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From Crisis to Opportunity: How Can the EU Improve its Energy Future?

by Nicole D'Angelo, FiscalNote

Highlights from our "2023 Energy Crisis: Opportunities to Shape the EU's Energy Transition" webinar hosted.

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Addressing the EU’s energy crisis will require supporting consumers, encouraging market investment, and advancing decarbonization efforts. Achieving this balance will be challenging, but may also provide opportunities to introduce reforms to the energy market that could reshape it for the better.

To discuss the current energy crisis in Europe and how the bloc should move forward, FiscalNote invited experts in the region’s energy policy to participate in the webinar, “2023 Energy Crisis: Opportunities to Shape the EU’s Energy Transition.” Speakers were Anne Radermecker, policy officer at the European Commission, DG Energy; Eberhard Röhm-Malcotti, head of EU energy policy at Axpo; Arben Kllokoqi, director for electricity market design at the European Federation of Energy Traders; and Álvaro Herrero de la Fuente, energy and climate analyst at FiscalNote EU Issue Tracker. The panel was moderated by Geraint Edwards, managing director at FiscalNote Europe.

Report: The Top Issues to Watch in Europe for 2023

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The panelists shared an insightful conversation that examined where the EU energy market stands today, what policies are likely to shape it in the near future, and how it can evolve to become stronger in the long term. Here, we bring you the highlights from their conversation.

The Current State of EU Energy Regulations

To address the urgent disruptions that are currently facing Europe’s energy market, the EU put several emergency measures in place during the latter half of 2022. Radermecker provided an overview of these measures, which include monetary aid to offset high energy prices, improved renewable permitting, targets for reducing energy demand, revenue caps for inframarginal forms of power generation, surplus profit collections imposed on fossil fuel companies, and redistribution to end-consumers.

The EU Commission is scheduled to review these emergency measures on June 30, 2023, when they’ll be either extended or allowed to sunset. However, Herrero de la Fuente said that “there are developments from the side of the European Parliament and the Council to introduce some of these provisions in ongoing legislative files, so that they will become permanent under EU law.” Provisions being considered for future legislation by Parliament members include measures related to gas demand reduction and the development of renewable energy sources, as well as proposals to establish solidarity agreements between member states that enable intrastate gas sales.

In addition to evaluating the current emergency measures, the EU Commission is also looking at the region’s energy market as a whole and investigating legislative reforms that could improve it. The Commission will produce proposals for reform in March, and the EU legislature will consider them in the following months, Radermecker said. Ideally, the goal would be to have reforms passed before next winter. Though timing for developing and debating these reforms will be shorter than usual, the intention is to create long-term legislation.

As for what can be expected from these upcoming reforms, Radermecker said they will be based on three main pillars with a number of policies under consideration for each:

  • Make electricity bills less dependent on the price of natural gas. The Commission is considering increasing the use of power purchase agreements (PPAs), giving consumers access to fixed electricity supply contracts, and empowering consumers to have more direct access to renewables.

  • Accelerate the deployment of renewable energy sources. Proposals under consideration include incentivizing demand response storage, encouraging flexible supply, and enhancing cross-border trading.

  • Better consumer protection and empowerment. Proposals under consideration include supplier of last resort and potential intervention in crisis times. The Commission is also looking at a market monitoring and surveillance framework that allows for member state intervention.

Building an Effective Plan to Curb the EU’s Energy Crisis

To ensure the reforms ultimately put in place are effective for all parties, the Commission held a public consultation period until February 13. The speakers shared what they intended to contribute to the public consultation and how they believed the Commission could make the upcoming reforms most impactful:

1. Industry Perspectives on Market Reform

The European Federation of Energy Traders (EFET) hopes to see most existing emergency measures repealed — “they do not fit the market mechanisms and very much will distort the incentives in the market,” Kllokoqi said.

He also weighed in on the use of PPAs, saying that “these are important instruments when they are [used] on a voluntary basis between market participants … [But] we do not consider that they should become an imposed instrument.” If energy producers are restricted by PPAs, he said, “there is no incentive for those producers to act on the forward market … or optimize on the short-term market.”

In addition, Kllokoqi advocated for an increase in long-term allocations for cross-zonal capacity, improvements to intraday electricity market coupling, and for “visibility and stability of the regulatory framework. The risk that the regulatory framework will change is maybe a deterrent to entering into a forward contract,” he said. “What we really need is stability.”

Röhm-Malcotti also argued for more stability by reminding the audience that though the EU energy market is facing challenges now, its underlying structure is still strong. “We've transformed a market that was segmented into a Pan-European market … I think that's a story that should not be forgotten,” he said. “And of course, there are challenges … we need an evolution. But we certainly don't need a revolution.”

He also echoed Kllokoqi’s call to encourage more market investment by repealing the emergency measures. “They have created damage to the investment climate, which is putting the European Green Deal at risk,” he said. “We certainly have to come back to a healthy investment climate where investors are willing to put the money into what is needed to reach the EU’s decarbonization goals.”

The energy sector will require quite a lot of investments over the years to reach the point where we want to get with regards to decarbonizing the economy

Arben Kllokoqi, Director for Electricity Market Design
European Federation of Energy Traders

2. Decarbonization Considerations

Decarbonization was at the top of all panelists’ agendas, as any long-term reform to the EU energy market has to be aligned with the EU’s decarbonization goals. Kllokoqi agreed with Röhm-Malcotti’s perspective regarding the relationship between decarbonization and a healthy investment climate.

“The energy sector will require quite a lot of investments over the years to reach the point where we want to get with regards to decarbonizing the economy,” Kllokoqi explained. “And if there are interventions and limitations and restrictions, we will most probably see investment moving from the electricity sector to other sectors, but also from Europe maybe to other regions. So, it is very important that [investment] incentives are in place.”

The panelists identified several other approaches that they believed would support decarbonization. Röhm-Malcotti particularly emphasized the importance of better permitting processes for renewable energy projects. “The uncertainty deriving from the length of the permitting procedures, but also the risk of them not leading to the desired project, is a major challenge,” he said.

To address these issues and other decarbonization concerns, the EU will have to resolve pending legislation around green initiatives and climate targets. Perhaps most timely is the debate surrounding the delegated act on hydrogen, which caused “a hold on the negotiations on the Renewable Energy Directive because … the targets on renewable forms of non-biological origin, where hydrogen fits, could not be set,” according to Herrero de la Fuente. (This act was adopted on Monday, February 13)

Other climate-related debates facing Brussels this year include “some parts of the Fit for 55 package that are still open … A successful deal on the hydrogen and gas markets decarbonization package, because that will be the foundation of the development of the hydrogen market here in Europe … [and an] initiative that the Commission will present in May, the EU Hydrogen Bank, will help to stimulate the development of this market,” Herrero de la Fuente shared.

3. The Need for Future-Focused Reform

The EU is facing an immediate crisis, yet there’s an imperative to address it in a way that considers future needs. There are calls among both industry and the public to bring down prices in a way that will ultimately stabilize the market and drive investment in renewable energy.

To do this, panelists stated that policy will need to be decided with careful deliberation that looks beyond short-term political gain.

“The dialogue about the electricity prices and markets is polarized and politicized and, of course, there is a lot of pressure on all policymakers,” Kllokoqi said. “We need to have in mind the big picture rather than the interests of one or two categories of [stakeholders] … It's worth making sure that we have a debate, and we address the pros and cons, and ups and downs, of each decision that we will make.”

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