Anders Stouge:
The energy sector in Europe is integrating at remarkable speed, through the regional building of interconnectors and market coupling. It is happening in parallel through different parts of the value chain, across sectors and across technologies.
This is a new reality that European lawmakers need to face up to.
The right direction has already been set. When the European Commission in February 2015 presented its Energy Union strategy, it did so with the ambition to adopt a “holistic approach” by integrating energy and climate with “transport, research and innovation, industry, regional, trade, consumer protection, the digital economy … into a cohesive framework”.
This is exactly what is needed to adapt energy regulation today to the energy market of tomorrow. However, despite the importance of the path set out in the Energy Union strategy, it was no more than a strategy.
In the coming months much more important documents will flow from the Berlaymont and land on the desks of lawmakers in the European Parliament and the Council. Legislative proposals on energy efficiency, buildings, renewable energy and the design of the electricity sector will be presented this autumn. This is where the holistic vision and intentions will stand the test of real legislation.
First up is the proposal for a revised Energy Efficiency Directive, expected on 12 October.
To fully realise the potential of energy efficiency measures, we must adopt a new approach to energy savings. An approach that exploits the synergies across sectors: a holistic approach. Considering every form of energy consumption as if they are equally undesirable would be out of line with a holistic approach. Actually, the holistic approach would fully endorse a situation with higher consumption of certain types of energy while the total consumption of energy decreases. One could say “use more to use less”.
Most obvious is the potential for increasing the use of electricity in the heating sector. By the European Commission’s own figures, at least 45 % of electricity will be based on renewable energy in 2030. This means that not only will electricity be less carbon intensive, it will also rely less on imported fuels.
It would therefore be logical to adopt a more nuanced approach to energy saving measures than is currently the case. Under current legislation, member states are required to make energy savings of 1.5 % per year, regardless of what type of energy is saved. For the energy system of tomorrow, this approach is too simplistic. Energy saving measures should, in future, be designed to promote initiatives that reduce greenhouse gas (GHG) emissions and reduce import dependency – two of the key horizontal ambitions of the Energy Union.
Ensuring such an approach requires us to look at how energy savings are calculated. In the current Energy Efficiency Directive, energy savings from electricity are multiplied by a factor of 2.5. Originally this was done to account for the energy losses that occur when burning fuels like coal or gas to generate electricity.
However, the calculation also assumes that primary energy goes into generating electricity from wind turbines or solar panels. Not only is this a false assumption, it also contributes to incentivising electricity savings – even if the electricity is to a large part based on renewables and produced with no losses. In other words, the method currently applied when calculating energy savings incentivises savings on renewables.
Thus, every time households and companies use1 kWh of electricity, they are punished by a factor of 2.5, or rewarded with the same factor every time they save electricity. This is a disproportionately large incentive to save electricity, even though it is becoming greener and greener.
This “factor bashing” simply converts into the opposite of what we want. It does not help companies and citizens in the member states to convert their consumption of oil, gas and coal into consumption of green electricity that would otherwise reduce GHG emissions and imports of fossil fuels.
At the same time, we have a Renewable Energy Directive that promotes the building of renewables. But promoting new renewable energy sources, while disproportionally incentivising cutting electricity use from these renewables, does not make a lot of sense.
It is not compatible with the establishment of a holistic Energy Union.
The way energy savings are currently calculated stands in the way not only of enhancing the integration of sectors and technologies in the energy sector. It also undermines the reduction of GHG emissions and the reduction of energy imports.
Thus, as we await the upcoming key proposals from the Commission on the Energy Union, it is important that EU lawmakers consider what type of energy savings deliver the greatest benefit to the European economy, its citizens, the environment and the energy system. That would be a truly holistic approach.
(Anders Stouge is deputy director-general of the Danish Energy Association).
