Energy imports, Regional Coordination, Geoeconomics



The Case of Germany and Poland in the Baltic Energy System – Close Neighbours, Close(r) Cooperation?

International Journal of Energy Economics and Policy, 2016, 6(4), 789-800.


When the Baltic Sea region is included in debates concerning European energy policy, the focus often lies on the transit of natural gas. However, this focus on gas transit is too narrow to fully grasp the region as a wider element within the complex fabric of the European energy system. This article therefore approaches the energy system of the Baltic Sea region in a holistic manner and discusses ows of natural gas, oil, coal, and electricity. Against this backdrop, the article presents and discusses the energy supply and demand situation of the Baltic Sea littoral states. Focussing strictly on the Baltic Sea region in a narrow geographical sense allows a detailed visualisation of energy ows between individual countries. From a geoeconomic perspective, the article then analyses and compares the positions of Germany and Poland in the regional energy system; furthermore, scenarios concerning the effect of Polish and German national energy policies on regional energy flows are presented and discussed. As most European countries are energy importers, this discussion focuses on the effect of national policies on energy imports and their impact on the regional energy system. Based on this discussion, the article evaluates the geoeconomic implications of these scenarios for Poland and Germany and the prospects for better aligning the two countries’ national energy policies.

Consensus, contradiction, and conciliation of interests: The geo-economics of the Energy Union

Screen shot 2015-07-09 at 1.27.11 PM


Thomas Sattich

Daniel Scholten, Assistant Professor, Delft University of Technology

Inga Ydersbond, Ph.D fellow/student, University of Oslo

Tor Håkon Inderberg, Senior Research Fellow, Fridtjof Nansen Institute


European Union energy policy calls for nothing less than a profound transformation of the EU’s energy system: by 2050 decarbonised electricity generation with 80-95 per cent fewer greenhouse gas emissions, increased use of renewables, more energy efficiency, a functioning energy market and increased security of supply are to be achieved. Different EU policies (e.g., EU climate and energy package for 2020) are intended to create the political and regulatory framework for this transformation. The sectorial dynamics resulting from these EU policies already affect the systems of electricity generation, transportation and storage in Europe, and the more effective the implementation of new measures the more the structure of Europe’s power system will change in the years to come. Recent initiatives such as the 2030 climate/energy package and the Energy Union are supposed to keep this dynamic up.

Setting new EU targets, however, is not necessarily the same as meeting them. The impact of EU energy policy is likely to have considerable geo-economic implications for individual member states: with increasing market integration come new competitors; coal and gas power plants face new renewable challengers domestically and abroad; and diversification towards new suppliers will result in new trade routes, entry points and infrastructure. Where these implications are at odds with powerful national interests, any member state may point to Article 194, 2 of the Lisbon Treaty and argue that the EU’s energy policy agenda interferes with its given right to determine the conditions for exploiting its energy resources, the choice between different energy sources and the general structure of its energy supply.

The implementation of new policy initiatives therefore involves intense negotiations to conciliate contradicting interests, something that traditionally has been far from easy to achieve. In areas where this process runs into difficulties, the transfer of sovereignty to the European level is usually to be found amongst the suggested solutions. Pooling sovereignty on a new level, however, does not automatically result in a consensus, i.e., conciliate contradicting interests. Rather than focussing on the right level of decision making, European policy makers need to face the (inconvenient truth of) geo-economical frictions within the Union that make it difficult to come to an arrangement. The reminder of this text explains these latter, more structural and sector-related challenges for European energy policy in more detail, and develops some concrete steps towards a political and regulatory framework necessary to overcome them.


Despite some areas with well-integrated power systems (e.g., Scandinavia), European electricity supply still has a largely national (e.g., French), or sub-national (e.g., Bavarian) basis. This, however, does not imply that there is no integration: interconnections exist between most neighbouring countries and regions, and in some of these areas the power transmission infrastructure has significant exchange capacity (e.g., Germany and the Netherlands). In sum, the power system in Europe can be described as a heterogenic patchwork of semi-integrated and non-integrated regional, national and sub-national power systems. Power generation, transmission, distribution and consumption in Europe can thus only partly be described as European.

On various dimensions, EU energy policy aims at breaking the still prevalent national rationale in the energy sector, and at convincing actors that the exchange and trade of electricity within national boundaries is no longer an adequate option. Following these EU policies the system of power generation, transmission and consumption in Europe would take steps towards becoming a European one. The basic assumption behind these policies is that the structure of today’s European power system is sub-optimal and further integration development of the European grid infrastructure is expected to create economies of scale and utilise more of the technical capacity seen from a European level. EU energy policy is therefore expected to result in a more efficient power system with less overcapacity but greater security of supply and lower electricity prices. Moreover, it is widely believed that a deeper integrated system is crucial for the integration of more renewables.

