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Speech Commissioner Canete: Completing a competitive, reliable and innovative Energy Union

Met dank overgenomen van M. (Miguel) Arias Cañete, gepubliceerd op vrijdag 10 maart 2017.

Speech by EU Energy & Climate Action Commissioner Miguel Arias Cañete to the "Wirtschaftsrat" Berlin

Dear Minister(s),

Dear Members of Parliament,

Dear Ambassadors,

Ladies and Gentlemen,

Thank you for the invitation to address this convention.

I am speaking to you just 15 days before the 60th anniversary of the signature of the original Treaty of Rome. As we prepare to celebrate this important event, we look back on a peace spanning seven decades and on an enlarged Union of 500 million citizens living in freedom in one of the world's most prosperous economies. At the same time, the EU has to look forward at how it will carve a vision for its own future at 27.

The White Paper presented last week by the Commission sets out the main challenges and opportunities for Europe in the coming decade. It presents five scenarios for how the Union could evolve by 2025 depending on how it chooses to respond.

It marks the beginning of a process for the EU27 to decide on the future of their Union.

The White Paper looks at how Europe will change in the next decade, from the impact of new technologies on society and jobs, to doubts about globalisation, security concerns and the rise of populism. It spells out the choice we face: being swept along by those trends, or embracing them and seizing the new opportunities they bring. Like we did with the signature of the Paris Agreement.

With this same spirit, Europe is forging ahead with the clean energy transition. There is no alternative. Let me be absolutely clear on this.

Fighting Climate Change is not a choice for today's politicians, it is a necessity (and a responsibility).

It is not a question of "if", but of "how".

It's not a question of putting my country or your country first.

It's a question of putting the planet first - we need to make the Paris Agreement a reality, for the sake of the generations to come.

I was in Canada last week, and I was delighted to hear a similar message from the Canadian government. I shall be travelling to China in the next couple of months, where I have good reason to believe there is a similar sense of political leadership.

We will maintain our political and diplomatic pressure at global level to ensure the full implementation of Paris. It is one of the issues up for discussion at the G-7 meeting of energy ministers in Rome next month. As well as for the G-20. In this respect, I am particularly pleased that Germany has taken over the Presidency of the G-20 this year. You can count on Commission support in the work trying to find synergies between energy and climate policies.

We expect to make progress within these two forums on issues such as the global transition towards cleaner energy systems, climate finance and the phase-out of fossil fuel subsidies. And the European Union is very keen to show global leadership on these questions.

But in order to steer the debate and influence the rest of the world, the EU must itself show leadership by getting its own house in order. And I can assure you that we are working very hard on that.

Last November we published the ''Clean Energy for all Europeans'' package, aimed at providing the stable regulatory framework to deliver on the transformation of our energy system which will be crucial for the implementation of the Paris Agreement. Our expectations are that the co-legislators - EU Energy Ministers and the European Parliament - will progress rapidly on the package and where possible, ensure their delivery before the end of this year.

Before I talk about how we want to achieve the transformation of our energy system, let me just underline how far we have already come in the transition towards clean energy:

  • We have reached the stage where renewable energy is now cost-competitive and sometimes cheaper than fossil fuels;
  • where more than half of all added power generation capacity in the world came from renewables;
  • where 8.1 million jobs have been created in the world by the renewables sector,including over one million people in Europe,
  • In 2015, we saw a top record global investment of over 300 billion euros, six times more than in 2004.

In short, we have reached the stage where it makes not just environmental and political sense, but also economic sense to continue this clean energy transition.

I would like to take this opportunity, here in Berlin, to pay tribute to Germany - and indeed to many of you here in this room today - on the way in which Germany has been a major driving force in achieving this progress.

But what is very clear is that your German "Energiewende" cannot be successful, and would be ultimately pointless, if it were to remain a purely national endeavor in which other European partners didn't participate. If it were not part of a broader European energy transition, exploiting synergies, easing remaining bottlenecks, and creating a wider market for the technological advances, and the new supply chains, that we need to make the energy transition also an exercise in competitiveness.

And it is exactly this key aspect that we want to address with our clean energy package, and that I want to talk about today.

