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

An event wrap-up with the speakers

Authors:

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.

Conclusions

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

Decarbonising the power sector: Past achievements and future constraints

Author: Thomas Sattich

In October 2009 European heads of state and government agreed on ambitious long-term climate policy objectives in order to prevent dangerous anthropogenic interference with the climate system and to ensure the European Union (EU) plays its part in limiting global temperature increases to 2°C. Moreover, European policy makers decided to bring the European Union on a demanding decarbonisation path, with the objective to reduce greenhouse gas (GHG) emissions by between 80 and 95 per cent by 2050 (Commission 2011b), as compared to 1990 levels.

Past achievements…

This decarbonisation agenda implies a major and swift transformation of Europe’s energy sector towards the large scale use of renewables. Different reference values indicate that the mix of energy carriers which supplies industry, transport and households with the necessary fuels, is indeed in transition from carbon-based towards renewable and carbon-neutral energy carriers (see Fig. 1). Greenhouse gas emission intensity of the EU’s energy system is following this development and fell of about 9 per cent over the last decade (EUROSTAT data). The European decarbonisation agenda hence shows first successful results.

Fig. 1: Europe’s energy transition in a nutshell

 

Greenhouse gas emissions intensity EU-27
Fig 2: Greenhouse gas emissions intensity EU-27

The power sector plays a fundamental role in this context: It represents about 37 per cent of the total CO2 emissions in Europe (2012), and is believed to be one of the sectors where the transformation could take place in the fastest and most economical way (Roques 2014:82). As a matter of fact, the contribution of electricity produced from renewable, carbon-neutral energy sources to electricity consumption grew of about 70 per cent over the last decade, with the result that renewables today already account for about 20 per cent of electricity generation (EUROSTAT data). And with many indicators suggesting stronger electrification across the end-use in industry, transport and buildings (Sugiyama 2012), the sector’s contribution for decarbonisation is likely to grow.

…and future constraints

Thus, a cursory glance at the European power system suggests on-going and successful decarbonisation. Should this trend continue, renewables will soon cover a significant share of Europe’s energy mix and deliver a main part of the energy supply necessary for daily life and business (Commission 2011c:5). These trends have, however, to be treated with great caution. In fact, a deeper analysis shows that the transition of Europe’s power system towards decarbonisation is about to enter a new and crucial phase, in which the rapid growth of renewables and the relative decline of conventional energy sources will meet serious constraints (Commission 2013a:2).

Behind this assumption stands the fact that today’s power system is still largely defined by conventional plants, with a technical and economic environment adapted to their needs: Interconnected by the power grid, these plants operate as interacting components in integrated power pools where the different generation units dispatch their power output to the momentary load . The technical features of some renewables (partly) disturb these technological and economical interactions (Schaber, Steinke & Hamacher 2012:123). Decarbonisation of the power sector therefore is more than a mere replacement of old power generation units with new, carbon-neutral ones, but requires the reorganisation of the environment in which renewables operate (see e.g. Schaber et al. 2012).

Europe’s energy transition and the power grid

Put differently: The integration and operation of renewables in the existing power pools is amongst the most important constraints for further decarbonisation of the European power sector. Power grids play a fundamental role in this context, as they are the prerequisite for flexible, interactive operation of power plants, the efficient allocation of generation units over a given territory, and the interconnection with consumption and storage centres. Given the technical features of some forms of RES power generation, a dense power transmission infrastructure, smart grids, and intelligent systems to predict RES loads are required for the operation of renewables (Capros et al. 2012:96).

According to the large majority of studies, the state of today’s power transmission infrastructure does, however, rather hamper large scale integration of RES (see for example Tröster, Kuwahata & Ackermann 2011). But renewables still represent a relatively small number of power generation units in the European system; the pressure to adapt existing power pools to their technical and economic requirements is therefore still limited. A successful decarbonisation of Europe’s power system will, however, lead to massive increase of renewables and thus strongly amplify the need for adaptations of the grid infrastructure to their technical specifications.

But the pressure that RES power generation puts on established power pools varies with the specific type of plant; specific measures to upgrade the grid will therefore differ from region to region. This poses several questions of technical, economic and political nature: How are policy developments in the EU responding to such challenges? What is needed in terms of infrastructure upgrades? How integrated do the EU’s electricity grids need to become? What sort of drivers and barriers are in place? Can infrastructure development keep pace with requirements under decarbonisation?