Historically, the involvement of the European Community on the field of energy developed only recently. Due to long investment cycles and permitting processes, and interest structures in the power sectors, the European Union could only partly achieve stronger integration. The Energy Union and the 2030 climate and energy package therefore have to be understood as the latest steps of a continuous effort to accomplish deeper integration of power systems in Europe. The successful implementation of these latest initiatives may, however, run into difficulties, as they – just as earlier initiatives – imply a change in location of generation capacity beyond national borders, thereby altering the topography of the existing power system:

  • Market integration, which is the gradual creation of a Europe-wide market for electricity by means of grid integration and common market rules, implies that new competitors to domestic producers emerge, and that electricity companies which are not efficient enough to withstand competition in a European market will get into trouble, while other utilities (including foreign) will be able to strengthen their market position. Moreover, a European power market implies that the interconnection capacity (shortage) along borders will cease to protect domestic markets from foreign competition; a successful EU market integration policy thus increases the likeliness of generation capacity to migrate beyond national borders.
  • Promotion of renewables implies three important changes to the European power system: first, some countries are better qualified to become competitive producers of renewable energy than others. Countries may also offer better incentives for expanding capacity. Second, most new renewable generation capacity will be of an intermittent nature. Increasing the use of this form of power generation in one part of Europe therefore also implies potential growing balancing costs elsewhere. Third, renewable electricity implies distributed generation, and hence allows for a business model that brings together a larger number of smaller generation units dispersed over larger territories. National authorities may therefore decide to keep power systems decentralised in order to protect particular industries from the competitive pressures of European markets.
  • Supply diversification implies two distinct impacts on energy systems in Europe: First, diversification will lead to altered entry points to the European energy system, for example new LNG terminal capacity (e.g., in Central and Eastern Europe) some member states might perceive a risk of losing power generation to regions closer to new entry points, and are likely to oppose further steps in such a direction. Second, stimulating the construction of inter-member state transmission infrastructure is a main part of the EU’s supply diversification strategy, as outlined in the Energy Union communication. Yet increased interconnection capacity would not only increase the ability to secure and stabilise power supplies, but (as in the case of market integration) also contribute to shifts in power generation capacity.

State of play: a European catch-22

Each of the above-mentioned policies has distinct implications for the power sector of individual member states and thus the geo-economic balance in Europe. To protect their (national) economic assets, each member state will assess the impact of these elements of European energy policy on its national power sector; organised interests within the national energy sector on the other hand will analyse the impact of the three policies on their businesses and start to influence the bargaining position developed by their national governments. Implicitly or explicitly, both sides of the still-existing tight state-company relationships will define a position to be taken in EU-level negotiations towards other European governments and the diverse set of actors on the European level. The resulting frictions at the EU-level would be negligible if the balance between winners and losers was approximately equal across member states, and if the regulatory framework established a level playing field and net gains for all market players; yet, not every country or energy company is likely to benefit equally from the changes involved with new EU policies on the field of energy.

If implemented and effective, EU energy policy may increase dependency on the goodwill and the capability of (power and grid companies in) neighbouring states to uphold electricity supply in another. Europe is hence confronted with a ‘catch-22’: on the one hand are the advantages of European energy policy, but on the other the potentially painful adaptations of power generation, distribution and consumption imply risks for the national (power) industry. Existing or future instruments of EU energy policy will have to overcome reluctance to integrate power systems; where these instruments will be needed, and what form they will have to take, largely depends on  variations in member states’ benefits and costs involved with adapting the national energy sector to the ends of EU energy policy.

Taking stock of the various characteristics of national energy systems in Europe is imperative before new EU policies can be negotiated effectively. Moreover, strongly differing political positions on energy-related matters (e.g., renewables, shale gas and nuclear power) between member states need to be identified and systematically analysed. Both the analysis of national energy systems and policies will allow the identification of latent conflicts of interests between member states and options to settle them by means of existing or new instruments of European Union energy policy. Such an analysis of the state of play will ideally help in finding an EU-level energy policy framework capable of overcoming the geo-economic antagonisms that otherwise might constitute a major impediment for the negotiation and/or implementation of new measures and more integration, responding to the questions above. Currently, therefore, three questions need to be addressed:

1.)   Which countries, regions and companies are likely to benefit or lose from the energy transition that follows the EU agenda in the field of energy policy, and in what ways?

2.)   How will these geo-economic consequences affect patterns of consensus, cooperation and conflict between member states at the European level of energy policy?

3.)   Does the European Union have the necessary instruments at its disposal to overcome conflicts of interest, and if not, what instruments could be developed to achieve this?


If policy makers at the European level are to successfully negotiate and implement the Energy Union and the 2030 climate and energy package, they need to find a way to balance the geo-economic frictions between member states caused by EU energy policy. A regulatory framework is needed that is capable of easing geo-economic concerns through transparent governance structures such as co-ownership of grid assets or co-decision making of grid operations, whether between two or more countries or at the EU level. Moreover, at the business level clear contractual agreements between parties regarding energy and cash flows are another means to avoid potential conflict and handle eventualities. Hence, addressing the root causes of conflicting interests is necessary in order to provide institutional means to handle outcomes of EU energy policy that otherwise could be labelled unfair.