To do so, I will focus on the following three points:

Firstly, a cost-effective decarbonisation of the power sector will require us to remove contradictions and inefficiencies from the way our electricity markets are organised;

Secondly, putting the ETS back on track is an absolute necessity if we want to show our citizens, our businesses and the rest of the world that Europe is serious about meeting our Paris commitments

And thirdly, we need to push innovation much more strongly and in a much more targeted way to fill some missing links in the energy transition.

Let me start by outlining how we are seeking to remove inefficiencies from electricity market regulation. As part of our Clean Energy package, the Commission presented a report looking at prices and costs of Energy. In global terms, the report indicates that the share of business production costs spent on energy is less than 2% on average. However, the share of production costs is considerably higher for more energy-intensive sectors. It also shows important differences from one Member State to another and across the prices of the various energy products.

In order to make the European energy system more competitive, our objective is to ensure that costs and prices can be gradually aligned towards the most competitive levels.

The Clean Energy package therefore includes a number of measures to overhaul the design of Europe's electricity market to make it more integrated, secure and flexible.

First of all, if we want to be able to integrate more renewables into the market cost-effectively, we must adapt the market rules so that the market works for them and not against them. This means above all better pricing signals and more flexibility.

Therefore, we have put forward rules on cross-border intra-day and balancing markets, which will strengthen the flexibility of electricity markets. The same holds true for the new rules we have proposed to allow full participation of demand, via aggregation or by individual customers. All of this will allow renewables' producers to participate in markets on a level playing field and turn their variable nature from a liability into strength.

Moreover in order to better reflect scarcity when demand is high and generation scarce, we have proposed new rules on price caps. The idea is to set them at a sufficiently high level and increase them automatically when existing (technical) caps are reached.

This, together with the rapidly falling technology costs, should allow renewables producers to compete on a level playing field and reduce the need for subsidies. And I think there is a real chance that we can start to see investment in renewables driven by market fundamentals rather than by government intervention.

Of course this also requires that existing over-capacities of conventional capacity aren't kept in the market longer than necessary. This is why we have proposed to remove barriers to market exit for existing plans. And it is also the logic behind the new rules we have proposed for capacity mechanisms.

While not ruling out that such mechanisms might be needed in some circumstances for security of supply, we have nevertheless proposed a framework to avoid two pitfalls: first, that these mechanisms are used as an easy way out to avoid proper market reforms, and second that they fall back into a purely national logic.

Such a national logic would be expensive as it would require an additional 2.8 billion € of investment cost every year to guarantee the necessary capacity if Member States were to rely only on themselves.

It is for that reason that we have proposed to make such mechanisms subject to a binding Europe-wide adequacy assessment; and it is for the same reason that we require them to be open across borders as well as limited in time, where still justified. This will help to avoid a subsidy race where one intervention triggers the need for another.

The same logic also applies for our proposal to limit participation in capacity mechanisms to plants emitting not more than 550g CO2/kWh. Of course this does not mean that we are banning coal from the electricity market. At the same time it can hardly be considered efficient to subsidise the construction of new coal plants with public money, while at the same time pushing for a higher ETS price that would then push these plants out of the market.

Before passing to my next point, ETS, allow me to make one more comment on an important issue in a German context: price zones. We have proposed to lift the ultimate decision on bidding zones at European level not because appropriate bidding zones are very important for the efficient functioning of the internal electricity market and undistorted trade.

To preserve the current situation of a large German-Austrian bidding zone, which I know is favoured by many market actors here, it is therefore crucial that the necessary grid investment in Germany will come forward to remove persisting bottlenecks. This remains our preferred solution and we are willing to support it actively with the toolbox of our infrastructure policy.

With this same spirit, we have designed our proposal to lift cooperation of network operators to another level by creating Regional Operational Centres. We believe that in areas such as capacity calculation, cross-border balancing and re-dispatching, deeper TSO cooperation will bring real added value and real savings.

And this deeper integration of our markets on regional and European level will ultimately help the further integration of renewables in our power system.

Let me now turn, now, to the Emissions Trading System. Putting the ETS back on track has been one of our key objectives since I took over as Climate and Energy Commissioner.

You will be aware that the Council and the European Parliament have clarified their positions in recent weeks and we are now moving towards the final phase of the inter-institutional negotiations.

