What are the new risks in the changing dynamics of energy in Europe?
How to mitigate them?
1. The EU Focus, in collaboration with the London Energy Club, has continued its series of policy debate on the new European energy architecture, what it means for the EU institutions, member governments, companies, financiers and civil society, and how we should all be prepared to address the risks and capture the novel opportunities that arise in light of the new dynamics.
2. The second roundtable, in this series, has looked into the major risks and resulted in a number of policy recommendations and messages for government and business leaders.
3. In his scene setting, Mehmet Öğütçü, chairman, The London Energy Club and moderator, outlined the primary threats to energysecurity including inter alia : (i) political instability of several energy producing countries, (ii) manipulation of energy supplies, (iii) global warming and climate change compliance, (iv) competition over energy sources, (v) cyber attacks on supply infrastructure, (vi) regulation and public policy, (vii) tariffs and trade tension, (viii) technology disruption, (ix) a rapidly changing industry and transformation, (x) talent retention and new hires, (xi) accidents, natural disasters, terrorism, and (xii) excessive reliance on foreign countries for energy supplies, critical minerals and metals, technology and finance.
4. Öğütçü also stressed how health and geopolitical risks overshadowed all other challenges for the past two years, impactingenergy markets significantly, since the onset of COVID-19 and Russian invasion of Ukraine. He argued that, despite the growingpublic concern and efforts by countries to develop a common European understanding of energy security risks and riskmitigation strategies, there continues to be wide differences among EU member States on key aspects of energy security, including their causes and appropriate policy responses.
5. According to Öğütçü, the inability of countries to forge a common approach on energy security is due to the significantdivergence in the energy mix, industry structure, and availability of domestic energy resources, particularly of crude oil and natural gas, among countries; differences in access to alternative energy imports, geopolitical influence and energy policyorientations; and the differences in capacity, disposition and willingness of countries to deal with international issues on a bilateral and multilateral basis.
6. Pascal Michaux, Managing Partner at EU Focus, opened the discussion recalling the direct consequences stemming from Russia’s war in Ukraine. The proposed reforms, aimed at significantly reducing reliance on Russian gas, will lead to massiveinvestments in LNG terminals, gas storage capacities, along with renewable energies. However, while gas from Qatar and the US could replace Russian gas with LNG, it will only be possible to a certain extent (40-50%).
7. Diversifying our sources of supply is therefore essential, but not only so. In the mid-term, a switch to renewables and hydrogen, as well as improving greater interconnectivity of the gas and the electricity networks, is essential to make the EU truly independent and accelerate the green transition. It is crucial for key sectors such as the chemical industry, which is the backbone of the EU economy, to rely on secure and sustainable energy sources to remain competitive and move towards the green deal model.
8. Those changes, Michaux said, will inevitably pose new risks whether political, regulatory, environmental or cyber-security oneswhile at the same time generating fresh opportunities. There is an acute need to identify and mitigate risks, developing policy recommendations and business solutions. He poised the following questions for discussion: “What are the real financial consequences of the current market uncertainties? How quickly can we move away from our dependence on Russian fossil fuels? How is the industry responding to these new challenges and what is expected from the political arena?”
9. It is in this context that speakers shared their thoughts and proposals under the moderation of Mehmet Öğütçü, who is also a EU Focus Partner as follows:
10. Enrico Lucciola spoke about the current energy crisis in Italy, in particular the financial risks it creates due to the rising costs of gas and electricity. LNG diversification has already taken place in Italy and the government is investing to expand it, but also in the development of renewable energies, in order to ensure an appropriate energy mix. SACE is playing an important role in mitigating these financial risks. It offers two instruments to Italian companies to cope with the current situation: a guaranteeprogramme that allows companies to obtain financing through the banking systems to pay energy bills and repay the loan in the longer term; and a more strategic programme – resulting from SACE’s role in the implementation of the new Green Deal – to support financing for green investments in the internal market.
11. In the near future, we will have to operate in this complex environment and face two conflicting priorities: supporting renewable energy and replacing imports from Russia in a very short timeframe. “We have to be very creative in finding solutions… public support (national and European) will be important in this context.
12. Alexandru-Virgil Maximescu provided some key explanations on how Romania is dealing with the crisis and its risks. Romania already has a balanced energy mix and is a diversified energy producer. It takes a clear stance in promoting the Green Deal, i.e.moving away from coal by 2032, and considering the vital role of natural gas alongside renewable energy. For Romania, indigenous gas production is the backbone of this transition, combined with new offshore developments. From 2026/2027, Romania will be self-sufficient in gas but will also be able to play an important role in the security of supply of the eastern region as an alternative to Russian gas supply.