The latest developments in the field of EU energy policy do, however, still resemble an eclectic process: the goals are clear, but as of today there is no clearly formulated and fundamental analysis of those geo-economic factors and interests which partly foster, and partly contradict, the implementation of new measures to reach these goals. Issues like the unfinished unbundling process (i.e., of long-established and poorly transparent structures of command and control) or the insecurities surrounding price formation in the renewables sector persist; as a result, the EU’s efforts to stimulate the construction of new (renewable) generation capacity and new interconnectors between member states simultaneously fall short of the possible. Hence, before discussing new EU policies, the will to address those factors that contradict the goals of EU energy policy is imperative. Only then can a fitting framework of measures, instruments and regulations be found that conciliates interests that do not consent.

Thus, in order to reach to reach the goals of EU 2030 and the Energy Union, the will to openly identify and address economic antagonisms caused by EU energy policy is needed. Addressing the three above-mentioned questions is crucial in this regard; however, they have not yet been discussed in full depth by European policy makers and EU-level analysts. In order to come to a binding political agreement, these questions should hence serve as the basis of a systematic and transparent exploration of potential benefits and losses for individual member states resulting from today’s EU energy policy. Only on the basis of such a discussion can the necessary instruments to conciliate various multi-dimensional and more-or-less contradictory private and national interests be identified. Therefore, a high-level group should be initiated that brings together representatives of governments and the energy sector to openly discuss these issues.

Energy Transition in China and the European Union: Plan vs. Incentives?

An event wrap-up with the speakers


Dr. Thomas Sattich

Dr. Steffi Weil

Duncan Freeman

Energy drives economic development. But it is a scarce and thus contested resource. In the struggle for secure energy supplies renewables appear to have become a strategic element, because every country or region, including those with few conventional energy sources, has access to at least some form and amount of renewable energy sources. Renewables thus could be a potential game changer in the struggle for energy resources. Yet some countries are better qualified to become competitive producers than others, because renewable energy sources are denser at certain locations, and the technological and economical capabilities for their exploitation differ.

November 8, 2014, a Policy Forum at the Institute for European Studies explored the role of renewables in the struggle for secure energy supply, and set out to compare the approach of two leading powers in their development: China and the European Union. Renewables are key political issues in the two regions, and both have developed and implemented policies to encourage the use of renewables, hoping that this form of energy will reduce import dependency on fossil fuels and the environmental dangers resulting from their use. The year 2020 is an important landmark in this regard: While policy makers in China recently opened the process towards the next five year plan (2016-2020), the European Union set itself the goal to increase renewables to 20 per cent of energy use by that point.

General knowledge about the topic stops here, and a structured comparison of the issue is largely missing. It is therefore unclear how similar or different the two policies are, and what both regions could learn from each other. In view of the differences between the socio-economic systems of China and the EU, it is, however, evident that the approach chosen for this ‘energy transition’ will differ. It is thus time to compare and discuss the similarities and differences between the approach China and the EU chose for the transformation of their energy sector towards the stronger use of renewables. We therefore set up this event to discuss and compare the approach and the mechanisms both regions chose for the promotion of renewable forms of energy in the energy mix.

In order to contribute to the discussion, the Policy Forum looked at the following topics:

·      What support regimes for renewables have been adopted, and why?

·      What is the role of public authorities on different levels of the political system?

·      What role do leading companies play, and what is their relationship with the government?

·      Are there preferences for certain forms of renewables, and why?

·      Do the targets and outcomes differ, and why do they differ?

·      What are the domestic and global impacts of both policies?

Three renowned experts presented their views on the topic:

·      Dr. Dörthe Fouquet, Energy Lawyer and partner at Becker Büttner Held, and member of a number of umbrella organizations of the renewable energy industry.

·      Dr. Steffi Weil, Assistant Professor and Head of China relations at Vesalius college.

·      Duncan Freeman, Senior Research Fellow at the Brussels Institute for Contemporary China Studies.

Renewables in Europe

As a point of reference for the discussion, Dr. Fouquet’s provided an overview of the complex set of support regimes for renewables in the European Union: Individual member states have different renewable energy potentials and operate different support schemes at the national level. In this environment the European Union developed a framework to coordinate (not harmonise) national efforts with a common EU framework. The most important element in this regard is the Renewable Energy Directive 2009/28/EC. This Directive includes common rules for different levels of the political system (national, cooperation between member states, the European Union, and cooperation with third countries) and achieves a considerable level of coordination, yet it also gives member states a relatively broad leeway in their approach to renewables. Each member state can hence still decide what renewables to support (e.g. wind power in Portugal, biomass in Sweden, hydropower in Austria), and choose support mechanisms.

Directive 2009/28/EC provides a binding overall EU target of 20 per cent renewable energy in final consumption (previous Directive: non-binding), and translates this target into binding national targets. National Renewable Action Plans which list pathways and instruments to reach targets are to be submitted; the European Commission considers these plans as binding and needs to be informed about changes. Moreover there are reporting and monitoring obligations in place in order to control progress. However, the Directive allows member states to design effective national measures for target compliance, which in turn enables member states to control the effect and costs of their national support schemes. The European Commission on the other hand has little means for “enforcement”. Recently the European Court of Justice confirmed this level of discretion (Ålands  Vindkraft and Essent case).

