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ENERGY POLICY WEEKLY
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Contents
Competition law
Šefcovic reiterates calls for
common gas purchaser E2
Investment & finance
Cañete eyes slice of €300 billion
‘Juncker package’
E2
Environmental policy
China-US climate pledges will
set the scene for Paris E3
Environmental policy
MEPs call for early EU ETS
reform as debate heats up E4
Data page
Storage obligations in
the EU
E5
Data page
Global energy transitions
E6
EU prepares to monitor Russian
gas flows
Energy security
Andriy Kobolyev, chief executive of Naftogaz
Ukrainy, has reiterated calls for the EU to monitor
Russian gas flows to avoid any potential conflict
over supplies this winter.
“To avoid a gas crisis like in 2009, we invite EU
experts to come to Ukraine to monitor gas flows
from Russia to European countries,” Kobolyev told
reporters in Brussels this week. “This is the best
way to ensure that transit is stable.”
The idea of monitoring the transit of gas
through Ukraine was proposed by Ukrainian
authorities this summer.
“The European Commission’s Ukraine support
group is currently assessing – together with
ENTSO-G [the European Network of Transmission
System Operators for Gas] experts – under which
conditions and on what basis such monitoring
could be set up. Preparatory work is ongoing,” a
commission spokesperson told Interfax.
Slovakia connection
Editor, EU Policy and Regulation
Andreas Walstad
[email protected]
Correspondent, EU Policy and
Regulation
Annemarie Botzki
[email protected]
Chief Sub-editor
Rhys Timson
Sub-editors
Doug Kitson, Rob Loveday
Layout & Design
Joseph Williams
www.interfaxenergy.com
Kobolyev also called on the EU to implement
reverse flows on the old-grid Slovakia-Ukraine
interconnector. “The interconnection between
Slovakia and Ukraine has been an obstacle
for several years and has prevented us from
integrating with the European market and
importing all the gas we need,” Kobolyev
told reporters.
According to Naftogaz, an old technical
agreement between Slovakia’s transmission
system operator Eustream and Gazprom has
been used to block the free flow of gas between
the EU and Ukraine on the old grid. “We are
urging the commission to simply implement
the rules of the Third Energy Package at this
connection,” he said.
In reverse-flow mode the Vojany-Uzhgorod
pipeline can supply gas from Slovakia to Ukraine
at a capacity of 27 million cubic metres (MMcm)
per day (nearly 10 billion cubic metres per year).
The pipeline was officially launched in early
September 2014. According to Naftogaz, the oldgrid connection between Slovakia and Ukraine has
an additional capacity of nearly 100 bcm/y.
EU-Ukraine reverse flows
■ Andriy Kobolyev, chief executive of Naftogaz,
has called on the EU to monitor Russian
gas flows and implement reverse flows at
interconnection points.
■ Slovakia-Ukraine reverse flows could provide
an additional capacity of nearly 100 bcm/y.
■ EU companies are supplying around 1 bcm
of gas to Ukraine per month.
■ The European Commission and ENTSO-G
are analysing the conditions under which
gas flows could be monitored.
Source: Naftogaz, EU Commission
Four major European companies are supplying
around 1 bcm gas per month to Ukraine, at prices
lower than Gazprom, according to Kobolyev. “If we
double this amount, the Ukraine could do without
Russian gas forever,” Kobolyev said.
Hungary could provide an additional
500 MMcm per month to the Ukraine; however,
gas supply stopped in September.
Energy reform
Kobolyev, who has recently been mentioned
as a candidate for the post of energy minister
in Ukraine, also laid out how he believes his
country’s energy policy should be reformed.
He stressed the need for a single wholesale
gas price, with subsidies given only to
vulnerable customers.
According to Kobolyev, discussions with
the EU’s Ukraine task force are ongoing to
decide how these subsidy mechanisms could
be set up and managed.
“Until there is a market price, no reform
will help. The market price will help domestic
producers that currently have to sell at a… low
price. They will have more revenues to invest
into domestic production, and that will decrease
dependency on gas imports,” Kobolyev said.
Annemarie Botzki
[email protected]
Energy Policy Weekly | 20 November 2014 | E1
ENERGY POLICY WEEKLY
Šefcovic reiterates calls for common gas purchaser
Competition law
Maroš Šefcovic, the EU’s vice president
for energy union, this week reiterated calls
for common gas purchasing on behalf of
member states – albeit on a voluntary basis.
Addressing a conference in Brussels,
Šefcovic said pooling purchasing power
across member states was “not easy” and
that it had “lots of ramifications” from a
legal perspective. He advocated a “gradual
step-by-step approach”, starting with a
voluntary scheme.
