This week marks a major development in the path towards an independent EU energy market. Through the REPowerEU plan, published on 18 May (an outline of which was published on 8 March), the European Commission highlights an urgent need to reduce the EU’s reliance on Russian fossil fuels, especially on natural gas imports. But how does this plan concretely foresee to reduce dependence, ensure strategic autonomy of the EU in the field of energy and how will it accelerate the clean energy transition? In this article, Dr2 Consultants presents the main takeaways of the REPowerEU plan.
The EU’s recipe for a green transition
In 2021, the European Commission proposed a package of measures to tackle the transition to more sustainable energy systems by means of the “Fit for 55” package. If all proposals as part of the package would be implemented, annual fossil gas consumption could be reduced by 30%, equivalent to 100 billion cubic meters (bcm), by 2030. However, in view of the invasion of Russia into Ukraine and the subsequent energy crisis, the REPowerEU Plan aims to accelerate this process.
The REPowerEU plan is based on three main elements:
- Saving more energy (and thus reducing energy dependency) through the promotion of energy efficiency;
- Diversifying energy supply (seeking new markets for imports), in order to reduce dependency on Russian energy;
- Substituting fossil fuels through the acceleration of Europe’s clean energy transition (combining investments and reforms).
Together with the REPowerEU plan, the Commission presents an EU Save Energy Communication. The new plan builds on the Fit for 55 proposals from July 2021 and calls for their speedy adoption. Among others, the European Commission proposes a legal amendment to raise the targets as put forward in the Energy Efficiency Directive – a revision that is part of the Fit for 55 package and currently under revision – from 9% in the current proposal to 13%. On heat pumps, the EU wants to double the current deployment rate, resulting in a cumulative 10 million units over the next five years. Moreover, Member States are encouraged to come with measures such as reduced VAT rates for high efficiency heating systems and for insulation in buildings, as well as other energy pricing measures, which encourage switching to heat pumps and the purchase of more efficient appliances.
Accelerating clean energy transition
The REPowerEU plan recommends replacing fossil fuels, such as natural gas with renewable fuels from both biological as well as non-biological origin in the near future. By accelerating the transition towards and increasing the uptake of fuels such as hydrogen and biomethane, Europe can replace fossil imports by renewables at a faster pace than foreseen. The Commission will finalize the proposed regulatory framework for hydrogen and will soon publish two new draft legal acts to define and boost the production and market development of renewable hydrogen within Europe. On biomethane, the Commission is proposing an action plan to achieve 35 billion cubic meters (bcm) of annual biomethane production by 2030. The Commission wants to address the main barriers to increasing the production and use of biomethane. Taking away these barriers will make it easier to facilitate its integration into the EU gas market.
Furthermore, REPowerEU urges for much more action on deploying renewable energy and related smart energy technologies, such as heat pumps and hydrogen electrolyzers. It puts forward an increase to the Renewable Energy Directive target – a revision that is part of the Fit for 55 package – from 40% to 45% by 2030, equivalent to 1236GW of installed renewables capacity, a significant step up from the 1067GW targeted in the original proposal for a revision.
Lastly, REPowerEU also includes a strategy for solar energy to make it an important part of the EU’s energy and heating systems. This proposes a target of over 320 GW of newly installed solar photovoltaic capacity by 2025, and almost 600 GW by 2030. The European Commission introduces a solar rooftop obligation for commercial and public buildings by 2026 and for new residential buildings by 2029. Moreover, an EU large-scale skills partnership to develop the necessary skilled workforce to produce, install and maintain these panels and an EU Solar Industry Alliance to support the EU industry in expanding the domestic production of photovoltaic panels.
In the new detailed plan, the Commission encourages Member States to identify the most suitable projects for renewables where permitting would be shortened and simplified. Normal renewable energy licensing procedures usually take years, meaning a significant acceleration of the rollout of renewable energy projects in the years to come.
Diversifying energy supply
Similar to the vaccine purchase schemes during the COVID-19 pandemic, the Commission would like to negotiate (gas) purchasing agreements on behalf of the whole EU through a ‘joint purchasing mechanism’, as part of the EU External Energy Strategy. The vehicle currently used for purchasing agreements is the EU Energy Platform, a voluntary mechanism used to pool demand, and to coordinate the use of the import, storage and transmission infrastructure. By negotiating in this way, the Commission wants to secure more reliable suppliers of gas and hydrogen, build long term partnerships, and thanks to the collective purchasing power of all Member States strike better deals (including cooperation on hydrogen and other green technologies).
As part of the REPowerEU communication on 23 March 2022, the Commission adopted a legislative proposal for obligatory gas storage rules. The proposed rules include the obligation for Member States to fill all gas storage sites to at least 80% by November 2022 (and 90% in subsequent years), new mandatory certification for storage system operators and a 100% transmission tariff discount for gas storage facilities. The file is currently being negotiated by the co-legislators under an urgent procedure, so that it can take effect from Summer 2022.
With regards to the European embargo on Russian oil products, as announced by the Commission as part of its sixth sanction package, an agreement among the Member States has not yet been reached. The introduction of REPowerEU should help the Member states to transition away from Russian oil products, but the negotiations are reported to be at a standstill. The decision on a potential embargo is likely to be taken at the highest political level during a Special meeting of the European Council on 30 and 31 May.
What to expect next?
The REPowerEU plan is a landmark publication with far-stretching impact on various industries, and is expected to guide reforms and investments in the years up to 2030. In order to replace Russian fossil fuels and diversify the EU’s energy mix, the Commission is increasing the targets for the production and import of energy carriers such as renewable hydrogen, biomethane and LNG significantly. Additionally, the plan proposes to significantly shake up the investment landscape, e.g. by repurposing the Recovery and Resilience Facility and easing permitting procedures. It is expected that this mix of measures will strengthen the business case of projects in the energy transition and will provide guarantees to investors.
Moreover, with its dedicated External Energy Strategy, the Commission rightfully acknowledges the need for strong partnerships with other continents across the globe to diversify its energy supplies. It is expected that new platforms such as EU Energy Platform and the Mediterranean Green Hydrogen Partnership will play a key role in setting a clear regulatory framework to accommodate global trade flows and harmonize standards between continents.
Furthermore, the revised targets within some of the (already controversial) Fit for 55 files, such as the Renewable Energy Directive, are expected to be subject to intense negotiations among the co-legislators. Whilst there is general consensus on the objectives of the REPowerEU plan – diversify energy sources and stimulate the transition towards renewable energy sources – policymakers disagree on the measures necessary to realize these objectives.
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