In order to evaluate the impact of European policy to upgrade the power grid to the needs of a decarbonised power system, and whether EU policy is sufficient and consistent enough to achieve decarbonisation by 2050, the following posts examine the complex relationship between renewables and the grid infrastructure, and the broader context of existing EU policy. In order to localise (potential) gaps in the European approach to grid development, a more detailed look on the respective EU programmes is necessary. Potential synergies, conflicts and alternatives in grid planning are also discussed.

The power of the grid: European electricity transmission infrastructure and its (potential) role in ‘decarbonisation’

Author: Thomas Sattich

The role of electricity grids for decarbonisation is largely explained by the fact that storage of electricity is difficult and costly: Power generation therefore needs to follow changing load in real-time in order to keep main voltage and grid frequency stable. The power transmission infrastructure is one of several ways to optimise this system, with interregional power lines providing system operators with the flexibility needed to keep the network stable despite local load changes (ECF 2010:70): The larger, the more flexible and diverse a power pool is, the better network stabilisation works.

Renewables greatly increase the need for flexibility (see below); a densely intermeshed and smart electricity transmission grid is therefore widely believed to be one of the preconditions for the achievement of EU’s decarbonisation target (Fürsch et al. 2013:642): European power grids need to be adapted to increase the capacity for flexible reactions to momentary load changes caused by renewables, otherwise further decarbonisation will be impossible. This is common knowledge. The question is, however, where exactly the increase of renewables will require adaptations, what kind of adaptations will be necessary, how the EU could intervene, what measures have been envisaged and/or implemented, and whether these are effective and sufficient. In order to answer these questions, the following section aims to determine the complex relation between the integration of (intermittent) renewables and (cross-border) power transmission infrastructure; moreover, the necessary reorganisation of the European grid is highlighted.

Electricity transmission networks and decarbonisation

Decarbonisation poses a double challenge for the European power transmission infrastructure: First, the availability of the energy carrier co-determines the location of power plants; the switch to renewables will thus change the distribution of power plants and the geography of the grid. Second, the product of electricity generation changes with decarbonisation; in contrast to carbon-based systems, where standardised units of coal, oil or gas make the power system partially independent from meteorological effects, many renewable energy plants depend on changing elemental forces such as wind and sun. Grid modernisation will thus be required to stabilise power supply.

The changing geography of the European power grid

Due to the relatively low energy density of most renewable energies, decarbonisation requires large territories such as wind parks; these will thus have to be developed and interconnected. Moreover, most renewables cannot rely on modern transport systems to bring the energy carrier to the plant, but solely on the electricity transmission infrastructure to bring their product to the consumer. And as the renewable energy sources required for power generation are a) distributed unequally , and b) typically to be found in remote regions, decarbonisation will result in a highly unequal distribution of generation sites.

Power transmission infrastructure will have to cover the growing transmission distances in order to bring the electricity to the consumer. There are, however, differences between the various forms of renewables: While wind, solar and tidal power will be highly concentrated in geographic areas that do not coincide with consumption centres, biomass can (partly) be transported to, and used in the power generation infrastructure in place. Where new transmission lines are necessary will hence greatly depend on the regional energy mix.

The impact of intermittent renewables on the grid

The changing location of generation sites has strong implications for the future shape of the European power grid. The same applies for the changing product of power generation: According to the International Energy Agency (IEA) and the European Commission, network balance is in jeopardy where intermittent renewables such as wind and solar power exceed five per cent (Commission 2012:8). Until that margin the existing power pools are flexible enough to counterbalance fluctuations in network frequency and voltage caused by changes in wind, solar and ocean energy.

Where, however, intermittent RES exceed this number, additional measures are required to provide the system with enough flexibility to absorb network fluctuations. In this regard the European power system is close to a paradigm shift: In 2011 intermittent renewables already amounted to 35 per cent of RES-generated electricity in 2011 (9 per cent in 2002), and seven per cent of all electricity generated (Eurostat online data). It can be expected that this number will climb to 49.7 per cent of RES capacity until 2020 (ECN 2011b:14, see Fig. 1); if current trends continue intermittent RES will hence account for a total of 17-20 per cent of European electricity (ECN 2011a).