“We should explore common purchasing
of gas,” Šefcovic said. He added this was
to “push for better prices” and “resist
undue pressure from third countries” –
including Russia.
Šefcovic said he had discussed the
common purchasing idea with Federica
Mogherini, the EU’s high representative for
foreign affairs and security policy. Mogherini
will discuss the proposal further with EU
foreign ministers, Šefcovic said.
Šefcovic addressed the EU’s combined
€400 billion ($500 billion) per year bill for
fossil fuel imports. The EU depends on
imports for 66% of its gas, according to
the European Commission.
“We are the biggest energy customer
in the world. [And] we pay on time,”
Šefcovic said.
The idea of a common purchaser of
gas on behalf of several member states
was launched by the former Polish prime
minister and incoming president of the
European Council, Donald Tusk. The
proposal addresses the fact that EU
member states pay very different prices
for Russian gas.
However, the idea has been opposed
by many member states – including the
UK and Germany – as well as stakeholders
in the oil and gas industry. The proposal
may also be at odds with EU and WTO
competition law. The idea of an obligatory
gas-purchasing body for the whole of
the EU is no longer being considered,
Klaus-Dieter Borchardt, the commission’s
director of the internal energy market,
said in Brussels recently (see EU rules out
obligatory gas-purchasing body,
13 November 2014).
The commission is expected to launch
an energy union paper by the end of the
year, which will provide more details about
common gas purchasing.
Šefcovic has previously outlined
five pillars of the energy union,
including prioritising energy efficiency
and renewables.
“When we talk about an energy union
we are not just talking about buying
gas together. Certainly, renewables and
energy efficiency is on the frontline,”
Monica Frassoni, president of the
European Alliance to Save Energy, told
the event.
Andreas Walstad
[email protected]
Cañete eyes slice of €300 billion ‘Juncker package’
Investment & finance
Miguel Arias Cañete, EU commissioner
for climate and energy, has said the €300
billion ($375 billion) investment package
proposed by the European Commission is
an opportunity to secure more funding for
energy infrastructure projects.
Jean-Claude Juncker, president of
the commission, has said he aims to raise
€300 billion in additional public and private
funding over the next three years by
focusing on smarter investment and less
regulation. Cañete would not say how much
of the ‘Juncker package’ would be allocated
to energy projects, but said it represented a
big opportunity for the energy sector.
“In the Juncker package we have a
concrete possibility – €300 billion is a lot,”
Cañete told a conference in Brussels this
week. His comments echo those made by
Dominique Ristori, the director-general for
energy, earlier in the week.
www.interfaxenergy.com
“The Juncker investment plan
represents a unique opportunity
to accelerate investment in energy
[infrastructure],” Ristori told an event at the
commission, adding that the €300 billion
package would be presented soon.
According to the commission, around
€200 billion is needed up to 2020 for
investment in energy transmission networks
alone. Investment in smarter grids to foster
the expansion of renewables, as well as
energy efficiency measures – in buildings,
for example – are seen as key priorities by
the commission.
“I cannot prejudge the exact place of
energy, but I am convinced energy will
be one of the key priorities of Juncker’s
package,” Ristori told an event in Brussels
on 12 November.
Andreas Walstad
[email protected]
News in brief
The European Commission may present a discussion paper on capacity mechanisms
in January next year, Klaus-Dieter Borchardt, the commission’s director of internal
energy market, told a conference in Brussels this week. Capacity mechanisms
remunerate power plant operators for availability, and are complementary to the
price for electricity. Borchardt has said the commission is less sceptical about capacity
mechanisms than it was previously, and that they are an interim solution to making
gas-fired power plants profitable. “Are capacity mechanisms a good thing? In my view
no. But [with the] current market conditions there has to be an instrument in place.”
Energy Policy Weekly | 20 November 2014 | E2
ENERGY POLICY WEEKLY
China-US climate pledges will set the scene for Paris
Environmental policy
Following extensive communication
between Beijing and Washington over
the past few months, China has agreed
to peak its emissions by 2030, while the
United States will cut greenhouse gas
(GHG) emissions by 26-28% from 2005
levels by 2025.
“The China-US joint announcement
is potentially the most important
development in international climate
negotiations in the past five years, possibly
the last decade,” Robert Stavins, professor
of business and government at Harvard
University, told Interfax.
The fact that China and the US jointly
announced quantitative targets greatly enhances the likelihood of some form of global
agreement in Lima in December and Paris
in 2015.
“I think this has to be positive for
Europe, which has been standing largely
alone in pursuing significant carbon
reductions,” Charles Kolstad, an environmental
economist at Stanford University, told Interfax.
