Efficiency and renewables make Europe competitive, EU study says

  

EXCLUSIVE / European industry has maintained its global market position thanks to relatively low energy intensity levels and high renewables penetration, according to a study into the continent’s competitiveness due to be released by the European Commission as part of its clean energy package today (22 January).

Renewable energies “help reduce fuel import costs and contribute to improving the energy trade balance,” says the report by the EU’s economic and financial affairs directorate (DG Ecfin), which EurActiv has seen. 

Energies derived from replenishable sources such as the wind and sun also “provide opportunities in terms of industrial equipment and trade flows,” and “contribute to reducing our energy dependence,” the paper says.

In 2010, renewable energy used in electricity generation avoided €10.2 billion of imported fuel costs, €2.2bn of which came from wind alone.  

Overall, renewables covered almost the entirety of expenditure from support schemes, and avoided €30 billion of fuel imports that year. But such savings were “still too low”, the report says, apparently indicating a need for further renewable energy deployment.

Josche Muth, the secretary-general of the European Renewable Energy Council, an industry association, said that, there was a “complete disconnect” between such glowing analyses and the austere policy announcements expected today.

“With a binding renewable energy target of 30% or 35% for member states, we would see lower costs for energy intensive industries, more jobs and less fossil fuel imports,” he said.

“Regardless, we are going down the opposite line.”

A 2030 climate and energy package due to be released today is expected to aim at a 27% share of the energy market for renewables by 2030. But this will not be binding on member states, and is in line with business-as-usual trends.

The proposal appears at odds with a widely leaked version of the impact assessment accompanying the 2030 package which found that ambitious renewables and energy efficiency targets could create half a million jobs in Europe.

Energy prices

A separate paper on energy costs prepared by the Commission’s energy directorate, which will also be released today, reportedly says that Europe’s industrial electricity price is twice that in the US and 20% higher than in China – and that the figure is widening.

Similarly, the Ecfin paper finds that Europe has higher real energy prices than its competitors, and that renewable generation increases consumer electricity bills.

Support for renewable electricity generation makes up 7.2% of end-user electricity prices for industry and 5.4% for households.

But this is considered less of a factor in electricity prices by Ecfin than Europe’s heavy reliance on energy imports – for 54% of its fuel in 2011 – and the index-linking of the majority of gas contracts to oil prices, a phenomenon that has often left them as ‘stranded assets’ that are too expensive to operate.

"Half of [the] natural gas supply in the EU is still indexed to oil," the report says.

Fossil fuel import dependency remains the main driver of price increases but their high price has to some extent spurred energy efficiency improvements in Europe, the report finds.

“In a global context, the EU manufacturing sector exhibits a low level of energy costs relative to both output and value added,” it says. “This positive outcome is mostly explained by the low energy intensity of the sector. The EU manufacturing sector has so far responded to energy price increases through sustained energy intensity improvements, thus maintaining its relatively favourable position.”

Pause in energy efficiency

The expansion of shale gas production in the US is described as a “spectacular development” which has reduced the EU-US energy trade balance in GDP terms. But it has only had a “limited” impact on the EU-US goods trade balance.

However the paper cautions that high energy prices for EU industries should remain a policy concern because “energy efficiency improvements may slow down in the EU and speed up in the US due to diminishing low cost options, and increased policy effort.”

Indeed, the EU will today announce a pause in new energy efficiency legislation until after a June review of the Energy Efficiency Directive, and a ‘pledge and review’ system for future EU climate measures that may well see Brussels lose its power to initiate some policies.  

Claude Turmes, a Green MEP from Luxembourg who has helped draft some of the EU's energy laws, said this was ironic. “There is no relation between the Commission’s analyses and the energy efficiency and renewables policies being announced today,” Turmes said. “The architecture of the Energy Efficiency Directive was not even analysed in the paper.”

Ingrid Holmes, the associate director of the environmental NGO E3G agreed. “The Commission’s analysis shows that prioritising energy efficiency is the best way to protect energy intensive industry from energy price rises," she said. "I am at a loss to understand why the Commission has failed to reflect this in its communication. Low ambition on energy efficiency will erode rather than build upon the great success of European industry in decoupling profits from energy prices.”

Carbon prices

One other climate mitigation measure, carbon prices, are “not found to have any statistical significant impact on electricity retail prices,” by the Ecfin paper although energy intensive industries and the employers’ confederation, BusinessEurope, last year ran successful campaigns arguing that it did.

One study by the European Aluminium Association (EAA) last November argued that “a significant part of the increase [in energy prices] is attributable to EU climate and energy regulations and national implementation of EU targets.”

The result, the EAA said, was uncompetitive pricing in Europe’s electricity markets and “massive production losses” due to carbon-leakage, or the relocation of industry to regions with laxer climate laws.

But the EU study says that the carbon price – currently around €5 a tonne of carbon – is far too low to have such an effect. It also "fails to provide a strong price signal for consumption behaviour and for investments in clean production technologies,” the paper finds.