The Directive also allows member states to determine if and to what extent their national support schemes apply to energy from renewable sources produced in other member states and cooperation mechanisms provided for in the Directive. These flexibility mechanisms include statistical transfer between member states (which do not include the physical transfer of energy), and joint renewable energy projects and support schemes between member states. In the latter case coordination with the European Commission is necessary. Joint projects with non-EU members (e.g. pilot projects in Morocco) are equally possible; in this case it needs to be assured that the energy produced reaches the territory of the European Union.

In the member states renewable energy law is made through the parliamentary legislative process, which implies a strong role at the national level. In some cases such as Belgium or Sweden there are, however, differences within different regions as regards for example administrative procedures. Moreover, the involvement of ministries and agencies in the preparation of regulations, and the role of energy regulators varies between member states. When it comes to the energy sector, one can observe that 80 per cent of renewables deployment is in the hands of independent power producers (e.g. farms), using local resources to meet local energy demand. These local energy companies are small and widely distributed. Regardless of the fact that bigger projects such as offshore wind farms are in the hands of big utilities, renewables thus counter the historical trend to a centralised energy industry and (together and parallel with unbundling, i.e. the separation of the power grid and power supply) brought new competition into energy markets.

Is this framework suited for reaching the EU’s goals to increase the use of renewables in the energy sector? Most important in this regard is the confidence of investors to regain their investments. This confidence seems, however, to have received a serious blow in recent years in several EU member countries such as Spain. Six EU members therefore are not on track with their National Renewable Action Plans. With regard to the indicative targets (2011/12) for the different forms of renewable energy it is however noticeable, that many countries overachieved with regard to electricity and heating/cooling, whereas most countries underachieved with regard to renewables in the transport sector. In total the European Union therefore exceeded its 2012 goal of 12.87 overall share of renewables by 1.2 per cent points (14.07 per cent).

Renewables in China

With regard to Chines policy on renewables Dr. Steffi Weil presented some first insights on the politico-economic complex of the People’s Republic of China. Obviously there are differences with the European Union. But whereas conventional wisdom suggests that China’s policy-making process is a monolithic top-down process, quite the contrary can be observed in China’s political system. China’s policy procedure is open to a number of actors, and policy formulation and implementation differs depending on type of legislation. Experimental, decentralized policy making for example describes a process in which the Party centre asks local officials to experiment with new ways of problem solving. Subsequently, if the policy proves positive, it is implemented nationwide. Examples of this can be found in China’s gradual market opening, the promotion of private business, state-sector restructuring and stock market regulation.

But the Chinese Communist Party (CCP) relies not only on an experimental policy-making procedure. Instead governmental institutions function as policy venues. As such the CCP, as policyholder, assigns much of its policy making power to government at lower levels. To use economic terms, the relationship between the Party and governments can be described as a principal-agent relationship with the Party as the principal and the government functioning as the agent. As a result the Party and the government engage in political bargaining not only between the political centre and the next lower levels, but also between the party and the government on multiple political layers.

The ‘Opening Up the West’ policy is one example of how actors at central, provincial and local levels bargained for their goals. Other examples are China’s gradual market opening, the promotion of private business, and state-sector restructuring and stock market regulation. The policy outcome embraced multiple interests of departmental and regional institutions. Provincial interests were conveyed by personal representatives in the central leadership and through institutionalized channels such as national working conferences, the National People’s Congress as well as the Chinese Political Consultative Conference.  China’s political power is thus fragmented, resulting in a decision making process in which the policy initiative rests upon the political centre, yet for some legislation or regulation the implementation is completed at the lower levels. To be more precise, China is organized into provinces, autonomous regions and municipalities.

The administrative levels are further diversified. Rather than being subordinate directly to the centre, each administrative levels receive orders form the next level above meaning that provinces and autonomous regions can give orders to the next lower level, the autonomous prefectures, followed by counties, autonomous counties and cities. As a consequence, national laws or directives are broadly drafted at the central level and the regional and local levels have some degree of freedom to implement them and thus levels below the party centre hold a certain degree of policy-making power. Policy-makers hence pursue their own goals mainly motivated by economic incentives.

All of these motives lead to competition and conflict among different levels of government, which in turn provides entry points for political bargaining. As a result outside actors are able to engage in the policy-making process and shape results on their behalf. However political fragmentation also enables the local officials at such non-institutionalized entry points to shape public policy together with actors such as interest groups, foreign enterprises and capitalists engaging in the process in their attempt to influence policy. It is, however, crucial to note that political bargaining in China is not observable in the open. Prime targets for Chinese actors to exert influence over are governmental officials in the executive branch rather than the legislative branch.

