector?
Some power lines and gas pipelines may not be commercially viable because the market is too small to get a good return of investment. It makes a difference if you plan a gas pipeline for a region where annual gas consumption is only about 10bcm, as in the case of the three Baltic States and Finland or for a country as Germany where annual consumption is about 80 bcm. Still, these countries should be linked to the European energy market to foster competition, fair prices for the consumer and guarantee that different gas suppliers can step in, in the event of a gas crisis.
Why can these investments not be financed and planned on national level?
As shown by the Offshore grid in the North Sea, working together on a regional and international basis can save money. According to the OffshoreGrid study, a regional approach optimising connection of all wind farms could reduce the costs by 20-30% until 2030.
What is the Commission proposing to facilitate the granting of building permits?
Permit granting procedures should be better coordinated and faster. One-stop-shops should be established, which will coordinate all building permits necessary for projects of "European interest".
Why is it necessary to have faster building permits?
The time between the start of planning and final commissioning of a power line is frequently more than 10 years. For the project developers this means heavy development costs due to the time spent for the preparation and the discussion with authorities, and uncertainty over years whether the project can be realised or not.
For the EU 2020 targets, this means that the necessary investments will not take place in time to meet them. The 2020 targets include the reduction of CO2 by 20 percent, and the increase of renewable energy by 20 percent and the energy efficiency by 20 percent.
Is the Commission imposing fast building permits for all projects in the EU?
No. The proposal to speed up permitting procedures is limited to projects of "European interest". The list of these projects will be drawn up in 2012.
Is the Commission setting an authorisation time limit of five years?
No. The Communication does not mention five years nor any other concrete deadline. It says that a "time limit" should be explored.
Why are you planning CO2 pipelines?
Carbon Capture and storages (CCS) will be needed to significantly decarbonise our economies post-2020 by capturing CO2 from large point sources such as fossil fuel power plants and storing it in such a way that it does not enter the atmosphere.
The component technologies of CCS are proven, but they are not yet tested at an industrial scale and are not yet commercially viable. There are currently six large-scale demonstration projects under construction which are co-financed by the Commission with Euro 1 billion in total. It is estimated that the commercial roll-out will happen after 2020 and that the sites where CO2 is stored will be distributed unevenly across Europe, making it necessary to transport the CO2 from the power plants to the storage site. Given the huge capacities, transport via pipeline costs less than transporting it by lorries, and it is also more environmentally friendly.