The EU’s power sector is thus headed towards an era where the characteristics of intermittent renewables will increasingly determine the logic of power generation, transmission and consumption. Increasing the flexibility of existing power pools and their transformation to a smart and flexible system of power generation and consumption is thus the key to the sector’s further decarbonisation, and – in the long run – a complete switch to renewables.

With its capability to integrate otherwise isolated regions, and thereby to increase the capacity to keep growing network fluctuations under control of system operators, the power grid has a vital role to play in this adaptation. The need for more flexibility in particular areas and more interconnections with other parts of the European power grid depends, however, on the specific regional energy mix: Because the ability to control energy input and output largely varies between different forms of RES, not all parts of the network will be in need for the same level of interconnection.

Fig. 1: Intermittent and non-intermittent renewables in the European power system

The reorganisation of the European power grid

In order to continue the decarbonisation of the European power sector, electricity networks need to be reorganised. Two different dimensions can be identified in this regard: New infrastructure to cover the power sector’s changing geography and adaptations necessary to compensate growing network fluctuations caused by intermittent renewables. On both dimensions the European power grid has to be adapted to the requirements of renewable energies, if decarbonisation of the European power sector is to be continued.

This need for grid modernisation concerns also all parts , levels and sections of the grid, and can thus be described as universal. Ideas and plans for the reorganisation of the European grid are hence far-reaching, and include the construction of regional (North Seas Countries’ Grid Initiative), continental (the super-grid) and even transcontinental networks (Desertec). The varying characteristics of different RES technologies will, however, also pose specific challenges for particular sections of the power grid, depending on the particular energy mix in a given region.

In this specific context, cross-border transmission infrastructure is of particular importance, as it is badly developed, with generally low Net Transfer Capacity values: Exchange between the different national systems stagnates between 7 and 10 per cent (ENTSO-E online data; see also Commission 2007e:175). Most member states can therefore be described as largely self-sufficient in electricity supply (Eikeland 2011:14); today’s power transmission infrastructure hence rather prevents free flow of electricity in Europe, and thus a rational distribution of RES generation units and the ability to balance network fluctuations caused by renewables.

About 80 per cent of the bottlenecks in the European power system relate hence to the integration of renewables (ENTSO-E 2012:56). Increasing exchange capacity along national borders is hence a precondition for further decarbonisation of the European power sector. The aim of the reorganisation process should be the creation of a flexible and smart power pool of European size, where all power plants jointly balance the disturbance of one power station, regardless of its location (Battaglini et al. 2009). This has been regarded a convincing and economically viable possibility for better network stabilization (Booz&Co. 2013:86-87). Filling the gaps in the European cross-border grid infrastructure can therefore be interpreted as largely untapped options (Booz&Co. 2013:86-87) for near complete decarbonisation at moderate costs (Haller, Ludig & Bauer 2012:288).

But even though cross-border transmission capacity is generally low in Europe, it nevertheless largely varies along European borders, with well integrated parts on the one hand, and gaps and bottlenecks on the other. Thus, the question arises, where grid development is required and where the necessary adaptations are most urgent. The per area generation of intermittent electricity is helpful in this regard (see Fig. 2), as it reveals sharp differences between member states in their approach to renewables: Whereas some countries show only a moderate density of intermittent renewables, and intend to keep their numbers limited, other countries decided to integrate large numbers of these plants into their national systems (ECN 2011a). This will result in largely varying need for interconnectors with neighbouring countries.

Fig. 2: Intermittent RES MWh qkm

EU policy to develop the European power grid: From market integration to decarbonisation

Author: Thomas Sattich

Large scale integration of intermittent renewables beyond today’s levels requires the consecutive integration and common management of the still largely national power pools (Battaglini et al. 2009). So as to assure that decarbonisation of Europe’s power sector can continue, the EU is hence confronted with the challenge of implementing a policy to develop and integrate the European grid. The discussion of such a European approach to the power grid is older than one might think: Already since the 1920s a dualism can be observed between a top-down, supranational approach, and a gradual, bottom-up approach to the development of the cross-border power transmission infrastructure (Lagendijk 2008:80ff).

So far, however, the economic rational of utilities and the national perspective of policy makers obstructed initiatives to Europeanise grid development; in post-World War II Europe the gradual, case-to-case approach therefore largely prevailed over the idea of a top-down implemented European grid (Van der Vleuten&Lagendijk 2010:2045).