“All in all, I am more optimistic that
something will be achieved in Paris,
[although] I wouldn’t expect a global
agreement along the lines of Kyoto, with
targets and timetables,” he said.
Stavins agreed the bilateral deal is a
sign climate talks are moving beyond the
foundation of the Kyoto Protocol, which
currently accounts for 14% of global
greenhouse gas emissions.
Europe already agreed in October to
reduce GHG emissions by at least 40% by
2030, and increase energy efficiency and
renewables by at least 27% (see EU deal
on 2030 targets shows mixed ambitions,
24 October 2014).
Together, China, the US and the
EU 28 are responsible for around 60%
of global emissions.
“I have more hope now compared
with a few weeks ago. It is the last chance
in Paris if we want to keep the world
as it is… we expect a legally binding
agreement,” Fatih Birol, chief economist at the
International Energy Agency, said in Brussels
on 14 November.
www.interfaxenergy.com
US-China climate deal: What’s been agreed?
■ The US agreed to cut GHG emissions by 26-28% from 2005 levels by 2025.
■ The rate of carbon pollution reduction is set at 1.2% per year on average during the
2005-2020 period, and at 2.3-2.8% per year between 2020 and 2025.
■ China agreed its CO2 emissions will peak around 2030, with the intention to peak
early.
■ China said it will increase the non-fossil fuel share of its energy to around 20% by
2030.
■ The pledges have increased the likelihood of a global deal in Paris next year, although
many uncertainties remain.
Source: White House, Interfax
While the deal between the two largest
emitters is likely to boost progress, the agreement has no legal basis, nor did the parties
lay out specifically how the goals
will be achieved.
“The deal fits the politics, but not the
science. Coal consumption has to peak and
decline by 2020 to bring the air pollution
level down in China,” Li Shuo, climate and
energy campaigner for Greenpeace China,
told Interfax.
Much of the success of Lima and Paris
will also depend on how Mexico, South Korea,
Brazil, India, Indonesia, Nigeria and South
Africa react to the deal and where they
position themselves.
The Paris 2015 conference has been called
the most important negotiation ever. It will
decide how the remaining ‘carbon space’ –
the amount of carbon that can be emitted
globally while staying below a 2 C warming
level – will be divided among the countries
of the world.
“We need to avoid some of the harsher
language of ‘binding’ and ‘legally enforced’
and recognise that any commitment is
ultimately voluntary,” John Reilly, co-director
of the global change programme at MIT,
told Interfax.
Facing heavy opposition to climate politics
domestically, US President Barack Obama
may have crafted a politically smart deal by
tying targets for both countries together in
a bilateral deal.
The proposed 26-28% emission
reductions by 2025 are also achievable
without additional legislation going through
Congress if policies such as the Environmental
Protection Agency’s proposed Clean Power
Plan are adopted.
CCUS funding agreement
Obama and Chinese President Xi Jinping also
agreed to renew funding for coal carbon
capture, use and sequestration (CCUS)
projects and will jointly fund a carbon capture
and storage (CCS) project in China as well
as a large-scale CCUS project.
The Intergovernmental Panel on
Climate Change (IPCC) recently stressed the
important role CCS could play as a climate
mitigation technology worldwide in its Fifth
Assessment Report (see IPCC highlights
importance of CCS for climate change,
6 November 2014).
“With CCS, it’s possible fossil fuels can
continue to be used; without it, fossil fuels
would be phased out almost entirely by
2100,” IPCC Chairman Rajendra Pachauri
told the European Parliament.
China and the US have been leading the
way on CCS research in recent years, whereas
Europe has been falling behind.
“Better to take countries at their word,
urge them to stretch to reach difficult (but
realistic goals) and then monitor and evaluate
progress, relying on each country’s sense of
its role in the world to push it toward living
up to its commitment,“ Reilly added.
Annemarie Botzki
[email protected]
Energy Policy Weekly | 20 November 2014 | E3
ENERGY POLICY WEEKLY
MEPs call for early EU ETS reform as debate heats up
Environmental policy
The European Parliament’s energy committee
debated the proposed Market Stability
Reserve (MSR) this week, with several MEPs
calling for early implementation to boost
prices for carbon allowances under the EU’s
Emissions Trading System (ETS).
The MSR has been proposed by the
European Commission and European Council
to address the 2 billion surplus carbon
allowances under the ETS. In January, the
commission proposed that 12% of surplus
allowances be taken out of the market and
placed in a reserve each year, starting in 2021
(see EU ETS reform ‘must come sooner’ than
2021, 3 April 2014).
