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The European Commission (EC) has asked member states to cut back
on the natural gas some are using in their national decarbonization
plans.
Commissioner for Energy Kadri Simson explained the move in a
speech delivered remotely for the 14 March Energy Transitions event
hosted by UK policy institute Chatham House.
The EU has Russian natural gas imports, threatened with
disruption by the Russian-Ukrainian war, in its crosshairs. "The
diversification and market reform policies that were launched after
2009 when Russia stopped gas deliveries to Ukraine last time have
been helpful, but fall short of what now appears necessary," said
Simson.
Under a previously proposed package of measures called
Fit for 55, EU member states must not only cut gas consumption
by 30% bloc-wide. Now they must also keep more gas in storage under
a set of policies proposed to cut EU
dependency on Russia, REPowerEU. The policies are yet to be
approved by the EU's co-legislators.
As part of proposals, the EC plans to work with states to
identify the most suitable projects and reforms nationally and
regionally to "build on National Energy and Climate Plans (NECPs),"
existing Recovery and Resilience Plans (RRPs), interconnection
projects, and "any other relevant plans and climate resilience
needs," it said in the REPowerEU communication.
Latvia, Poland, and Lithuania pushed for a bloc-wide ban on
Russian gas imports during a meeting of heads of state to discuss
Ukraine in Versailles on 10 March, and a preliminary agreement was
reached to phase-out imports of Russian coal, gas, and oil.
Denmark has independently pledged a future ban on Russian natural gas
imports.
Change of plans
In 2019, EU states were required to submit NECPs outlining
national energy system decarbonization plans for 2021-2030, and in
2021 they made additional green pledges as part of
RRPs to gain EU pandemic recovery funding.
In her speech, Simson suggested member states relying heavily on
gas would "have to revisit their plans" under the REPowerEU
proposals.
Germany had planned to ramp up its use of natural gas for power
generation by 2030, according to analysis of NECPs by the anti-coal think tank
Ember.
Under Germany's plan that foresaw a
phase-out of coal-fired power, natural-gas-fired power was set to
play a bigger role in the medium-term, alongside renewable energy
and network flexibility.
EU states relying on natural-gas-fired power in their plans
included Belgium — which was set to increase consumption —
Italy, Spain, and the Netherlands, Ember found. The total gas-fired
electricity generation for the rest of the 27 EU nations was also
set to increase.
However, Germany's response to the Ukranian crisis has already
changed its approach to energy. On 6 March Germany's Finance
Minister Christian Lindner announced a $220 billion green spending
package to boost "charging infrastructure, hydrogen technology, and
the modernisation of industry," as well as reducing the impact of
high energy prices on consumers. One state, Lower Saxony, plans to
increase the use of shuttered coal power, and Finance Minister
Christian Lindner said that the Government should consider removing
Germany's ban on North Sea oil and gas production.
Bulgaria has already cancelled a gas-fired power plant that was
part of its plans due to the war. The country plans to increase
coal-fired power generation, alongside Romania and Italy.
Renewable PPAs take center stage
REPowerEU would require states to boost energy efficiency, add
renewables, and switch to industrial technologies that use natural
gas to run on electricity or other fuels, decreasing natural gas
consumption. One aim is to increase developers' wind and solar
deployment rate by 20%, saving 3 billion cubic meters of gas
bloc-wide.
Under REPowerEU, renewables are also set to grow. "Renewables
are homegrown, they create jobs, they spur innovation, and they are
a strategic investment in Europe's security and independence,"
Simson said in her speech.
"Of course, to scale up renewables at an accelerated pace that
we envisage, we need to take some steps that we have not taken
before, so I will propose ways to simplify and shorten permitting
and authorization."
Renewables would be spurred, for example, by REPowerEU measures
promoting more corporate power purchase agreements (PPA) and easier
power grid network and permitting procedures for developers, Simson
said.
Wresting supply chain from China
Simson referenced the REPowerEU plan's ambition to "re-create a
European solar energy supply chain." It suggests states monitor raw
materials production and inventories, and state and industry
partnerships that can consider "strategic stockpiling" if
needed.
REPowerEU proposes measures "that tackle strategic dependencies"
in solar, wind energy, and heat pumps through more EU and member
state financing. These technologies are expected to take up the
slack left by lower gas use.
In the industrial strategy, the EC identified about 20 products
for which it depends on China, comprising a 2.8% share of total EU
imports by value. Regarding renewables, it has been dependent on
China in particular for the permanent magnets used to generate
power in wind turbines, as well as for distribution cables, it
said.
The EU has for some time accused Chinese companies of selling
cheap renewable energy components to EU buyers, to the detriment of
its manufacturers.
Most recently, the EU imposed an anti-dumping tariff
on imports of optical fiber cables originating in China in November
before it imposed them on producers of
steel wind turbine towers.
In February, the EU imposed a tariff on fasteners
used in the electrical industries that the asia-based body China
General Machine Components Industry Association deemed "abuse."
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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