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News 11 March 2022

REPowerEU – The EU way to cut dependence on Russian fossil fuels and to lower energy prices

Russia’s invasion of Ukraine combined with an enduring energy price crisis have parked the necessity for further urgent and concerted actions in the EU on energy matters. The result is the Communication on REPowerEU: Joint European Action for more affordable, secure and sustainable energy, aiming both at reducing the price pressure on EU citizens and businesses and minimizing the dependence on Russian gas, oil and coal.

Tackling the energy prices crisis

The energy prices crisis, pre-dating the war in Ukraine, will have an estimated impact on the EU GDP of a 0.5% reduction in 2022, primarily hitting vulnerable groups of citizens facing energy poverty as well as businesses. The Commission had introduced in 2021 a toolbox of measures with the hope to mitigate the effects of the crisis. Now, under the current proposals, it will assess additional options to alleviate the impact of soaring energy prices.

The main recommendation is to make full use of the provisions already in place at the EU legislation level, allowing Member States to set energy retail prices for households. In the Commission’s plans, these should be accompanied by incentives for energy efficiency and savings in an attempt to lower energy bills. Companies and farmers should also be targeted, with help stemming from the EU Emissions Trading System State aid Guidelines and a new Temporary Crisis Framework, discussed with the Member States. Emergency measures might benefit from exceptional tax measures on windfall profits, provided they are technologically neutral, allow electricity producers to cover their costs and protect long-term market and carbon price signals.

In the long term, to prevent a similar situation of exceptionally high prices from arising again, the EU should act pre-emptively and increase its gas storage facilities. This planning activity would reduce the need for additional imports in case of an exceptional situation and increase the ability to absorb supply shocks. The Commission will bring forward a legislative proposal by April to ensure an adequate annual level of storage, requiring that the existing infrastructures in the EU territory are filled up to at least 90% of their capacity by 1 October each year.

The EU will also create a mechanism to ensure that all countries benefit from a fair allocation of security of supply costs. Nonetheless, the Communication requests that Member States start taking measures as if the legislation was already in place. To further increase coordination, the Commission will propose overviewing the refilling operations, either through joint procurement or collecting orders. This process could take the shape of a joint European platform for contractualisation of gas supply.

Eradicating dependence on Russian resources

In its Communication document, the Commission sets the objective to detach from Russian fossil fuels well before 2030. The strategy to reach this goal will be based on two pillars: a diversification of gas supplies and a boost in energy efficiency and renewable energy deployment. In the plans of the Commission, these two measures would deliver the equivalent of 155 billion cubic metres (bcm) imports of Russian gas.

Diversified gas imports could supply 50 bcm more of LNG per year, with an additional 10 bcm from diversified pipe sources. Doubling objectives for biomethane could produce 35 bcm per year by 2030, but it will require Member States to update their Common Agricultural Policies and channel more funding into biomethane production from sustainable sources.

Hydrogen could be another key element. The Commission estimates that an additional 15 million tonnes (mt) of renewable hydrogen on top of the 5,6 mt foreseen under the Fit for 55 legislation could replace 25 to 50 bcm per year of imported Russian gas by 2030. In this regard, the Commission invites Member States to support the development of an integrated gas and hydrogen infrastructure, hydrogen storage facilities and port infrastructure. The Commission will support pilot projects on renewable hydrogen production and transport in the EU neighbourhood to complement the technical developments, starting with a Mediterranean Green Hydrogen Partnership. It will also work with partners to conclude Green Hydrogen Partnerships and with the industry to establish a Global European Hydrogen Facility.

Renewables would also play an essential part in the transition away from Russian gas. The Fit for 55 legislative package foresees doubling the EU’s photovoltaic and wind capacities by 2025 and tripling by 2030, saving 170 bcm of yearly gas consumption by 2030. In addition, by accelerating the rollout of rooftop solar PV systems by up to 15TWh this year, the EU could save an additional 2,5 bcm of gas. Significant efforts in solar power will be supported by the launch of a communication on solar energy, to help unlock solar energy’s potential as a major renewable energy source in the EU.

In addition, by doubling the yearly pace of deployment of heat pumps, the EU would reach 10 million heat pumps installed in the next five years. This would save 12 bcm for every 10 million heat pumps installed by households. Additional actions would foresee the deployment of innovative hydrogen-based solutions and cost-competitive renewable electricity in industrial sectors and the speed-up of permitting for projects aiming at increasing renewable energy production. All the above will depend on the transposition of the Renewable Energy Directive reforms, while in May, the Commission will publish a recommendation on fast permitting for renewable energy projects.

Next steps

EU heads of State will discuss the Communication, and further inputs are expected by the end of this week.