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28/07/2016

Joint gas buying on EU leaders’ summit agenda

Europe's East

Joint gas buying on EU leaders’ summit agenda

European Council President Donald Tusk outside the Council building where EU leaders' summits are held in Brussels, in 2011.

[European Council/Flickr]

EXCLUSIVE: EU leaders will discuss how best to strengthen the bloc’s bargaining power, including the collective buying of gas, when they debate the European Commission communication on Energy Union.

Chairing the summit, European Council President Donald Tusk rspearheaded the idea of EU countries joining forces to negotiate gas contracts with Russian state monopoly Gazprom last year. At the time, he was Poland’s prime minister.

Energy efficiency is not on the draft agenda for the 19-20 March meeting in Brussels, despite the Energy Union’s demand that countries give it “primary consideration”. Renewable energy is mentioned, but only in the context of cutting “market-distorting” public support schemes.

The Commission communication called for member states’ energy deals with non-EU nations to be vetted by the executive, before being signed.  That is up for debate by heads of state and government.

A European Council document sent to member states, and seen by EurActiv, sets out the broad subjects the national leaders will cover.

Energy Union has five “dimensions”: Energy security, internal energy market, energy efficiency, climate and research and innovation. Although all five are important, the paper said. The European Council will focus on security, the internal energy market and climate diplomacy.

“The Council would be foolish to discuss ways to improve security of supply without stressing the importance of energy efficiency and renewables,” said Brook Riley, of Friends of the Earth Europe. Meeting Europe’s full efficiency potential would cut gas imports by 40% over the next fifteen years, according to Commission analysis, he added.

The draft guidelines for conclusions, dated 2 March, asks for national reactions to those subjects. Tomorrow’s meetings of EU environment and energy ministers will likely also shape talks later this month.

“We’re counting on energy ministers to restore some balance in tomorrow’s energy council,” Riley said.

The summit will be dominated by the Energy Union, which was launched last week. The Energy Union is the EU’s response to its dependence on Russian gas, which was brutally exposed by the Ukraine crisis and when Russia turned off the taps in 2009, causing shortages in the EU. It has since developed beyond questions of just security of supply to encompass issues such as fighting climate change.

EU leaders are also expected to discuss the implementation of the Minsk Agreement between Ukraine and Russia. The ceasefire was struck on the same day as the last summit in February but fighting continued.

>>Read: Battle rages near Debaltseve despite truce

Leaders will give a steer on the objectives of the Eastern Partnership Summit in Riga on 21-22 May. The Eastern Partnership is an EU project, governing its relationship with post-Soviet states of Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

This will likely include ratification and implementation of Association Agreements with some of those countries. Moscow perceives the partnership as encroaching on its traditional sphere of influence.

Energy security

Leaders will discuss the “enhancement of the EU’s bargaining power, notably through voluntary demand aggregation”, the leaked document said. Voluntary demand aggregation refers to plans for member states to club together to drive down gas prices.

Commission Vice-President Maroš Šef?ovi?, in charge of Energy Union, has said any joint buying would have to be done on a voluntary basis. And any negotiations would have to fully respect EU competition law and World Trade Organisation rules.

Many western member states think working as a single gas buyer would breach free market rules, but some central and eastern European countries, more dependent on Russian gas, are in favour of the tactic.

>>Read: EU energy boss says joint gas buying must be voluntary

South Stream

Stronger rules to ensure secure supplies of electricity and gas are on the draft agenda, including the vetting of inter-governmental agreements (IGAs) between member states and non-EU nations.

While some member states may bristle at a perceived Brussels power grab, the drive for “mandatory pre-consultation” stems from a series of IGAs signed by Russia and six EU countries; Bulgaria, Hungary, Greece, Slovenia, Croatia and Austria.

The secretive deals with Russian state monopoly Gazprom fell foul of EU state aid, procurement and competition rules. These breaches froze the Russian sponsored South Stream gas pipeline, which was later cancelled by Moscow.