A great number of Chinese associations prefer face-to-face contact with local governments while the majority of those have never interacted with the National People’s Congress or Chinese People’s Political Consultative Conference. Rather than openly confronting the government, business and government mutually empower each other (Shue, 1994). Thus instead of opposing the government there is a dialectical relationship between the government and the entrepreneurs. Chinese entrepreneurs are closely intertwined within party structures. Contrary to Chinese actors, Western capital aims to influence Chinese policies with Western lobbying tools such as letter writing, policy papers, white and position papers, personal meetings, events and grassroots mobilization.  Besides non-institutionalized entry points, China’s policy procedure also includes institutionalized access in form of non-binding public hearings or calls for comments.

Based on this institutional framework, the People’s Republic of China developed a programme to foster the use of renewables in the energy sector. As Mr Duncan Freeman explained during his presentation, the Chinese government has supported the renewable sector since the 1980s. In the early days, much of this support went to R&D and experimental demonstration projects, but from the late 1990s there has been a shift to industrialization and deployment of renewables. The 2006 Renewable Energy Law is central for the latest developments, as it set out the broad principles for development of the sector in China and at least in theory gave them legal force. It requires that utilities purchase all electricity generated from renewable sources, pay the full price for energy from renewable sources, and offer a discount to consumers. Moreover, the Medium- and Long-Term Renewable Energy Development Plan of 2007 set out targets for renewable energy, and also outlined how they were to be achieved. It required, for instance, that bigger power generating companies must have 3 per cent of their generating capacity from non-hydro renewables by 2010, and 8 per cent by 2020.

As a result China’s renewable sector has expanded enormously in recent years: China is now both a major producer of solar panels and also wind turbines. But not only the production of equipment, also the installation of power generation facilities has expanded quickly during the past decade, and actually exceeded installation targets. Yet while China’s market for wind power has been the largest in the world for a number of years (in 2013 China accounted for 45.6 per cent of new installations, followed by Germany 9.2 per cent), solar PV market in China (30 per cent of net installations in 2013, Japan 18 per cent, US 13 per cent, Germany 9 per cent) has been insignificant until recently.

Thus, although central government policy in theory supported all renewables, in reality this was not the case. The differences between wind power and photovoltaic in China can largely be explained by government policy at the central and local level: The Chinese government made a decision to give preference to wind over solar PV power on the grounds that it was more technologically mature and had greater potential for large-scale application. This resulted in strong central government support to the wind power sector for both supply (manufacturing and deployment) and demand. The Wind Power Generating Equipment Industrialization Special Fund, for example, provided for a subsidy of RMB 600 per kilowatt for the first 50 units of new turbines with a capacity of 1.5 MW or more (only available for Chinese –owned or controlled companies). Moreover a fund to provide financial support for off-shore wind, and a Feed-in Tariff (FiT) system were created for wind power. The latter divided China into several sub-regions, with pricing depending on wind resources in the respective areas. At the same time, the central government provided large subsidies for wind power installation and generation. These measures were so effective, that public authorities like the NDRC had to control entry to the sector in order to limit overcapacity in both manufacturing and also installations.

The solar PV sector on the other hand received no or only very limited support from the central government for manufacturing and deployment, and insignificant support on the demand side until 2011. National programmes such as the Golden Sun Programme for demonstration projects had only small impact in creating demand in China. However, in absence of central government policies to support solar PV, many local governments stepped in to provide support to create local solar PV manufacturing industries. The result of this was creation of a huge manufacturing industry, but very small domestic demand. Thus – differently from what is generally expected – China developed a solar PV industry that dominates global markets without much central steering. Since 2011 there is, however, a Feed-in Tariff system in place for solar PV which set at RMB 1.15 per kilowatt of electricity, and in 2012 the support for solar farm demonstration projects has been increased. Moreover, measures to expand the domestic market through subsidies and huge increases in targets for domestic installation of solar PV have been introduced. More recently the share of support for solar PV in the Renewable Energy Fund which provides subsidies to installation and generation in the sector rose to 8 per cent in 2012 and 16 per cent in 2013.


The European regime to support the use of renewable energies is characterised by a high degree of flexibility for the individual member states. Even though there are examples for bilateral cooperation, measures to support renewables are hence largely formulated and implemented on the national level (that is mostly through national legislation). The European level of the political system provides a coordinative framework and common (European) targets (as well as individual goals for each member states); yet Member states control the effect and costs of their individual national support schemes, and the European level has little leverage for “enforcement”.

That said, it has to be noted that in contrast to policy-making in the EU, China’s policy-making system remains a top-down process, with permanent exchange between political institutions and the party centre. Moreover, unlike in Europe, where conflict within society is the primary assumption in shaping public policy, in China, at least in theory, conflict is not seen as being an inherent part of society let alone policy. As such, policy debates are often held behind closed doors and society is informed only after a consensus is reached. Due to the fact that conflict is perceived as negative, issues are rarely contested in the open. For some policy issues, open discussion is taboo. While economic issues may be debated more publicly, sensitive national security issues never are. This weakens awareness of possible other viewpoints on the issue at hand.

