Accelerated by the situation in Ukraine, this year 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 the 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 build off 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 and its potential to mitigate the negative effects deriving from the energy crisis across the bloc.
The main elements of REPowerEU plan
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;
- Substituting fossil fuels through the acceleration of Europe’s clean energy transition (combining investments and reforms);
- Diversifying energy supply (seeking new markets for imports), in order to reduce dependency on Russian energy.
Together with the REPowerEU plan, the Commission presented 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 proposed 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%. The European Parliament on 14 September proposed to raise the target even further to 14.5% by 2030. The Commission also wants to double the current deployment rate of heat pumps, resulting in a cumulative 10 million units over the next five years. Moreover, Member States are encouraged to introduce 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.
Building on the REPowerEU plan, on 26 July 2022, the Council of the EU agreed on the ‘Save Gas for a Safe Winter’ package, originally proposed by the Commission, to voluntarily reduce Member States’ gas demand by 15% compared to their average consumption in the past five years between 1 August 2022 and 31 March 2023. In addition, Member States agreed to the possibility of triggering a ‘Union alert’ on the security of supply, in the instance of a substantial risk of a severe gas shortage, in which case the gas demand reduction would become mandatory. On 30 September, the energy ministers of the EU 27 agreed on further measures for Member States for a voluntary overall reduction target of 10% of gross electricity consumption and a mandatory reduction target of 5% of the electricity consumption in peak hours during winter.
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.
Moreover, 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, it proposes 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. In order to do so, the Commission published both a proposal to amend the Renewable Energy Directive as well as a non-binding recommendation to the Member States. Central to the proposal is the introduction of “Renewable go-to Areas”. Member States are to develop such areas in which a simplified permit procedure will apply for renewable energy projects other than biomass combustion.
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). During the summer, the EU struck new deals to enhance energy cooperation with Norway and Azerbaijan.
During her State of the Union address on 14 September, European Commission President Ursula von der Leyen announced the Commission’s priorities in response to the increasing energy prices and the difficult economic situation for citizens and businesses. Notably, she announced an upcoming reform of the energy market as well as further investments for renewable energy, such as hydrogen. On 30 September, the energy ministers of the EU 27 agreed on a set of Commission measures complementary to the REPowerEU plan. These measures introduce a mandatory reduction in electricity consumption, a profit cap for electricity producers with low operating costs, and a solidarity contribution from the fossil fuel industry. They are temporary measures that will apply from 1 December 2022 to 31 December 2023. The reduction targets of energy consumption shall apply until 31 March 2023. The mandatory cap on market revenues shall apply until 30 June 2023.
With regards to economic sanctions, earlier in June, the Council of the EU agreed on a total ban on insurance and financial services for seaborne Russian crude oil, entering into force from 5 December onwards. The proposed eighth sanction package aims to add a ban on shipping Russian oil but include an exemption for oil priced below a cap set by the G7. A gas price cap is still further away, with notable opposition from a limited number of Member States (e.g., Germany).
What to expect next from the REPowerEU plan?
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 the 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 targets within many of the Fit for 55 legislation, such as the Renewable Energy Directive, are still subject to negotiations among the co-legislators. While 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. Notably, in September, MEPs voted to raise the target of renewable energy from 40% to 45%. The European Parliament will start its discussions on the proposed amendments to RED on permitting procedures in the end of October in the ITRE Committee. MEPs and the Czech Presidency of the Council of the EU aim to integrating the proposed RED on permitting procedure into the Trilogue negotiations on RED III and close the files by the end of the year.
As regards other REPowerEU deliverables, on 4 October, EU economy and finance ministers agreed to add REPowerEU chapters in their national recovery and resilience plans (RRPs) to channel investments toward achieving REPowerEU objectives. The additional €20 billion will be sourced from the Innovation Fund and the ETS allowances. The vote on the REPowerEU chapters is scheduled on 9 November in the Plenary.
On 7 October, the informal European Council will discuss how to guarantee security of supply and affordable energy for households and businesses as well as to ensure a well-coordinated European response. To address high energy prices, Member States have been adopting national measures (e.g., the newly announced German plan of €200 billion investment), which undermined the EU-level actions taken in the past months and resulted in an uncoordinated approach. In this context, the European Commission proposed a common EU roadmap to limit the prices in the natural gas market, introduce a temporary price cap on gas and boost negotiations with reliable energy suppliers (e.g., Norway and the United States).
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