From the integration of power markets…

Only with the Single Market Program of the 1980s the European Community started to take a more assertive stance on energy related issues, and pursued a policy aiming at deeper integration of power markets and the development of a common carrier system for electricity (Commission 1988:72). One landmark in this regard is the Commission Working Document of 1988 (Commission 1988) which proposed to declare certain large-scale energy infrastructures as being of Community interest and hence entitled for special treatment. Since then a number of policy initiatives aimed at the development of a power transmission infrastructure that is functionally adequate for the creation/finalisation of a pan-European electricity market.

Understood as support for renewables, electricity transmission infrastructure had, however, only little prominence during the first years of EU involvement with this issue (Commission 2008:8; Lauber 2005:4). With the EU’s growing ambitions in climate policy and the growing numbers of renewables in the system, the question, how to reconcile the community’s environmental policy with the goal of creating an Internal Energy Market, and how the increase of renewables affects that market, became, however, a central one (Glachant et al. 2013:68-70).

…to the integration of renewables

Towards the end of the 1990s the Commission addressed this problem with a number of papers (Commission 1997, Commission 1998). These concluded that power transmission capacity was indeed insufficient (Eikeland 2011:20); the existing gaps were, however, still mainly regarded as barriers to cross country trade of electricity, not the integration of renewables. Given the low penetration of the power system with intermittent renewables at that time, and the generally low targets for their increase, the reason for this lack of technical analysis is obvious: Mechanisms for the support of renewables were perceived as support for the increase of RES generation capacity.

The environment, in which these renewables operate, was, however, largely neglected. Understood as the necessary prerequisite for the operation of renewables, power grids therefore had only low priority (see Fouquet&Johansson 2008; Haas et al. 2004). Only with regard to the most obvious cases such as far-off wind parks, these papers point out the need for the adaptation of power networks to the particularities of renewables and the additional costs for the installation and/or operation of renewables at specific sites (Commission 1997:29). Where the relation of electricity networks and renewables was discussed, it was mainly the free mandatory access to the grid (Commission 1998:8) at fair prices (Commission 1997:14).

Since the European Union set out for 12 per cent of electricity from renewable sources by 2010 (EWIS 2010:146), the promotion of RES has, however, gradually moved up the European agenda (Nilson, Nilsson & Ericsson 2009:4454): The existing gap between the importance of the power grid for the operation of renewables on the one hand, and the focus on economic support mechanisms for new (renewable) generation capacity on the other, started therefore to close in the following years (Commission 2000:48), and questions concerning the electricity transmission infrastructure such as the conditions for grid access, grid reinforcement, and charges to RES generators for use of networks obtained more attention (Jansen&Uyterlinde 2004:93):

A technology-specific approach for the support of renewables in general (Boasson&Wettestad 2010), and energy transmission infrastructure in particular, became hence an important element for the discussions how to integrate renewables (Jansen&Uyterlinde 2004:95). The Commission Green Paper on energy security from the year 2000 is a good example for this new emphasis. So are the two Directives 2001/77/EC and 2009/28/EC on the promotion of renewable energies, which clearly reflect the growing importance of the grid issue for renewables, and provide measures to improve the situation.

Finally, the Europe 2020 strategy (European Council 2010) and the Energy Roadmap 2050 (Commission 2011b) moved the focus of EU energy policy further towards sustainability and decarbonisation. In order to evaluate, whether these latest developments of EU energy policy and on electricity transmission infrastructure evolved to a consistent body of instruments which is suited to reach the decarbonisation of the power sector, a closer look at particular programmes is necessary.

EU instruments to develop the European electricity grid

Author: Thomas Sattich

European ambitions on the field of sustainability grew considerably during the last 15 years, finally culminating in the plan for (nearly) full decarbonisation. The development of energy systems technology did, however, not keep up with the growing ambitions. Neither did the deployment of new electricity transmission infrastructure in Europe. But no decarbonisation without the necessary electricity transmission infrastructure. Thus, in order to match technological developments and the deployment of new infrastructure with the ambitious sustainability and decarbonisation targets, the EU implemented a number of programmes to accelerate grid development.

In order to determine whether these measures are sufficient to achieve decarbonisation, this post describes and analyses in more detail what policies the EU implemented: Programmes which aim at better framework conditions for universal grid development, and instruments which aim at the development of specific parts of the European network are treated separately in this analysis. In order to identify gaps between what the sector needs to achieve decarbonisation, and the given EU policy, the overall approach of the European Union towards universal and specific grid development is discussed.

