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    French Expert Weighs in on the State of the Energy Union

Summary

Dominique Auverlot, head of the sustainable development department at France Strategie reacts to the first report of the State of the Energy Union.

by: Kevin Bonnaud

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Featured Articles, Security of Supply, Energy Union, Carbon, Liquified Natural Gas (LNG), Pipelines, France

French Expert Weighs in on the State of the Energy Union

The following is an Interview with Dominique Auverlot, head of the Sustainable Development department at France Strategie, a government agency (part of the General Commissariat for Planning and Forecasts). Mr. Auverlot co-authored a study on the Energy Union released last August. In an exclusive interview, Natural Gas Europe (NGE) asked for his reaction to the first report of the State of the Energy Union, including the "factsheet study" on France.

The commission welcomes France’s Energy Transition Law but did not give a blank cheque to the French government, saying that France is among the countries that need to assess whether their policies and tools are sufficient and effective in meeting their renewable energy objectives”. France will also have to reduce its energy use between 2014 and 2020 at a faster pace than between 2005 and 2013.

Natural Gas Europe: Will France be able to meet its ambitious objectives?

Dominique Auverlot: All of the law's objectives will be re-evaluated regularly. The objectives taken in the low carbon strategy are relatively ambitious, especially in terms of increasing the share of the renewables in the energy mix, but they are achievable. It’s what industrials in the sector predict. The decree on the Low Carbon Strategy was published on 19 November (the day after the commission released its energy report). The decree includes a drop of 40% in terms of greenhouse gas emissions by 2030 and the energy law includes a drop of 75% by 2050 compared to 1990 levels. Energy Minister Ségolène Royal launched (the same day) a monitoring committee of the multi-annual energy programming aimed to set priorities for public authorities in the energy transition, and that enforces the energy law.

NGE: The commission also pointed out the concentration of the electricity and gas markets in France. The report adds that “France would benefit from further reducing the concentration of the wholesale electricity market”. Does France need a less concentrated wholesale market to build a more integrated European market?  

D.A: EU member states had to react their own way to the regulation of the electricity market, which has been in crisis for various reasons, and because of a lack of a common policy at a European level. Every country is trying to solve its own problem to provide electricity at its peak energy demand.

With a price so low on the wholesale market, no investment is possible. So, some EU members compensate the market by securing a price for 20 or 30 years to launch new investments, which is the opposite of the free market.

On the capacity mechanisms, Germany is trying to create a power reserve mechanism while France wants a capacity market.

NGE: what’s your assessment on the current state of the electricity market in Europe? What should the Commission be doing?

D.A: One of the main concerns on the state of the Energy Union can be summarized in one question: What will the Commission and the European Union do about the much needed reform of the electricity market? This market is in a really bad shape. We are facing a field of ruins. We are losing competitiveness to others regions like the US. Foreign investments are limited.

The Commission likely did not expect the collapse of the market with the economic crisis and the development of renewable energies outside of the market through subsidies. Prices went down on the wholesale market while surging on the retail market.  

So, the physical coupling is working but it’s not viable economically speaking. We need to rebuild a market, which rewards both energy and power. I am concerned about the fact the Commission has not raised the question in a clear way.

NGE: Why is fixing a carbon price such an essential tool in the energy transition? 

D.A: We need to have a carbon price which is meaningful and foreseeable over time, but we are not quite there yet. The carbon price is currently at EUR 7 or 8 when it should be close to EUR 20 and increase gradually, year by year.

If the carbon price is too low, then we need to develop subsidies on clean energies.

On this very issue, I am doubtful that the European Commission measures will be sufficient. We need to improve the tools to fix the electricity market, the carbon market. This is the pathway towards a more ambitious Europe with a carbon-free economy while promoting innovation and research based on carbon price instead of subsidies. The main challenge of the Energy Union is more about the economy.

European countries must agree on an evolving trajectory, or at least a floor price.

NGE: On the 195 Projects of Common Interest selected by the European Commission, 108 concern electricity projects and 77 gas infrastructure. From your perspective, do you think the realization of these projects and the investments will be sufficient to secure the supplies?