13. As for OMV Petrom, a new strategy for the next ten years has been adopted, with an ambitious investment plan of 11 billion euroto become a CO2 neutral industry, with investments in new technologies, green hydrogen, biofuels, carbon capture and storage. But to address the multifaceted risks facing the energy industry, and to make these investments possible, “reliability, predictability and certainty in the regulatory and policy framework” are of utmost importance. “In this transition, industry, civil society and the political arena are three stakeholders that must work together. The Green Deal is a milestone in terms of evolution in the coming years, and this can only be achieved together. In partnership. In dialogue”.
14. Leah Charpentier shared her thoughts on the Commission’s proposal for a new Solar Strategy. While the strategy aims at the right level of ambition, clearly stating the current barriers and providing an accurate diagnosis of the problem, it lacks key answers on how and how fast to address the fundamental issues. It depends on national policies. The next few months will therefore be decisive in terms of the follow-up by Member States. On solar itself, she stressed that “solar is the obvious alternative to Russian gas. It is affordable and easy to deploy quickly. So if you have an urgent need for new generation, solar is your best bet”.
15. From a technical point of view, more efficient solar panels are coming onto the market, so it is up to asset owners to decide whether they are ready to switch to more efficient technologies. Another important consideration is also the role of China, which now has 90% of the solar energy market. “But we are entering the era of tandem technologies where different semiconductors will be stacked on top of each other together to make more powerful modules. This gives the opportunity to compete with China, not on its own technology, where it already has a scale advantage, but by offering something very different to the market. And the big question is whether or not Europe is prepared to do what it takes to make those investments”.
16. Cristian Busoi explained the work of ITRE and mentioned the upcoming votes on the revision of the Renewable Energy Directive, the Energy Efficiency Directive and on hydrogen. The debates and implementation work are now essentially focused on the implementation of the Green Deal and Fit for 55 package, where it is necessary to find the right balance between achieving the climate objectives and European competitiveness, increasing employment and supporting industry in these difficult times, stemming not only from the energy crisis but also from general income inflation and the post-cold period.
17. Energy prices and security supply are major topics currently debated in the European Parliament, which is actively trying to complement and give political support to the Commission and Member States to reduce the impact and adopt appropriate strategies, which includes the increase in LNG and of renewables.
18. Dr Mustapha Mekideche spoke about the role of Algeria and its role in contributing to solve the current complex situation. Algeria built credibility and confidence with European markets since 1963 with the first NLG shipment export from Arzew to Great Britain. It can and will be a reliable partner of the EU as it has always been. However, Algeria also expected that the EU invests and supports the Algerian energy infrastructures. It cannot be one-way street where the EU only benefits from the Algerian LNG gas. The dialogue needs to be resumed with the EU as a whole while negotiations took place with Italy already. Algeria will be a part of the solution for the EU but will not be THE solution and therefore, Algeria has to be integrated in the overall strategic negotiations about the future energy mix in the EU.
19. Lastly, Emiliano Finocchi EU Focus Partner Italy & Professor at the Luiss Business School outlined his key takeaways from the discussions:
The war in Ukraine shaped a new scenario for the European energy architecture, which we have to face.
A total energy transition cannot be achieved overnight. We need to proceed in phases and have logistical planning.
There is a strong will, to put in place financial measures to help companies and producers comply with the energy emergency we are facing today.
A revolutionary timeline: we need to speed up the process to allow renewable sources to be installed much more quickly. We need to match policy speed with those who are operating in the field and to have constant cross-stakeholders engagement and dialogue.
20. There is a long way to go to reshape the current structure and organisation of the energy system. EU Focus is working and dedicated to building a bridge for dialogue between industry and authorities to facilitate the development of new solutions. The current crisis brings new opportunities, creating a momentum for new solutions and proactive change.
21. There was a suggestion by the moderator to create a dynamic and informal platform “The European Energy Club” under the EU Focus and The London Energy Club to continue this dialogue and bring out “win-win” partnerships in the period ahead when critical developments are to take place in energy and climate change.
22. The next meeting will take place on a topic and date, which will be determined by “The European Energy Club” Advisory Board.
7 JUNE 2022 I 11.00 – 13.00
EU FOCUS PARTNER (TURKEY)
CHAIR OF THE LONDON ENERGY CLUB
HEAD OF POLITICAL, CORPORATE & PROJECT FINANCE GREEN NEW DEAL
CHAIRMAN OF THE ITRE COMMITTEE
PUBLIC AND REGULATORY AFFAIRS DIRECTOR
HEAD OF EUROPEAN REGULATORY & GOVERNMENT AFFAIRS
VICE CHAIR OF SOLARPOWER EUROPE’S STRATEGY COMMITTEE
DR. MUSTAPHA MEKIDECHE
INTERNATIONAL ENERGY EXPERT
EU FOCUS PARTNER (ITALY) &
PROFESSOR AT THE LUIS BUSINESS SCHOOL
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