Instruments for universal grid development

In 20th century Europe vertically integrated power companies conducted the planning of the transmission infrastructure. The market position of these companies widely converged with the power transmission infrastructure. In an attempt to increase competition and to stimulate grid and market development, the European Commission therefore proposed full unbundling of network and generation/supply interests (Commission 2007c:6); this would guarantee the independence of transmission systems operators (Eikeland 2011:32), and hence provide new stimuli for grid development in a European, not national or regional context.

More cross-border interconnections and the integration of electricity markets were supposed to be the result (Von Koppenfels 2010:84). Unlike the proposal, the third legislative package for an internal (gas and) electricity market does, however, not provide full ownership unbundling, but offers different models which do not necessarily change the ownership, but only the management and supervision of transmission networks (Eikeland 2011:24-25). Whether these provisions indeed ensure the independence of transmission networks from supply interests remains hence to be seen (Dupont&Primova 2011:11; Helm 2014:30).

Yet unbundling is not the only European policy to develop favourable framework conditions for the development of the power grid: Several EU programmes aim at the exploration of new energy technologies, their market-maturity, and the stimulation of their (potential) markets. Together, these programmes can roughly be categorized in two groups: Top-down demand pull instruments that pull industry towards investments in innovative products, and bottom-up technology push instruments which push European industry towards European targets (Sattich 2014a).

Top-down demand pull

The two Directives on the promotion of renewables are important elements of European policy to stimulate demand for new infrastructure, because they provide that new installations producing electricity from renewable energy sources (should) have priority status in the power system. The passage from the 2001 Directive to the one from 2009 marks an important step in this regard: Whereas the obligation of TSOs to grant RES priority access and priority dispatch remained facultative in Directive 2001/77/EC (Article 7(1); EWIS 2010:146), priority access, dispatch, transmission and distribution became mandatory in Directive 2009/28/EC (Futterlieb&Mohns 2009:24).

The RES Directive from 2009 hence marks a veritable milestone regarding the legally binding commitment for grid development. Regarding the financing of infrastructure projects, the two RES Directives are equally important: Directive 2001/77/EC called member states to implement cost sharing mechanisms for the necessary grid reinforcements, including a mechanism that requires transmission system operators to bear part of the adaptation costs (Directive 2001/77/EC:Article 7(2); Jansen&Uyterlinde 2004:99); the same applies for Directive 2009/28/EC which provides that Member States shall require TSOs to ensure that appropriate grid measures to minimise the curtailment of electricity produced from renewable energy sources are taken (EWIS 2010:154).

Bottom-up technology push

With EU energy technology development programmes such as Intelligent Energy Europe I (IEE 2003-2006), II (IEE 2007-2013), and Horizon 2020 Secure, Clean and Efficient Energy (2014-2020), the European Union also attempts to foster the development of new energy technologies. Main focus of these programmes lies on (market) barriers that hamper the development of new and renewable energy technology, and the transition from demonstration projects to marketing (Decision No 1230/2003/EC). With a multiannual budget of originally 200 million EUR, the Intelligent Energy programme was, however, rather small and supported only a limited number of grid projects .

Yet, in view of the issue’s growing importance, the European Union stepped up its energy technology policy over the past years: Horizon 2020 disposes over an increased budget for energy related projects, and with the Institute for Energy and Transport the European Union also provides its own R&D infrastructure. Moreover, with the Strategic Energy Technology Plan (SET-Plan, see Commission 2006b) the European Union brought the two until then isolated elements of its energy technology policy – market up-take measures and support for basic research – together in one encompassing programme (Commission 2006a:5).

General aim of this SET-Plan is to reinforce international cooperation and the coherence between national, European and international energy research (Commission 2007d:9-11). The European Electricity Grid Initiative is one of the programme’s subcomponents and aims at the creation of an integrated R&D and demonstration network, so as to develop, demonstrate and validate the technologies to enable the transmission and distribution of up to 35 per cent of electricity from renewable sources by 2020, and to make electricity production completely decarbonised by 2050 (European Union 2010:4).

