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04/12/2016

EU millions go to gas infrastructure, despite regulation

Energy

EU millions go to gas infrastructure, despite regulation

A natural gas pipeline in the US. Similar infrastructure will be funded by the EU's Connecting Europe Facility.

[Bilfinger SE/Flickr]

More than half of the first funding round of the EU’s flagship energy infrastructure project will go to gas, ignoring the Connecting Europe Facility’s underpinning regulation that calls for the majority of money to go to electricity.

The CEF’s first round of funding is worth €1.37 billion. €647 million was allocated this week with €255 million set aside for electricity, compared to €392 million for gas. The CEF regulation states the Commission should make “the major part of the financial assistance” available to electricity projects from 2014-2020. 

The rules are “without prejudice” to possible reallocation of available funding. The decision, supported by EU nations, points to heightened anxiety over the EU’s dependence on Russian gas in the wake of the Ukraine crisis.

“Assistance to electricity projects of common interest will account for the major part of the energy financial envelope under the CEF,” the regulation states.

The bulk of the €647 million will support gas infrastructure in the Baltics, Central Eastern and South Eastern Europe, the Commission announced on Wednesday (29 October). It is the first time that the EU has directed funding specifically to energy infrastructure. 

The projects, including terminals to ship liquefied natural gas and pipelines, are designed to connect the “energy islands” to EU wide networks and minimise their reliance on Russian gas.

Energy Commissioner Günther Oettinger said, “[This] will help us to quickly build the infrastructure we need to ensure Europe’s energy security. The geopolitical crisis has highlighted the need to better connect energy networks.”

Of the 34 grants given, 16 are in natural gas and 18 in electricity. 28 grants are paid for studies and impact assessments and six grants go to construction works projects worth €555.9 million.

Influential environmental think tank E3G warned that the investment gap – the difference between business as usual funding and overall investment needed – was three times higher for electricity infrastructure projects than for gas infrastructure.

“This demonstrates a narrow focus on gas imports. Security-critical electricity infrastructure and efficiency projects could offer higher value investments to build European security and resilience,” E3G associate director Jonathan Gaventa told EurActiv.

E3G has previously warned that the EU risks wasting billions of euros on unnecessary gas infrastructure because of pressure to wean itself off Russian energy after the Ukraine crisis.

Pipelines paid for by CEF will be left “stranded” because there will not be enough demand for the gas they transport, according to their research.

Read>> EU risks wasting billions on gas infrastructure ‘white elephants’

Electricity interconnectors

The CEF funding round allocated about 0.5% of its funds to Franco-Spanish electricity connections, less than a week after EU leaders agreed the links were an “urgent priority.”

The CEF allocates a maximum of €3.25 million for feasibility studies into the links between France and Spain. By contrast, the Poland-Lithuania gas pipeline has a maximum of €295,386,600, Gavanta said.

“It is disappointing that less than 1% of the CEF has been allocated for overcoming one of Europe’s most damaging energy bottlenecks,” he said.

At last week’s European Council to agree the EU 2030 climate and energy targets, Portugal and Spain pushed hard for a binding obligation on member states to make 15% of their national generation capacity available to other EU nations. 

They have long argued that they have been prevented from selling their surplus renewable energy to France, which they accuse of protecting its nuclear industry. Instead, EU leaders renewed their 2002 commitment to increase energy trading through electricity connectors to 10% by 2020. Built into that is a commitment to subsequently up that percentage to 15%.

Spanish sources said there was no direct correlation between the summit agreement and the funding decision.  Candidate projects had already been identified in 2013, they said.

Any CEF money going to Franco-Spanish interconnections would be allocated in the future and not at this stage, they said.

Under the CEF, €5.85 billion has been allocated to energy infrastructure for 2014-2020. CEF grants can be used to finance up to half of expensive projects that have clear benefits beyond national borders. In exceptional circumstances, up to 75% of costs can be covered by the CEF.

E3G is urging the Commission and member states to change the approach for the next round of funding.  The next call for funding will take place in 2015.

It calls for infrastructure funding to be conditional on energy efficiency plans, a CEF earmark for electricity projects and for a portion of funding to be reallocated from transport to energy. Project valuations must also be in line with the with EU climate and energy targets, according to the think tank. 

Background

The Connecting Europe Facility (CEF) will see almost €30 billion in public money targeted at enhancing the EU's transport, energy and telecoms networks.

The crisis in Ukraine erupted after its former President Viktor Yanukovich cancelled plans to sign trade and political pacts with the EU in November 2013 and instead sought closer ties with Russia, triggering protests that turned bloody and drove him from power.

Moscow annexed Crimea in March following a referendum staged after Russian forces established control over the Black Sea peninsula in the biggest East-West crisis since the Cold War.

Timeline

2015: Next call for CEF projects

Further Reading

European Commission