But beyond the centralized policy making process China has – and that may come as a  surprise for non-experts – a number of ways to formulate and implement policies: In the experimental procedure, policies must have proven positive results before being implemented nation-wide. At times, the CCP assigns much of its policy-work to the government, leaving ministries and governmental officials with significant policy-making power. In addition, China’s political power is fragmented allowing multiple actors to shape public policy. Hence, even though China’s policy-making process remains distinctly centralist in theory, there are possibilities to engage with actors at different political levels. Moreover, even national measures allow for local variation,  as in the case of Feed-in Tariffs for wind power, which have a regional dimension reflecting the varying conditions of this big country.

The policies China adopted at the different levels of the political system resulted in very different outcomes, one of which was the creation of market for wind power in China, but not for solar PV. Unintended consequences such as overcapacity in both manufacturing and generating have also frequently resulted from policy supports for renewables in China. Comparable to the European approach to the support of renewables, and despite the traditionally strong top-down logic of the Chinese system, a complex set of central and local government policies is behind these results. The interaction of different levels of government and management is hence not only key to understanding the domestic development of the renewable sector in Europe, but also in China. Given the international impacts of Chinese and European policies on the field of renewables, and the limited knowledge about Chinese “multi-level governance”, a better understanding of the regional-national (China) and the national-European (EU) complex is thus imperative. Linked to this question is the cooperation with third parties, for example in cross-border grid integration projects, which – according to the discussion during the Policy Forum – seem to have huge potential in Europe and Asia alike.



Power Struggles: The Intra-Community Implications of EU Energy Policy

Authors: Daniel Scholten, Thomas Sattich, Inga Ydersbond

EU policies to integrate energy markets, promote renewable energy, and diversify supply are aiming at a competitive and sustainable European power sector. The resulting dynamics should largely affect the systems of electricity generation, transportation and storage in Europe: With increasing market integration come new new competitors; coal and gas power plants face new renewable challengers domestically and abroad; and diversification towards new suppliers will bring new trade routes and infrastructure. All in all, EU policies to integrate power markets, promote renewables, and diversify supply will thus profoundly reshuffle national energy assets. The impact of the three EU policies is thus likely to have considerable ‘geopolitical’ implications for individual member states and affect their capability to negotiate, agree on, and/or implement further measures. We conduct a thought experiment which explores potential benefits and losses for individual member states implicit to Europe’s ‘energy transition’, and the political concerns which may be expected to arise as a consequence.

Regarding their impact on the future shape of the European power system, and their relevance for relations between EU member states, the following three EU energy policies stand out: Market integration, the promotion of renewable energy, and supply diversification. Each of these policies has individual implications for the ‘geopolitical’ situation in Europe, and will cause frictions between member states.

Market integration

In an attempt to integrate power markets, the EU developed different policies and legislations to finalise the Internal Electricity Market (by the end of 2014). Capital-intensive and redundant overcapacities would be reduced to a minimum in such a European market, thereby saving large financial means. From a national perspective market integration implies, however, that new competitors to domestic producers emerge, and that electricity companies which are not efficient enough to compete on a European market will get into trouble, while other utilities (including foreign) will be able to strengthen their market position. Moreover, a European power market implies that the interconnection capacity (shortage) along borders will cease to protect domestic markets from foreign competition; a successful EU market integration policy thus increases the likeliness for generation capacity to migrate beyond national borders.

Renewable transition

The promotion and integration of renewables implies three important changes to the European power system:

First, every country or region has access to at least some form and amount of renewable sources of energy; yet some countries are better qualified to become competitive producers than others, because renewable energy sources are denser at certain locations (e.g. the North Sea), and the technological and economical capabilities for their exploitation differ. Production will therefore shift to those countries that have access to better and more sources of renewable energy, offer better incentives for expanding capacity, and can exploit them more cost-efficiently. As a result, countries which decide to exploit their own renewable sources to cover their consumption will (potentially) become (more) self-reliant, with the need for cross-border energy trade (potentially) becoming smaller. Other countries might prefer to import energy, i.e. to buy from EU energy and power markets; as a consequence their strategic focus will shift from the access on overseas fossil fuel resources towards the ownership, management, and protection of grids (and other supply routes for renewables) in order to secure imports.

Second, most renewable generation is of an intermittent nature. Large scale adaptation of the power transmission infrastructure are necessary to harness renewable energy sources such as wind and solar. Increasing the use of this form of power generation in one part of Europe therefore implies also growing balancing costs elsewhere. Moreover, countries that feature cheap balancing services (e.g. dispatchable hydropower or other storage means), standing reserves, interconnector capacity, or renewables that can deliver in times of peak demand, will gain influence over neighbouring countries. Without a regulatory framework that clarifies costs and benefits of renewable electricity generation and transport, conflicts will arise.

Third, renewable electricity implies distributed generation in so called combined power stations. Contrary to today’s big, centralized fossil fuel or nuclear power plants, this form of power generation hence allows for a business model that brings together a larger number of smaller generation units dispersed over larger territories. Where the option of distributed generation is chosen, energy markets become rather locally oriented, and are likely to involve a mix of private and communal companies. Regions/countries with a focus on this business model would hence be less present on the integrated EU market. Decentralised power systems could therefore be an interesting way to protect particular industries from the competitive pressures of European markets.