With an estimated multiannual budget of 2 billion EUR, the Grid Initiative is considerably bigger than other European instruments on the field. Due to a lack of coordination and a general lack of practical arrangements to foster interaction between the different research areas, the implementation of the SET-Plan remained, however, below expectations. Missing coordination between the Grid Initiatives and other areas seems to be particularly puzzling (Commission 2013b:8-9). Given these shortcomings, better coordination, financing and commitment of member states is under discussion.

Instruments for specific grid development

With the Priority Interconnection Plan (PIP) of 2007 the European Union reaffirmed its focus on the development of particular parts of the grid (Commission 2007b). This Plan sets out five priorities:

1) Identifying the most significant missing infrastructure and ensuring pan-European political support to fill the gaps;
2) appointing four European co-ordinators to pursue the most important priority projects;
3) agreeing a maximum of 5 years within which planning and approval procedures must be completed for projects of European interest;
4) examining the need to increase funding for European networks;
5) establishing a new Community mechanism and structure for co-ordinated network planning.

Debates about the need for new cross-border electricity exchange capacity in specific bottlenecks of the European grid, are, however, much older than the PIP: First policy papers addressed the issue already in 1988 (Commission 1988:28), and shortly after the signature of the Maastricht Treaty a limited number high priority trans-European projects have been endorsed and asked for rapid implementation (European Council 1994). It remained, however, unclear, how investments in these projects could be stimulated. Thus a debate began about the best lever for public intervention (see Commission 1993:79; and European Council 1994:27), and about the relative importance of two main obstacles for private sector investments in energy networks: Administrative constrains and market conditions.

In order to create favourable framework conditions for grid development in selected parts of the European network, member states agreed on a mix of measures on both issues (Decision No 1254/96/EC). This trans-European energy network programme (TEN-E) has a strong focus on market integration; cross-border power interconnection projects that contribute to the integration of renewables, and the transmission of the generated electricity to major consumption centres and storage sites are, however, also included (Regulation No 347/2013:Article 4). Moreover, TEN-E supports projects to integrate far-off and/or intermittent renewables (Regulation No 347/2013:Annex IV). The priority status for certain infrastructure projects hence does not only apply for interconnection projects necessary for market integration; projects necessary for the integration of renewables are equally entitled for TEN-E support.

TEN-E goes well beyond instruments such as market liberalisation and competition policy which to that date characterised the toolkit of European energy policy: Drawing on Lisbon treaty article 194 which requires member-states to interconnect energy networks, the EU concluded that new support measures for grid development were needed; the TEN-E programme hence does not only include a list of four Priority Electricity Corridors in different parts of the European continent (Regulation No 347/2013:Annex I), but provides particular projects in these corridors with priority status that entitles them for administrative and financial support.

Top-down administrative and market measures

In order to ensure rapid deployment of specific projects, the TEN-E guidelines aim at the reduction of administrative burdens (Justice and Environment 2013:2). One of the starting points in this regard is permit granting: In order to guarantee a process of three years and six months only (Regulation No 347/2013:Article 10(2)), member states are obliged to establish a competent authority responsible for all permit granting processes in a so called one-stop shop (Regulation No 347/2013:Article 8(1)). Moreover, projects of common interest shall be provided with the highest national significance (Regulation No 347/2013:Article 7).

In order to facilitate and speed up coordination between the various parties involved in the implementation of particular projects, the programme guidelines also provide for close cooperation between all relevant groups such as member states, national regulatory authorities, transmission systems operators, the European Commission etc. in regional groups (Justice and Environment 2013:3). Where a project of European interest encounters significant delays or implementation difficulties, the intervention of European coordinators is possible (Regulation No 347/2013:Article 6).

As an additional measure selected TEN-E projects are also entitled for financial support by the European Union (Meeus, Purchala & Belmans 2005:31): For projects which are not viable under the existing regulatory framework and the given market conditions, the TEN-E programme provides a yearly budget of 25 million EUR for tailor-made support in form of grants and financial instruments (Regulation No 347/2013:Article 14(1)), 20 million EUR of which are generally intended for the co-financing of feasibility studies. In this regard it is noteworthy that the TEN-E is increasingly guided by the idea that only projects of ‘European interest’ should get public support (Agt 2011:29).

Bottom-up market regulation

Such financial assistance is, however, exceptional and may not lead to any distortion of competition: According to the TEN-E guidelines market principles have the priority. In fact, TEN-E attempts to limit distortion of competition to a minimum; instead it focuses on regulatory disincentives to invest (THINK 2011:32-33), and the question, how to so organise the market for grid investments that investors can have confidence in the recovery of their costs (Helm 2014:31). Joint system development planning and the allocation of costs and risks of increasing cross-border interconnection are the answers of TEN-E (Commission 2007a:17).

