Introduction

On 25 February 2015, the European Commission (the EC) adopted a Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy (the Framework). The purpose of the Framework is to outline the EC’s vision of an Energy Union - one of the key priorities of President Juncker’s political guidelines - and the main actions that have to be taken in the next few years to achieve this goal.

The EU is the largest energy importer in the world, more than half of its energy being imported at an annual cost in excess of €400 billion. Some Member States are solely dependent on a single source of supply of gas and the energy system is too vulnerable to supply shocks. Gas is more expensive than in the US (Henry Hub). It is estimated that more than €1 trillion will need to be invested into EU’s energy sector the next five years alone.

The European energy sector is currently facing a number of challenges. First, while the EU has energy rules set at the European level, in practice it has 28 national regulatory frameworks. Further, the retail market is not functioning properly and many household consumers have too little choice of energy suppliers. On top of this, energy infrastructure is ageing and the building of new infrastructure, more adjusted to the increased production from renewables, requires substantial long-term investments. Finally, energy islands continue to exist as many markets are not properly connected to their neighbours.

The proposed Energy Union aims to address these challenges and to bring greater energy security, sustainability and competitiveness to the European energy market. To achieve this, the Framework focuses on five mutually-supporting “dimensions”: (1) energy security, solidarity and trust; (2) a fully integrated internal energy market; (3) energy efficiency as a contribution to the moderation of energy demand; (4) decarbonisation of the economy; and (5) research, innovation and competitiveness.

These “dimensions”, and the specific actions the EC proposes to take in each dimension, are summarised below.

Energy security, solidarity and trust

The first dimension of the proposed Energy Union strategy is the diversification of energy sources, suppliers and routes to make the EU more resilient to supply disruptions.

  • In 2015-2016, the EC will propose a resilience and diversification package for gas by revising the existing Security of Gas Supply Regulation1.
  • The EC will also work with the Member States to develop access to alternative suppliers, including from the Southern Gas Corridor route, the Mediterranean and Algeria, to decrease existing dependencies on individual suppliers. To reinforce its support for this process, the EC will use all available EU funding instruments, including the European Fund for Strategic Investment (EFSI)2, and will fully involve European financial institutions.
  • The EC will prepare a comprehensive strategy for liquefied natural gas (LNG) and its storage. In this context, the EC will also work to remove obstacles to LNG imports from the US and other LNG producers.
  • In 2016, the EC will propose a revision of the Decision on Intergovernmental Agreements3(1) to ensure full compliance of agreements related to the buying of energy from third countries with EU law before those agreements are negotiated; (2) to involve the EC in such negotiations; (3) to develop standard contract clauses covering EU rules; and (4) to make commercial gas supply contracts more transparent.
  • The EU will use all external policy instruments to ensure that a strong, united EU engages constructively with its partners and speaks with one voice on energy and climate.

A fully integrated internal energy market

The second dimension of the proposed Energy Union strategy is a fully integrated European energy market.

  • The EC will propose legislation on security of supply for electricity in 2016, and a new European electricity market design in 2015.
  • The EC will use all available policy instruments to ensure that Member States fully implement the Third Internal Energy Market Package and will strictly enforce the competition rules.
  • The regulatory framework set up by the Third Internal Energy Market Package will be further developed, in particular the functioning of the Agency for Cooperation of Energy Regulators (ACER). ACER’s powers and independence should be significantly reinforced to enable it to effectively oversee the development of the internal energy market and the related market rules as well as to deal with all cross-border issues necessary to create a seamless internal market.
  • The right infrastructure is a precondition for completing the energy market, integrating renewables and security of supply. The EC will support the implementation of major infrastructure projects, particularly the Projects of Common Interest4, through all available financial means, including the Connecting Europe Facility, the European Structural and Investment Funds and the EFSI, to leverage the necessary private and public funding. The EC will bring together information on EU-funded infrastructure projects to increase coherence and to maximise their impact. The EC will create a dedicated Infrastructure Forum to discuss progress on major infrastructure projects with the Member States, regional cooperation groups and EU institutions, set to have its first meeting late 2015.
  • To enhance coordination between Member States when developing their energy policies, the EC will develop guidance on regional cooperation and engage actively in regional cooperation bodies with the Member States and stakeholders.
  • To ensure greater transparency on energy costs and prices as well as on the level of public support, the EC will produce biennial reports on energy prices, analyse in depth the role of taxes and subsidies and seek the phasing out of regulated prices below cost. The EC also calls for action at the national and local levels to protect vulnerable customers through social policies.

Energy efficiency as a contribution to the moderation of energy demand

While all economic sectors must take steps to increase the efficiency of their energy consumption, the EC will pay special attention to those sectors with a huge energy efficiency potential, in particular the transport and buildings sector.

  • Retrofitting existing buildings to make them energy efficient and making full use of sustainable space heating and cooling will reduce the EU's energy import bills, reinforce energy security and cut energy costs for households and businesses. The EC will therefore develop a “Smart Financing for Smart Buildings” initiative to make existing buildings more energy-efficient, facilitating access to existing funding instruments. In addition, the EC will propose a strategy to facilitate investment in heating and cooling.
  • In the transport sector, the EC will propose a comprehensive road transport package promoting more efficient pricing of infrastructure, the roll-out of intelligent transport solutions and enhancing energy efficiency. The EC will also take further action to create the right market conditions for an increased deployment of alternative fuels and to further promote procurement of clean vehicles. This will be delivered through a mix of national, regional and local measures.

Decarbonisation of the economy

At the October 2014 European Council, the EU set itself the target of reaching at least 27% energy savings by 2030.

  • All relevant energy efficiency legislation will be reviewed and revisions proposed where needed. In particular, the EC will propose legislation to achieve the agreed greenhouse gas reduction target both in the Emissions Trading System and in the sectors outside the Emissions Trading System.
  • A new Renewable Energy Package will be proposed in 2016-2017, which will include a new policy for sustainable biomass and biofuels, as well as legislation to ensure that the 2030 EU target is met cost-effectively.

Research, innovation and competitiveness

The final dimension of the proposed Energy Union is the need to develop a forward-looking, energy and climate-related research and innovation (R&I) strategy to maintain European technological leadership and expand export opportunities. To achieve this goal, the EC will:

  • propose a European energy R&I approach, including an upgraded Strategic Energy Technology Plan and a strategic transport R&I agenda, with a limited number of essential priorities and clear objectives, in 2015-2016.
  • develop an initiative on global technology and innovation leadership on energy and climate to boost jobs and growth.

Conclusion

The EC’s proposal for an Energy Union is the next fundamental step towards the completion of a single energy market and increased supply security with diverse suppliers, making the EU less vulnerable in a volatile political landscape. The EC’s Framework strategy is built around five mutually-supporting dimensions that the EC proposes to implement in 15 concrete action steps in the next two years. The proposed strategy and the upcoming legislative proposals will have a major impact on anyone active in the energy sector and will need to be taken into account when planning European energy projects. The focus on and support for energy infrastructure and renewable energy sources will provide significant opportunities for investors and project promoters.