Supply diversification

Security of energy supply has been on the policy agenda since the oil crises in the 1970s, and especially since the Ukrainian crises in 2005/2006 and 2009. Two dimensions of these EU policies can be identified:

First, external relations between supplier and transit countries outside the EU. Diversification away from Russian and Middle Eastern energy sources towards other regions will lead to altered entry points to the European energy system, for example new LNG capacity; gas grid capacity in those regions will hence have to be increased. Given that the integration of European energy markets proceeds, power generation and transmission capacity might follow these changes. Member states in risk of losing power generation to regions closer to new entry points are thus likely to oppose further steps in such a direction. Another example would be solar PV imports from North Africa which would necessitate new HVDC and interconnector capacity at the Southern European border; member states which are located too far away to benefit from potentially lower electricity tariffs in the Southern regions might feel inclined to oppose the use of European funds to stimulate the construction of the necessary power transmission infrastructure.

Second, stimulating the construction of inter-member state transmission infrastructure is main part of EU’s policy on supply diversification. Common grid planning and Projects of Common Interest for electricity and gas grids are two important instruments in this regard. Yet more interconnection capacity would not only increase the ability to secure and stabilise power supply, but (as in the case of market integration) also contribute to shifts in power generation capacity. Supply diversification through more cross-border interconnection capacity hence implies increased dependency on the will and the capability of (power companies in) neighbouring countries to uphold and stabilize electricity supply. Moreover, the stimulation of interconnectors is currently pursued without a clear legal framework for such an integrated market. Potentially the EU’s internal approach to supply diversification therefore opens the door to continuous fears about the reliability of neighbouring countries. Clear agreements and regulations are therefore necessary to avoid mistrust among member states.

What does it all mean?

While EU policies are aiming at the modernisation of Europe’s power system, member states have enough reasons to worry as to their relative position in the emerging European energy system: Bigger markets, growing transmission capacities, new (renewable) energy carriers, and new supply routes represent greatly altered framework conditions for the future evolution of the power system. And not every country is likely to benefit equally from changes involved with a European power system such as the relocation of power generation capacity and the accompanying infrastructure effects. The internal geopolitical frictions resulting from these EU policies would probably be negligible if the balance between winners and losers were approximately equal in all EU member states, and if the regulatory framework established a level playing field for all market players which promises an overall net gain. But what if a substantial part of Europe’s power generation capacity would – for example – move towards North-Western Europe?

In short, the EU policies discussed above will cause increased economic activity in some countries, whereas others will lose parts of their power industry, and hence produce winners and losers. It seems therefore likely that member states will consider increased participation in the EU power market as a matter of strategic choice: Even though large parts of the electricity generated in Europe might one day be transmitted through a truly European grid system, governments will attempt to keep self-provision for areas of vital state interests and economic reasons, while local communities may desire to become self-sufficient in their power supply. The successful implementation of EU policy to integrate markets, increase renewables, and diversify supply therefore requires at least three different key elements:

– High levels of mutual trust between member states must be reached in order to increase the political acceptance of shifts in power generation and transmission capacities implicit to the EU policies under discussion
– Economic instruments and a regulatory framework are necessary to ease the geopolitical concerns of EU member states
– Co-ownership and/or shared control over grid assets and their operation, either between groups of countries or on the EU level.

See also:

Power Struggles: The Intra-Community Implications of EU Energy Policy

Energy transition in Europe’s power house: Disaster or creative destruction of the German power industry?

Remember the big, somewhat bulky Mercedes Benz cars of the early 1990s? State-of-the- art at that time, they chased their competitors on Germany’s autobahn. Mercedes is still here today, but the Germans fear that two decades of neglect after the reunification might have seriously damaged the once superb infrastructure of (West-) Germany. Similarly, Germany once possessed one of the world’s most well-engineered power systems. Yet in 2014 the country urgently needs new power grids – or ‘Stromautobahnen’ (electricity highways) – to keep supply stable despite growing numbers of volatile renewables. The ‘Energiewende’, that is the rapid transformation of the power system towards a massive increase of green energy thus raises concerns whether the project might turn out to be harmful for Germany’s industry.

Admittedly, electricity generation from renewables lately rose to new, unprecedented highs. But doubts remain, whether the transformation of the power sector can keep pace with the phase out of nuclear power, and whether the ambitions to run the country’s industry on renewables are realistic. Almost doubled since the year 2000, electricity tariffs are one of the indicators that the ‘Energiewende’ project could turn out to be a serious burden for the German economy. The fact that CO2 emissions did not decrease, but actually increase over the last years, is another sign that the project is not on track. Moreover, it is no secret that German energy companies are not doing well. Is Germany thus about to sacrifice the once famous reliability of its power system and its power industry for increasing greenhouse gas emissions? And if so, what might be the way forward? Back to nuclear energy?

