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European Commission - Speech - [Check Against Delivery]

Speech by Commissioner Arias Cañete at Eurelectric: Winter [Package] is Coming: Getting the Energy Union Right

Brussels, 27 October 2016

Secretary General Berge,
Ladies and Gentlemen,

Let me start by thanking you for the invitation. Today's event has highlighted some of the key questions we need to answer as we prepare our Winter Package.

Today I would like to focus on three of those that are shaping our thinking as we prepare to overhaul our energy system.

  • The first is how can we generate the investment we need to make the energy transition both sustainable and competitive?
  • The second question is how do we empower consumers to enable them to drive our energy system?
  • And the third is how can we deepen integration across borders to create a real internal market?

But to really answer those questions we need to work backwards. We first must have a very clear vision of the energy system we want and need to help us achieve our climate and economic goals.

The Energy Transition – Our Vision

The starting point for that has to be the need to transition to a low carbon energy system.

That process is now irreversible and the climate deal that the EU helped to broker in Paris only enshrines that further into our future.

In fact, the transformation of global power markets is already happening. According to IEA, renewable energy surpassed coal as main source of power capacity in 2015.

The European Union not only wants to adapt, but to lead. For that reason we have committed to cut emissions by 40% by 2030, and that against the background of an economy that needs to provide the jobs and growth for our future citizens.

That is why we have designed our Winter Package proposals to show the clean energy transition is the growth sector of the future:

  • The Renewable Energy Directive will focus on getting to - and hopefully past - the 27% target by creating the right conditions for renewables to thrive. It's a sector that already employs 1.2 million people and accounts for 138bn EUR every year. Imagine how much more we can do.
  • The review of our Energy Efficiency legislation will be about unlocking the energy savings that can kickstart our economy. Achieving 30%, instead of 27, can create an additional 70 billion euros and 400,000 jobs.
  • And underpinning all of that will be an overarching proposal on governance to provide the regulatory framework and accountability needed to stimulate the transition.

The starting point for all of this is that by any calculation the energy system will look completely different to today.

Half of our electricity will be renewable, our buildings will produce energy, and our houses will be full of smart appliances that plug us straight into the grid.

And like any change of this scale, we have to accept that this will come with challenges and opportunities.

Unlocking Investment in the energy transition

And first amongst those is investment.

This is not a "nice to have" element of our strategy. This is an absolute pre-condition for achieving our decarbonisation and economic goals.

Just to put that into context: We will need an extra 177bn EUR euros per year of investment from 2021 onwards just to reach our 2030 goals.

New, innovative funding mechanisms such as the European Fund for Structural Investments or the Connecting Europe Facility can help with some of that.

  • Of the 116 billion euro investment trigged through EFSI so far, a quarter goes to the energy sector.
  • And we have now proposed that at least 40% of projects in the infrastructure and innovation window of the Investment Plan should contribute to achieving COP21 objectives. This is a major opportunity to leverage public and private money for investments in the energy transition.

The point is there is no way that traditional or public investment streams alone can unlock that kind of money.

We therefore need to find new and innovative ways of maximising the financial leverage that we have.

That is why the bigger and better EFSI will now focus even more on sustainable investments to deliver a resource efficient, circular and zero-carbon economy.

And we will build on the success of the EFSI model by adapting it in other areas. As part of our proposals on energy efficiency we will create a Smart Finance for Smart Buildings Initiative to help finance renovation and retrofitting in our largely inefficient housing stock. The Initiative will help remove the historical barriers in this sector, de-risk investments and aggregate demand.

However, all of this will only go so far. And with investment on such a large scale required to meet our targets, we need to go further.

And in my opinion the best and most effective driver for that investment remains the market itself.

We need to create an electricity market with the right incentives to foster investments in sustainable and innovative solutions. That means strengthening the price signal to drive investment in adequate capacity or demand response.

For this, prices must be able to rise when demand is high or generation scarce, and constraints on pricing have to be removed.

And in general we will need a system that rewards flexibility. This includes various models of consumer engagement as well as giving more actors access to our short-term and balancing markets.

And prices themselves will need to move quicker, reflecting the changes of variable generation and shifting demand.

That is why we are keen to promote short-term markets, notably, integrated EU-wide intraday and cross-border balancing markets.

And these new liquid and well-integrated short-term markets will only work if all market participants play by the same rulebook.