Timeline: 
  • February 2014: European parliament Plenary will vote on their position on 2030 targets, which conflicts with the Commission's
  • March 2014: EU Council will discuss climate and energy issues
  • May 2014: New EU Parliament to be elected
  • May 2014: EU member states must prepare schemes for their energy companies to deliver annual energy savings of 1.5% as part of the Energy Efficiency Directive
  • June 2014: Review of progress towards meeting the 2020 energy efficiency target
  • June 2014: EU Council will discuss energy and climate issues
  • 2020: Deadline for EU states to meet binding targets for 20% cuts in greenhouse gas emissions, improvements in energy efficiency, and market share for renewable energy
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Comments

Mike Parr's picture

There are two narratives here. One by EcFin (and supported by objective evidence = numbers)
Renewables are good for the economy of Europe and are reducing reliance on imports/increasing energy independence.
Renewable support has a modest impact on energy bills for industry and consumers
Euro industry made some bad decisions by index linking gas contracts to oil prices.
ETS is statistically insignificant in decarbonising (thus confirming part of my post on backloading )
RES has the potential to create more Euro jobs (at a time when the region needs them)

The other narrative (by Business Europe & Choir) seems to be "RES is the cause of high energy prices in Europe - particularly for industry". In this context the comments from the Euro Alu Association are complete nonsense indeed, lies. Example:

(2011) Vattenfall and Norsk Hydro signed two new long-term on-site electricity supply agreements from 2013 for 11 TWh for NH's alu smelter in Neuss Germany. Norsk Hydro signed the new agreement after Vattenfall offered a new customised solution. The agreement is a combination of an older restructured contract and a new contract. NH quote: "conditions for us to increase our production from 50,000 to 150,000 tonnes annually during the first half of 2013,” vice president Arvid Moss, Head of Hydro's Energy Business.

Fact: parts of Euro industry made bad energy contracts (some made good ones - see above) - they are now running to mummy complaining "it's unfair" and asking mummy to "do something" (= corporate socialism). Step one: identify scapegoat (=RES) step 2 do something (cut RES) - there is that better children?

Note to all: my company has monitored RES developments and RES policy in Europe since 2007. It has a vast database. For every assertion the stupid brigade comes up with, my company can produce plenty of evidence pointing in the opposite direction.

Michael Kadin's picture

The E.U. is forgetting the small business in the picture those guys and girls that own the small businesses.
Forgot the individual owner who want to make a living. You make them pay huge prices for taxes they can not afford and forgets the people who make up the European Union.

David Muscat's picture

It is important here to note that the term Renewables includes the Liquid Transportation Fuels such as the Ethanol and Butanol fuels that are being developed by Applied Biofuels Malta Limited in Malta and its sister company Genesyst EU Bv in Hardenberg. These two companies are spear-heading the market to turn organic wastes (generic waste biomass) into renewable transport fuels that will compete in the market place as substitutes for oil based gasoline and Diesel in a point of sale price at less than €urocents 90 per litre. Their developments are so striking that they are now developing further programmes around the European union and across the Mediterranean which will be able to provide upwards of 50% of the fuel needs for road transport and they have already had major supply enquiries from International Hauliers who can see their fuel bills drop by at least 40% within two to four years. this is exactly what is meant here.

Karel's picture

We have also been investigating this issue.

The provision of biofuels made from wastes (importantly from agriculture and animal husbandry and sewage sludge etc) here in Bulgaria is the same issue. For too long the European Market for fuels has been dominated by the Oil Companies. Now we also have the issue under hand with a Company based in the Mediterranean Area which will be developing a combined Butanol and Ethanol facility to support our beleaguered users of transport fuels. The idea that this will be sold to us at the pumps at Eurocents 80 per ;itre and possibly lower is the key issue here and it will help our poor country improve its standing in exporting our goods.

Paul Hu Lim's picture

There is a mixed message in this article. Across the European Union there are differences about the issue, and quite naturally so.

The newer members of the EU (those that joined in 2004 and afterwards) are generally the worse off for fuel prices, such as Malta Cyprus and the Baltic States) and they need a higher penetration for such advantages in cheap fuels. It is these countries that need the assistance in the most obvious way in order to increase their personal well-being. A move such as the development of renewable fuels in Malta Hardenberg (Holland) Cyprus and SE Europe where there is the development of biofuels (renewable fuels for transport) made from non-food based biomass – preferably from wastes – and produced at a price which is around 50 Eurocents lower than oil-derived fuels is definitely the right way.

We are watching this development with great interest (from here in Asia) as the potential is already being shown from the developments for the programmes as referenced here will certainly meet this criteria. Providing a road transport biofuel is the right step and a simple means to aid the poorest people and nations: better still to use the wastes from growing foods in agriculture and farming and animal manures as well as from municipal sources including solid and liquid wastes. The production of these by the processing system I read about in Bloomberg by this company is definitely the right way to do this. Now we read from her in my offices in Hong Kong that the development in Applied Biofules based in Malta is to be the major the major development hub for this across the Mediterranean and elsewhere and that it is developing a series of programmes and projects that will be rolled out across the region within months. The project includes Malta and Cyprus and I read now Italy and potentially others across the Mediterranean Basin the MENA region and beyond hopefully to here in China. Indeed my friends in Taiwan have asked me t make contact with the Company in Malta and they will be doing so shortly.

With so much investment money around these days it is surprising that the development in Malta is not being listed on the German Stock Markets. It would be good to invest in this as it is a sure winner.

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