The disastrous state of Germany’s repositories for radioactive waste such as Brunsbüttel and Asse are not encouraging. Moreover, public support for the nuclear phase-out and renewables is still great. Not without gusto, and to the great amusement of the participants of a conference in Berlin (2013), Vladimir Putin could thus offer the Germans firewood from Siberia to solve the country’s energy problems. Apparently the Energiewende did not exactly impress the Russians. But how about others? Japan – maybe ‘the’ potential partner for Germany’s Energiewende project – is about to fully relaunch its nuclear programme; the United States are happy with their shale gas, and at home in Europe not many countries joined the Germans either. On top of it Günther Oettinger, Germany’s accomplished top official in the European Commission, is no longer responsible for energy. It would hence seem that Germany’s energy policy has not many influential supporters left.

Remains the idea to sell green tech on the world markets. However, Desertec, the infamous project to build huge solar parks in the North African desert, turned out to be nothing but a mirage. In a sense this is not a big deal for the Germans, as many components of the project might have come from China anyway, where large parts of the production of solar panels went. But if the production of windmills would follow, the idea to make green tech a base for industrial production would experience a serious setback. It is hence doubtful whether renewables represent an adequate focal point for high-tech industries in Europe.  But most things in life have two sides. And so does Germany’s attempt to modernise – some would say revolutionise – its power sector.

The great hope is, that German engineering will once more surprise the world with technical solutions for difficult problems in difficult times. The power grid is central in this regard. If technical components such as storage could be found which allow a quick and flexible response to changes in the output of wind and solar power, and if consumption could react more flexibly to the ups and downs caused by the elements, then the zero marginal costs of renewables could indeed represent an alternative to other energy sources. The power grid and its components, not Vladimir Putin’s firewood, could thus be the ‘Wunderwaffe’ able to solve Germany’s energy problems. But these new techniques need to be affordable, otherwise the effect will be negligible and only perpetuate the existing problems.

Another, yet much less debated issue concerns the country’s nuclear programme. If Germany will indeed pursue on the given course, the development of third generation nuclear plants will be in the hand of countries such as France, Britain and Poland who are not following the example of Germany’s nuclear phase-out. But German industry is famous for its ability to occupy profitable technological niches. Given that there are many nuclear power stations to be dismantled, and a lot of nuclear waste already rotting in the state of Germany, the Germans will have to find solutions to deal with it. If they still are the engineers they used to be, so they will.

Ukraine’s nuclear power plants: What should, what can be done?

Author: Thomas Sattich

Ukraine’s power system can stand representative for the country’s geopolitical situation: Consisting of several sub-systems, one part of the country’s power system in the West is integrated in the continental European, whereas the Eastern parts of the country remain part of the post-Soviet power system. On the other hand Ukraine is independent when it comes to electricity supply: Most of the generated power is also consumed in the country, with balanced import-export figures. Limited interaction with neighbouring countries is rather the rule than the exception in Europe, but the given these figures, Ukraine can be described as highly self-sufficient in electricity supply.

15 nuclear power reactors back Ukraine’s independence: Atomic energy accounts for more than half of generated electricity in Ukraine. Moreover, Ukraine is the second-largest producer of Uranium in Europe after Russia.

The significance of nuclear energy for the country’s economy can hence hardly be overstated. But Ukraine seems to be at the brink of anarchy: Despite several initiatives to bring the country’s unrest to a halt, Ukraine has fallen into a bloody civil war between army, right wing extremists and armed separatist groups. The situation also indicates increasing economic tension, political unrest, and continuing street violence. As if the situation was not worrying enough, several reports mention threats for the country’s nuclear programme. Europeans are therefore confronted with a very serious question: What to do with Ukraine’s nuclear infrastructure?

Since the Euromaidan events in early 2014, Ukraine is sliding into an abyss of civil war and chaos. International negotiations so far failed to stop this downward spiral, as apparently not all sides are equally interested in a peaceful development. The question, who is to blame for this situation, certainly is a very important one. In view of the threats for Ukraine’s nuclear power plants, the blame game has, however, little meaning: Ways have to be found to secure the plants against immediate threats. This should be one of the first priorities during the negotiations.

It is of course difficult to forecast the country’s future course. Yet despite this distinct insecurity, medium and long-term solutions have to be found to neutralise the threat originating from Ukraine’s nuclear infrastructure. At least in this regard the conflicting parties should be able to agree. Insofar Ukraine’s nuclear power plants might be a somewhat neutral item for constructive negotiations. In any case, a survey of Ukraine’s nuclear facilities, their current state and their potential future is necessary, before further analysis of what can be done.

Only in a second step reflections on potential ways to take action can be discussed. Ultimately this is an older debate, as the state of the country’s nuclear programme was cause for concerns long before February 2014. But the current crisis accelerated developments and put Ukraine on a trajectory that demands renewed thinking about this issue. The author of this blog will  therefore ask what means and programmes the EU (possibly) has to deal with Ukraine’s nuclear infrastructure and the Ukrainian power system. Given the highly political nature of the Ukrainian issue, a European contribution can, however, be only one part of a bigger puzzle.

Update 07 August 2014:

Electricity generation in Ukraine, 1992 - 2011
Electricity generation in Ukraine (in billion kilowatthours), 1992 – 2011