>>Read: Commission wants to vet member states’ energy deals

Leaders will discuss how to speed up infrastructure projects through more co-operation. This is central to the Energy Union, which pushes for an EU where surplus energy in one place can be moved to areas of shortage in another.

Interconnecting infrastructure is particularly important and in need of further development. EU leaders set a 10% interconnection of electricity grids by 2030 target at their October summit last year.

It is seen as an important way for member states to get off Russian gas and manage higher shares of variable energy sources, such as renewables.

But entrenched national interests have stymied progress towards better interconnections. Spain and Portugal have said they were being prevented from selling their surplus renewable energy to France, which they accused of protecting its nuclear industry and holding up the construction of new power lines across the Pyrenees. 

>>Read: Energy Union aims for elusive 10% power grid interlinkage

The EU’s executive has estimated that about €105 billion is required to upgrade Europe’s aging electricity infrastructure, with €35 billion needed for cross-border interconnections alone.

Last year, the EU Task Force on Investment warned that regulatory, financial and political obstacles can delay or prevent funding for vital infrastructure for the Energy Union.

>>Read: Barriers to infrastructure investment blocking Energy Union

Internal market

How to adapt internal market legislation to reduce the impact of market-distorting mechanisms, is highlighted in the document. One such mechanism is national public support schemes for renewables, according to the paper.

The Energy Union called for a “serious overhaul” of state interventions in the market. Uncoordinated national policies” on capacity and renewables will be tackled by ambitious legislation, it said.

In particular, state intervention in pricing mechanisms created cost distortion, it added.

Governments across Europe cut funding for renewables schemes after the financial crisis. Spain angered investors by making retrospective cuts in their subsidies to renewables.

But public subsidies and other national support has been successful in countries such as Denmark and Ireland.

>> Read: Denmark sets world record in wind energy

Member states “all over Europe” are increasingly turning to capacity markets “even when this is neither efficient nor cost-effective,” according to the Energy Union communication.

Capacity mechanisms reward power companies – mainly gas and coal stations – for the amount of power they can produce, rather than by buying the energy they actually generate.

Supporters claim the model can prevent blackouts, enabling the surplus capacity to be brought online in case of a shortage or to cover consumption at peak time.

Critics counter that paying for surplus unused power is a public subsidy for high-carbon industries, entrenching polluting fossil fuel stations for years to come.

>>Read: Energy Union targets renewables subsidies, boosts idle coal plants

Climate and Libya

How EU development and trade policy can support climate goals will also be discussed, the paper said.

Heads of states and government will try to coordinate their diplomatic strategy ahead of the UN Climate Change Conference in Paris, which aims to set a binding global target of keeping global warming below 2 degrees.

Leaders will also exchange views on the civil war in Libya and its implication on EU security, particularly because of terrorism and illegal migration. That will be revisited in more detail in October, according to the leaked paper. 

Background

When he was Prime Minister of Poland, Donald Tusk, spearheaded the idea of an EU Energy Union. The idea has since been taken up by the European Commission which nominated Maroš Šef?ovi?, Commission Vice-President in charge of Energy Union, to steer the project.

The communication was published on 25 February and includes an annex of “concrete proposals”, including legislation, decisions and analysis.

The Energy Union will cut across a number of policy sectors including energy, transport, research and innovation, foreign policy, regional and neighbourhood policy, trade and agriculture, according to the EU executive's plans.

The Energy Union is the EU’s response to the Russian threat to its gas supplies. The majority of Russian gas imports to the EU, about 30% of its annual needs, goes through Ukraine. In 2009, Russia turned off the taps, causing shortages in the EU. 

Since then, the situation has worsened with the annexation of Crimea, the shooting down of the Malaysia Airlines flight by Russian backed separatists, and EU sanctions on Russia.

Plans for the Union have developed beyond questions of security of supply to encompass issues such as fighting climate change. 

>>Read: Our Energy Union coverage

Timeline

  • 5 March: EU environment and energy ministers meet in Brussels
  • 19 March: EU leaders meet in Brussels
  • December: UN Climate Change Conference in Paris