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Questions & Answers: Energy infrastructure

European Commission - MEMO/10/582   17/11/2010

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MEMO/10/582

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.

  • 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.

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.


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