D.A: Improving the safety of supplies and the response to a supply crisis are the primarily goals of the Energy Union. Some important progress has been made in the past several years since the Gas Supply Directive in 2010. Reversibility in gas interconnections has increased, the number of two-way interconnection points have jumped from 24% to 40% between 2009 and 2014. Additional infrastructure has been built. Poland has just inaugurated a new LNG terminal, and another terminal is located in the region. Pipelines are working from Poland to Ukraine. We must continue. The list of Projects of Common Interest selected by the Commission is a good step in the right direction. It’s a very positive development.

NGE: How should Europe's relationship with Russia evolve given the current political environment and the Russian dependency many countries have, including the European Union as a whole?

D.A: The biggest challenge for the Energy Union is the handling of Russia. France Stratégie believes Europe should have a constructive relationship with Russia. It’s essential because Russia is the main gas provider of the EU. Half of the gas used imported to Europe comes from Russia. Europe may have to rely even more on Russia in the future because of the decline of the production in the North Sea, but also to a lesser degree in Algeria.

It has always been hard to find common ground In Europe when it comes to Russia, as Eastern European countries like Poland are still concerned about Russia while Germany, less worried, is pushing for a stronger partnership with Russia. Russia is a very challenging geopolitical issue for Europe.

The Commissioner for energy must preserve a good partnership with Russia in the wider and more uncertain context of the evolution of Russian-European relations. 

NGE: How can we strengthen our partnership with Russia in a time of conflict between the Commission and Gazprom?

D.A: Gazprom does not respect a number of rules set by the European Commission in Europe. According to the Commission, Gazprom fixes very different prices from one country to another, which seems to show an abuse of dominant position.

Meanwhile there have been some encouraging recent developments. Last September, Gazprom came back to the Commission and proposed an open dialogue with proposals: for instance, selling gas on a spot market aimed to find a balancing price opposed to long-term contracts with very different prices. I think we are heading into a new phase that could be constructive with Gazprom and Russia on this very issue. It’s good, if not great, news.

NGE: Should Europe encourage new pipeline projects to fulfill its energy needs without weakening growth in Eastern European countries like Ukraine?

D.A: The dispute over Ukraine and ongoing pipelines projects is not going to ease the relationship between the European Union and Russia. Russia doesn’t want to rely on Ukraine anymore to export its gas throughout Europe. Russia would like to bypass Ukraine with the Nord Stream 2 project and the southern pipeline in Turkey. Europe hasn’t a clear position on this particular issue. Ukraine would lose money if the pipelines are built, so Europe would like to make sure Ukraine gets supplies from another country.  

On the other hand, the project would be good for Germany if the country wants to get out of coal. The European Commission has expressed some reservations, but we should discuss it.

Should the Commission oppose a project that would ultimately meet some energy needs? I really do not know how the current diplomatic dispute between Russia and Turkey over Syria would impact Turkish Stream. We have also to consider that building pipelines by bypassing some countries may not be a good sign if we are serious about implementing the principle of solidarity in case of crisis.  

NGE: The best way to be less dependent on Russian gas may be to look for alternative suppliers. How may the recent discoveries in the Mediterranean Sea and the energy boom in the United States change the equation in Eastern Europe?

D.A: Europe has recently developed a new partnership with Mediterranean countries to benefit from the gas resources that could be exploited in the eastern part of the Mediterranean Sea, especially in Cyprus. Europe is actually looking for new gas providers but does not necessary want the shale gas produced in the United States. The good news is that North America is no longer a market for traditional gas suppliers. They may redirect their resources to Europe. Liquefied Natural Gas becomes key to gas supply and can secure a significant amount of energy.

Gas resources coming from the new LNG terminal in Poland could be more expensive than the Russian gas, but the Poles may accept an increase in energy bills to get rid of the “painful” Russian dependency. That’s why they are sticking with coal, and have experimented with shale gas. The new gas terminal, along with interconnections with neighbouring countries, is a good signal, but they would have to reduce their use of coal.

NGE: Is there a lack of ambitions or leadership at the European level to close the gap between the recommendations you made in your own report back in August and the proposals of the European Commission?

D.A: The Commission is not easily questioned on its own reform of the electricity market nor the carbon market that it manages. It would rather make some adjustments. As a result, the process does not move so quickly despite the ambitions of the COP21, the climate talks aimed to reduce global warming to 2 °C, to get into a post 2050 world without carbon emissions. To achieve that goal, we need the means and the economic tools that will prevent spending too much money.

Interview by Kevin Bonnaud