However, several MEPs called for
early implementation at a debate in the
parliament’s industry, research and energy
committee (ITRE) this week.
“The process needs to be fast-tracked. The
earlier it starts the more effectively it will help
address the growing supply of allowances.
If we have a good instrument why should
we wait to implement it? In that sense, 2017
would be a good starting date,” Theresa
Griffin (S&D, UK) told the debate.
The parliament’s environment committee
(ENVI) is the lead committee on the MSR,
but ITRE will deliver its opinion before ENVI
votes on it. A vote in ENVI is scheduled for
23-24 February next year. The proposal needs
backing from both the parliament and council
to go through.
Carbon leakage
In a draft opinion on behalf of ITRE,
rapporteur Antonio Tajani (EPP, Italy)
proposed energy-intensive industries –
such as steel and cement producers –
should receive all their allowances for free
until 2030 to avoid carbon leakage.
“I am in favour of the MSR, which will be
the next step after backloading. Having said
that, we have to be sure there is no carbon
leakage. We don’t want our industries to be
leaving Europe for countries that are less in
favour of fighting climate change,” Tajani told
this week’s debate.
However, Tajani’s proposal sparked
a reaction. The current legal framework
www.interfaxenergy.com
Market Stability Reserve – now or later?
■ Carbon prices are almost €25 lower than the highs seen in 2008. A combination of
the economic slowdown and an influx of international credits has led to a surplus of
2 billion allowances in the market.
■ Prices recently gained some strength and are now trading at around €7/ton. But
significant fuel switching from coal to gas in power generation will only happen with
carbon prices at around €17/ton, according to estimates by Sandbag.
■ The European Commission wants a Market Stability Reserve whereby 12% of surplus
allowances are taken out of the market each year, starting in 2021. The allowances will
be handed back to the market if the surplus falls below 400 million, according to the
commission’s proposal.
■ At a debate in the European Parliament’s ITRE committee this week, several MEPs
called for earlier implementation of the MSR, possibly in 2017. This echoed the views
of many stakeholders in the gas industry.
■ However, some MEPs said energy-intensive industries must be given all their
allowances for free until 2030 to avoid carbon leakage to other parts of the world.
■ The 900 million allowances backloaded should be put directly into the reserve,
according to a draft opinion by ENVI rapporteur Ivo Belet.
Sources: European Parliament, European Commission, Sandbag, Interfax
only allows for energy-intensive industries
to receive theri allowances for free until
2020 (Directive 2003/87/EC). A draft opinion
by ENVI rapporteur Ivo Belet (EPP, Belgium)
has said free allocations should continue
after 2020, but in a system that incentivises
best performance.
During this week’s debate, several MEPs
said carbon leakage should not be addressed
at all under the MSR. “Amendments to the
carbon leakage rules are not needed in this
context. They should be addressed under
upcoming legislative proposals following the
October 2014 council conclusions on the EU
2030 framework,” said Griffin.
The economic slowdown has led to a sharp
decline in prices for carbon allowances since
2008, giving coal a competitive edge over gas
in power generation. However, sceptics have
said the MSR will not be enough to boost
prices to fuel-switching levels.
“Carbon prices will rally [with the MSR],
but will never reach high [enough] levels
[to attract] carbon capture and storage
investment or fuel switching from coal to
gas,” said Bryony Worthington, UK shadow
minister for energy and climate, during a
debate in Brussels this week.
Worthington said policy initiatives
should also focus on carbon intensity and
that measures such as emission caps
at new power plants could play a role.
The UK’s Energy Act 2013 established an
Emissions Performance Standard to limit
carbon dioxide emissions from new fossil
fuel power stations.
“We cannot rely on the ETS to deliver
everything,” said Worthington. “I am not
saying it is not possible to fix it... but it is
also a very broad-based system that covers
industry as well as power plants.”
Carbon prices have made some gains in
recent weeks, from below €6/ton ($7.5/ton) in
early October to around €7/ton now. Analysts
at French Bank Société Générale forecast
European emission allowances to average
€6.50/ton next year and €8.35/ton in 2020.
“While everybody agrees the MSR will
support prices if adopted... there is much
more uncertainty as to when it will start and
by how much it will support prices,” the bank
said in a report from 3 November.
Research, published in October by
UK-based climate NGO Sandbag said
there is evidence significant fuel switching
from coal to gas takes place with a carbon
price of €17/ton.
Andreas Walstad
[email protected]
Energy Policy Weekly | 20 November 2014 | E4
ENERGY POLICY WEEKLY
Storage obligations in the EU
Unlike with oil and petroleum
products, which are covered by
Directive 2006/67/EC, there is no EU
directive in place that obliges member
states to have minimum stocks of gas in
place in case of supply disruptions.