The programme guidelines hence provide the development of a harmonised energy-system wide cost-benefit analysis as the basis for the allocation of investment costs related to particular projects that are not covered by tariffs for network users (Regulation No 347/2013:Article 12(1)). Moreover, where the investment in new cross-border interconnectors involves high primary risks (e.g. non-use and future) such that the investment would not take place, a number of (time-limited) exemptions provide project owners with a certain independence from the regulatory framework (Regulation No 714/2009:Article 17). TEN-E thus gives investors greater control over cash flow (Cuomo&Glachant 2013:18).

With better financing towards decarbonisation?

A densely interconnected European power grid is the necessary backbone of a decarbonised European power system. The European Union hence attempted to create a supportive environment for the development of a power transmission infrastructure which is capable of integrating renewables. Despite these efforts there seems, however, still much work left to do (Monti 2010:48): To this day the various EU programmes seem not to be yet powerful enough to stimulate the development of a power transmission system suitable for the aims of European energy policy (Agt 2011:30). The question therefore is, whether the efforts to develop a complex set of grid development programmes indeed resulted in a consistent and viable mix of instruments.

Some authors blame the Commission’s repeated focuses on specific projects on a bottom-up basis for the limited progress. Given the unbundling efforts of the past years, one might come to this conclusion; moreover it is true that the European Union historically preferred a bottom-up approach to energy policy. Yet unbundling concerns universal, not specific grid development. In view of the largely varying need for interconnection, increasing the interconnection capacity at specific chokepoints is one of the obvious starting points. EU policy towards such single projects changed, however, largely over the past years, and seems to be on the way towards a top-down approach; TEN-E in particular is characterised by a distinct top-down approach (Agt 2011:28-29).

According to Helm (Helm 2014:30-31), grid development does also suffer from the open question how to so organise markets in a way that investors can have confidence that costs will be recovered. The European Commission came to the same conclusion and thus called for a new approach to the planning, construction and operation of electricity transmission infrastructure (Commission 2010b). In its work programme the EU therefore sets out to analyse the optimum balance between public and private financing for projects of European interest which have no or poor commercial viability, and to develop innovative funding mechanisms for the coverage of main risks that improve the investment climate (Commission 2010b).

The EU is hence increasingly inclined to (co-) finance or guarantee the finance of infrastructure projects of European interest (Agt 2011:29). With the European Energy Programme for Recovery, for example, the European Union channelled financial resources from the EU budget directly to selected energy infrastructure projects (Commission 2013b). The connection and integration of renewable energy resources is among the five objectives of this programme (Regulation No 663/2009:Article 4). With a budget of 904 million EUR for grid interconnection measures and 565 million EUR for offshore wind energy , the integration of invested sums are considerable compared to the financial resources of the TEN-E programme.

Compared to the overall investment needs of about 400 billion EUR for distribution networks and smart grids and EUR 200 billion for transmission networks and storage (Tagliapietra 2013), this sum can, however, also be interpreted as limited support (depending on the point of view). Under the Europe 2020 flagship initiative on resource efficiency (Commission 2011a), the European Union therefore developed the Energy 2020 strategy: Support for energy infrastructure projects and the upgrade of Europe’s networks for the integration of renewables have a high priority in this strategy. Increasing certainty for investment and innovation (in grids) is one oft he key elements of this initiative (Commission 2011a).

The Connecting Europe Facility (CEF) is the result of this new reasoning on the support for European energy infrastructure (Regulation 1316/2013). With a multiannual budget of 5.85 billion EUR this new institution supports implementation of energy infrastructure projects defined as common interest (Regulation 1316/2013:Article 5). This support will mostly be granted in form of so called risk sharing instruments for project companies (Annex I, Part 2). The Connecting Europe Facility hence aims at reducing the financial risks for certain infrastructure projects. Greenhouse gas reduction is one of two general objectives in this regard (Article 3); more precisely, the CEF aims at increasing the amount of renewable electricity transmitted from generator to consumption centres/storage sites, and at avoiding curtailment of (intermittent) RES; moreover, the programme includes support for the deployment of smart grids (Article 4).