The revised EU ETS will have to do three things:

  • deliver the required emission reductions in a cost efficient manner;
  • adequately protect vulnerable sectors in EU industry; and
  • support the clean energy transition where it is most needed.

In line with the strategic guidance from European Heads of State and government agreed in October 2014, by 2030 the emissions in the EU ETS will be reduced by 43% as compared to 2005. This will require:

  • a higher decrease in the emissions cap with a factor of 2.2% per year from 2021,
  • continued, but more targeted free allocation to industry based on robust benchmarks reflecting technological progress,
  • support for low-carbon investments in energy and industry through the Innovation Fund and Modernisation Fund.

None of these fundamental elements have been questioned by the European Parliament or the Council. On the contrary, I see many areas of convergence. For example, both institutions support doubling the number of allowances placed each year in the Market Stability Reserve as from 2019 as well as the cancelation of an important number of allowances in that reserve. I understand that those are important issues for you.

The underlying message is clear: it is better to invest into low-carbon technologies today to avoid costs in future.

Let me turn now to the third point of my speech - how we can encourage innovation in all parts of the value chain in order to achieve the clean energy transition.

As I have mentioned, the energy sector is already undergoing a technological revolution. Part of this can be directly linked to the ambitious EU energy and climate framework. By setting even more ambitious targets for 2030 - such as a binding 30% energy efficiency target, I am convinced that we are setting a new driver for further innovation.

The move towards a more market-based renewables sector will provide further incentives for innovation and investment.

For buildings, too - a sector which accounts for 40% of Europe's energy consumption - we are proposing new rules mainly in order to speed up the renovation rate of existing ones. With our proposals, buildings will not be just passive objects that consume energy; they will become an active part of our energy system, producing and storing renewable energy onsite. The revision of the Energy Performance in Buildings Directive will boost the use of innovative and smart technologies to ensure that buildings operate efficiently.

Buildings can also leverage the development of the infrastructure that is necessary to promote e-mobility, that's why we have proposed provisions for further developing charging infrastructure.

The role of storage and in particular innovative storage technologies is expected to increase in order to fully exploit and complement demand-response solutions to stabilize the grid considering the further increasing share of variable energy sources in our power generation.

This is why I am convinced of the need to launch a European Strategy on next generation batteries and storage. Besides ensuring the grid stability, they are going to be key for the deployment of e-mobility in Europe.

But we need to support innovation, beyond legislation.

This is why within the Package, we have launched a new Smart finance for Smart Building initiative to promote investment in energy efficiency and renewables in buildings. Working in close cooperation with the European Investment Bank and the Member States, this initiative has the potential to unlock an additional €10 billion of public and private funds until 2020.

And this is why the Commission initiative on Strategic Investments (EFSI) is aimed at facilitating access to finance, as well as support from EU Structural and Investment Funds to support, amongst others the energy transition. A substantial number of EFSI projects have already been approved, for a total investment of 137bn EUR. The energy sector is well represented, accounting for 22% of the approved financing, with a focus on energy efficiency and renewables.

Finally, the ongoing negotiations to revise the EU ETS for the period after 2020 includes a provision for the creation of a reinforced Innovation Fund, endowed with at least 450 million allowances. The fund will provide support to a wide range of innovative, commercial-scale, low-carbon technologies in the renewable energy, industry and CCS areas. CCU (carbon capture and use) projects will also be allowed to bid under the header of industrial innovation. Both the European Parliament and the Council support the overall architecture of this Innovation Fund - indeed the Parliament would like to make it bigger.

There are a range of other important elements in the Clean Energy for all Europeans Package:

  • in terms of creating jobs, especially for SMEs;
  • helping households escape from energy poverty, and
  • in terms of enabling consumers to participate in the clean energy revolution themselves.

According to our estimates, achieving all 2030 energy and climate targets could unlock a 1% increase in EU GDP by 2030, pumping up to 177bn EUR into the European economy and creating as many as 900,000 jobs.

Our bottom line is that the EU has to be in the driving seat of the clean energy transition. With the Clean Energy for All Europeans package:

  • We will help Europe stay ahead of the curve.
  • We will help Europe turn the Paris Agreement into concrete action.
  • And we will make sure Europe's energy transition will turn into a success story for jobs and growth.

Ich danke Ihnen für Ihre Aufmerksamkeit!

SPEECH/17/558


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