That means renewables will also have to take on their own responsibilities for balancing the system and in turn help strengthen the price signal.

But the truth is that even if we achieve all this we will still need to create investor certainty.

Energy investors have told us that they avoid certain countries in which they have lost trust, following retrospective changes to support schemes.

But the reality is that renewable energy sources will continue to require varying degrees of support.

The most mature technologies might be able to compete without support towards the end of the coming decade under certain conditions, such as an enhanced market design and a strengthened ETS.

But other technologies, such as ocean energy or even off-shore wind, might need support for a longer period of time.

That is why as part of the new Renewable Energy Directive we will propose a clear and stable framework under which Member States can grant support to renewable energy projects.

This framework will ensure that support will only be allocated cost-efficiently and in such a way as to not create market distortions. That is why we will be looking to promote the use of tendering for support.

This will be of cardinal importance to give investors and consumers themselves the certainty they need.

Empowering Consumers

And this brings me on to consumers: the real drivers of our energy transition.

Thanks to new technology and cost reductions, some consumers already generate onsite renewable electricity and either self-consume, store, or even sell it to the grid.

We want to ensure that self-consumption deployment is cost-efficient and works as much for the consumer as for the overall system.

Consumers should be able to benefit from changing their consumption patterns, to match the true minute-by-minute costs of supplying energy to them.

And they should be able to produce their own energy at home should they wish to.

Consumers who produce still face too many barriers: they are either not allowed to feed their electricity back to the grid or are forced to do so and get a poor deal.

We want to break those barriers by making the whole system more flexible and responsive to the way consumers produce and consume.

But to really make this breakthrough we need consumers to trust in the system they operate in.

Consumers don't understand how wholesale prices for electricity and gas can be close to their lowest levels in a decade, yet retail prices for households have increased by about 2-3% per year since 2008.

And the reality is that for most people their only interaction with the system is when they have to pay their bill or deal with a problem. This is still a negative experience for many people and is a turn off to them getting more involved in the market.

That is why as part of the market design we will seek to increase retail competition, improve consumer engagement and ultimately reduce their bills.

That means making it easier to switch, easier to compare prices online, and easier to try out new technologies.

I know Eurelectric and many of your members see this as a priority and I wholeheartedly welcome the progress we are making in this area.

Regional cooperation

But ultimately to achieve the vision of the market I have outlined, we need to find ways to improve cross-border cooperation and deepen market integration across the board.

We have seen the success regional cooperation has already had in building the infrastructure we need to complete the market.

Thanks to the work of the regional groups, supported by the Connecting Europe Facility, we have ended energy isolation that have made the Baltic States so vulnerable. We have seen the Iberian Peninsula start to operate as a connected region and we have seen the potential of a joint-approach on offshore wind in the North Sea.

But it's not just about building new infrastructure. It's about better using the infrastructure we already have. We will no longer tolerate a situation where bottlenecks are artificially pushed to the border, as is still the reality. This will enhance trade and reduce costs.

But full market integration will also require seamless cooperation of TSOs, closer links between regulators, and a revised role for ACER. We will address all of those issues as part of the package.

And finally on cooperation let me say a few words about capacity mechanisms.

As you have heard me say many times, I am not pushing for an end to public interventions, it's not realistic.

But what I will push for is a shift from 28 different national approaches to a European or regional framework for capacity remuneration mechanisms.

This means that any public intervention should not favour national generation capacity over cross-border generation or demand response. And it means that all capacity mechanisms should be fully in line with our broader clean energy objectives.

The point is that regional cooperation and deeper market integration are absolute pre-requisites for the vision of a flexible energy system I have spoken about today.

Conclusion

Ladies and Gentlemen,

As you have heard throughout the day, there is a lot at stake on this package.

Reforming the electricity market is at the heart of a successful energy transition. And it is a prerequisite for reaching our 2030 targets and stepping up our efforts on climate action.

It will change the way we buy, use and produce energy at home. It will help lift large parts of Europe out of energy poverty.

And it will also be the boost to our economy that we desperately need, with up to 900,000 new jobs and an extra 190bn into economy on the line if we get this right.

I thank you for all your support and input throughout the day and I look forward to working with you all to make our vision a reality.

SPEECH/16/3566

Press contacts:

General public inquiries: Europe Direct by phone 00 800 67 89 10 11 or by email


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