Hungary’s strategic gas stockpile
1.2
bcm
1.0
0.8
0.6
0.4
0.2
0.0
2009
Strategic storage
2010
2011
2012
2013
Sold by HUSA
20%
Increase in
storage capacity
since 2009
Storage market interventions in Europe
Source: CEER
92.5%
Average storage
levels across
the EU
No obligations
Supplier obligation
Strategic storage
No data
The EU’s Security of Gas Supply
Regulation 994/2010 obliges member
states ensure they can supply gas,
at least to household users, for a
minimum of 30 days. The supply
standard – which is expected to be
reviewed next year – does not set out
minimum stock levels, however.
Several member states – including
France, Italy and Hungary – have set
out gas storage obligations at a national
level. However, a recent consultation
paper by the Council of European
Energy Regulators (CEER) said such
regulatory interventions should be
kept to a minimum. A well-functioning
wholesale gas market is the best
mechanism to ensure security of
supply, the report said.
“CEER recognises that storage
obligations can provide a degree of
certainty regarding the level of storage
bookings; however, their implementation
should be restricted to situations where
there is clear market failure... Therefore,
regulators and policymakers should be
careful when thinking about introducing
such measures,” the report said.
Where strategic storage is introduced,
clear rules and responsibilities are
needed to minimise the impact on the
functioning of the wholesale market, the
report added.
In Hungary, the government temporarily
lowered the strategic storage volumes to
916 MMcm in 2011, down from 1.2 bcm
originally. In Italy, the total amount of
strategic storage has been set at 4.6 bcm
for April 2014-March 2015. In France, all
suppliers have to store a volume of gas
amounting to no less than 80% of their
storage capacity rights by 1 November
each year.
CEER
www.interfaxenergy.com
Andreas Walstad
in Brussels
Energy Policy Weekly | 20 November 2014 | E5
ENERGY POLICY WEEKLY
Global energy transitions
Total final energy consumption
2.0
billion toe
0.5%
Energy consumption in China and
Saudi Arabia has risen substancially
over the last 20 years because of their
rapid economic growth, a recent study
has found.
1.5
A World Energy Council study analysed
fundamental changes in the energy
sectors of six large economies across
the globe, namely Brazil, China, South
Africa, Saudi Arabia, the United States
and Germany.
4.6%
1.0
0.5
-0.3%
3.2%
5.8%
1.5%
Saudi Arabia
South Africa
0.0
Brazil
1990
2000
China
Germany
2012
Compound annual growth rate
United States
Source: Enerdata
Electricity price in industry
0.15
$*/kWh
0.12
0.09
0.06
0.03
0.00
2009
2010
2011
2012
2013
*US dollar fixed at 2005 exchange rates
Germany
United States
Brazil
South Africa
China
Saudi Arabia
Source: Enerdata/World Energy Council
Energy Efficiency Indicators
Share of renewable energies in total electricity consumption
China had the largest total final energy
consumption (TFEC) with 1.89 billion tons
of oil equivalent (btoe) in 2012, followed
by the US with 1.46 btoe. Saudi Arabia
and China saw high annual growth
rates in energy consumption because
of their rapid economic growth between
1990 and 2012. In Brazil and South
Africa, dynamic growth ranged from
2-3% per year, while for Germany and
the United States TFEC decreased in
absolute terms.
Government policies, such as renewable
energy targets and related support
schemes, were the main drivers of change
in the countries analysed. Whereas the
US and Germany are decentralised and a
significant number of decisions are made
on a state level, the emerging economies
– such as Brazil, China and Saudi Arabia –
are highly centralised.
“Wholesale power markets experienced
changes in the levels and structure
of market prices, rendering previous
investment in gas power plants,
unprofitable,“ the study said.
100%
Industrial electricity prices have increased
over the last years and are now highest
in Germany. “In South Africa, prices are
increasing as well, however, from a lower
base, whereas prices are decreasing in
China,” the study said.
80%
-0.6%
60%
40%
1.8%
7.9%
20%
0.2%
0.7%
0%
Brazil
1990
2000
China
2012
www.interfaxenergy.com
Germany
Compound annual growth rate
South Africa
Renewables provided 83% of electricity
consumption in Brazil in 2012, as a
result of the large share of hydropower,
followed by Germany at 24% and China
with 21%.
United States
Source: Enerdata/World Energy Council
Energy Efficiency Indicators
Annemarie Botzki
in Brussels
Energy Policy Weekly | 20 November 2014 | E6