The European Commission presented its REPowerEU Plan in order to make Europe independent from Russian fossil fuels well before 2030. The urgency to address the lack of reliability of Russian energy supplies has once more been demonstrated by the recent gas supply interruptions to Bulgaria and Poland. After the Commission proposed the initial outline on 8 March 2022, the European Council agreed on 24/25 March 2022 to phase out the EU’s dependency on Russian energy imports as soon as possible. The plan’s aim is not only to end European dependency on Russian fossil fuels, but to tackle the climate crisis at the same time.
The Plan acknowledges that the shift away from Russian fossil fuels requires, besides targeted investments for the security of supply in gas infrastructure and changes to the current oil infrastructure, large-scale investments in the electricity grid and an EU-wide hydrogen network. As such, the different elements of the Plan (i.e. a series of proposals, communications and guidance documents) will be of interest to anyone participating in the energy markets in the EU. This includes developers of renewable and conventional energy projects, buyers and sellers of commodities, and even domestic households.
To fast forward the clean energy transition and join forces to achieve a more resilient energy system and a true Energy Union, the Plan addresses energy savings, diversification of energy supplies, and the accelerated roll-out of renewable energy to replace fossil fuels in homes, industry and power generation. Therefore, it builds on the ‘Fit for 55’ package of proposals and completes the actions on energy security of supply and storage. Facing these changes, the Plan functions on three levels: the demand side (through energy conservation), the supply side (through diversification from Russian fossil fuels and toward different and reliable suppliers), and lastly, the acceleration of the clean energy transition (through the rollout of renewables and by reducing fossil fuel consumption in industry and transport).
Energy savings
Since reducing energy consumption through higher efficiency is a vital component of the clean energy transition, the resilience of the EU economy is to be increased and the EU competitiveness shall be shielded against high fossil fuel prices. Therefore, the Commission proposes to increase the binding target in the Energy Efficiency Directive from 9% to 13% in 2030. An ‘EU Save Energy Communication’ outlines short-term behavioural changes aimed at cutting gas and oil demand by 5% over a year and encouraging Member States to start specific communication campaigns targeting households and industry. This is to enable the EU to fully meet the REPowerEU objectives, without having to change other parts of the ‘Fit for 55’ package. In addition, the Plan shall encourage Member States to use fiscal measures to promote energy savings, such as reduced VAT rates on energy efficient heating systems, building insulation and energy efficient appliances and products. Beyond this, in case of severe supply disruption, there are contingency measures set out and the Commission intends to publish guidance later this year for the Member States’ update of their National Energy and Climate Plans (‘NECPs’) in 2024. It will also report progress on REPowerEU, among others, through the State of the Energy Union and Climate Action reports.
Regarding the diversification of supplies, the already established ‘EU Energy Platform’ will allow for common purchases of gas, liquefied natural gas, and hydrogen. The Platform fulfills the following functions supporting the common purchase of gas: demand aggregation and structuring, optimised and transparent use of the imported fuels, storage and transmission of gas infrastructure to maximise security of supply and replenishment of storage, and international outreach focussing on long term cooperation frameworks.
Diversifying energy imports
As a next step, the Commission intends to develop a ‘joint purchasing mechanism’ to negotiate gas purchases on behalf of Member States. This could be in the form of a joint venture or a business-owned entity, leveraging the power and advantages of the European market. Such a construct will be subject to review to check its impact on competition. The adopted EU external energy strategy will simplify energy diversification and build long-term partnerships, since it prioritises the EU’s commitment to the green energy transition. As the EU Energy Platform is also open for the Energy Community Contracting Parties (Western Balkans, Ukraine, Moldova, Georgia), it should also benefit the EU’s partners in its close neighbourhood, who are committed to the EU’s internal market rules and joint security of supply.
Substituting fossil fuels and accelerating Europe’s clean energy transition
A massive scaling-up of renewable energy in power generation, industry, buildings and transport shall lead to European independence from Russian fossil fuels. Regarding the rollout of renewables, the Commission proposes to increase the 2030 target for the share of renewables in total energy consumption in the EU from 40% to 45% under the ‘Fit for 55’ package, creating the framework for different initiatives:
- An EU solar strategy to double solar photovoltaic capacity by 2025 (target of over 320 GW), and install 600 GW by 2030.
- A solar rooftop initiative with a legal obligation to install solar panels on all new public and commercial buildings after 2025, and residential buildings after 2029.
- Doubling of the rate of deployment of heat pumps, and measures to integrate geothermal and solar thermal energy in heating systems.
- A targeted amendment to the Renewable Energy Directive, to recognise renewable energy as a public interest and include ‘go-to’ areas for renewables, with simplified permitting processes.
- A target of 10 million tonnes per annum of domestic renewable hydrogen production and 10 million tonnes per annum of imports by 2030, to replace natural gas, coal, and oil in hard-to-decarbonise industries and transport sectors.
- Completion of the assessment of the first Important Projects of Common European Interest (‘IPCEI’) focused on breakthrough technologies and innovation along the solar and wind energy and heat pumps value chains.
- A biomethane action plan that includes a biomethane industrial alliance and financial incentives to increase production to 35 billion cubic meters by 2030.
This acceleration of renewables will not only speed up the phase-out of Russian fossil fuels, but will also, over time, lower electricity prices and reduce fossil fuel imports from other countries.
Smart investment
To ensure that the Plan’s objectives are met, an additional investment of EUR 210 billion between now and 2027 is necessary, on top of what is needed to realise the objectives of the ‘Fit for 55’ proposals. As the implementation of the ‘Fit for 55’ framework and the REPowerEU plan will save the EU EUR 80 billion in gas import expenditures, EUR 12 billion in oil import expenditures and EUR 1.7 billion in coal import expenditures per year by 2030, the investment will hopefully pay off.
The Commission invites Member States to add a dedicated chapter with new actions to deliver on the REPowerEU objectives of diversifying energy supplies and reducing dependence on fossil fuels to their existing Recovery and Resilience Plans (‘RRPs’). The targeted and swift amendment foresees allocating additional funding from the auctioning of allowances of the Emissions Trading System (‘ETS’) and will complement the remaining EUR 225 billion of loans under the RRF, resulting in a total amount close to EUR 300 billion.
With the Trans-European energy networks (‘TEN-E’) framework, a more resilient European gas infrastructure that enables more diversified supplies has been established. Nevertheless, an EUR 10 billion investment is necessary to compensate for the future loss of Russian gas imports.
Reinforcing preparedness
To ensure that gas storages are sufficiently filled for next winter, the Commission calls on Member States for the following measures:
- Swift adoption of the storage regulation.
- Pre-emptively implementing the EU Save Energy Communication by refilling underground storage ahead of next winter.
- Updating the Member States’ contingency plans to identify the essential customers playing a key role for critical supply chains in the EU.
- Requesting the transmission system operators to implement the technical measures to increase the reverse flow capacities from west to east by the next winter
- Concluding the outstanding bilateral solidarity arrangements between neighbouring countries.
We are hopeful that this comprehensive plan of the European Commission may be used as an economic and political toll in addition to the apparent factual need to become independent of Russian fossil fuels.
For further information, please contact:
Anja Holtermann, Bird & Bird
anja.holtermann@twobirds.com
