Dominique Ristori, the director-general for energy at the European Commission, has voiced concern about Europe’s energy security amid the crisis in Ukraine, saying the European Union needs to respond by focusing on cross-border initiatives aimed at improving the resilience of its energy market.
Speaking during an exclusive interview with Energy Risk, Ristori reiterates the findings of a May 28 strategy document by the EC, which highlights the need to reduce the EU’s dependence on Russian imports. “It is not acceptable to have some member states – in particular, the Baltic states – depending 100% on the Russian grid,” he says.
Ristori suggests several ways this dependency might be rectified. They include developing new supply routes, diversifying Europe’s energy mix, improving grid infrastructure and upping interconnector capacity to encourage more cross-border energy trading. They also include continuing to develop ideas for energy storage and fostering the development of the global liquefied natural gas market, for instance.
“We should integrate more and better what is new in the world energy panorama – both in terms of supply and in terms of demand – because this will affect energy prices, but also our situation in terms of dependency,” Ristori explains.
Some of those topics are likely to be on the agenda at the upcoming Florence and Madrid Forums – two biannual gatherings of the industry and regulators dedicated to electricity and natural gas, respectively. Having started those forums as director in charge of EU energy policy during the late 1990s, Ristori says he would like to see both of them relaunched to focus on a smaller and more pressing set of priorities.
It is not acceptable to have some member states – in particular, the Baltic states – depending 100% on the Russian grid
“We cannot manage all priorities at the same time. If we have some priorities, it is to deliver well on the key aspects that are more important than others. At the present time, considering the new architecture of the market, these are cross-border exchanges, as well as security of the market and the grid. And, of course, the new investment required for transmission, distribution and generation,” he says.
In the US, technological changes have delivered a boom in the production of shale gas during recent years. Similarly, exploratory drilling for shale gas can help Europe raise its level of energy security, according to Ristori. While it is obvious the EU “is in a different situation to the US”, it would “not be responsible to close one’s eyes” when it comes to the development of shale, he notes.
Worried about the potential environmental hazards, some EU countries have banned hydraulic fracturing – or ‘fracking’ – while other countries are pressing ahead with plans to develop shale resources. But as long as the risks of shale gas drilling can be managed, then Ristori believes economically viable projects ought to be explored. “If we will be in a situation to manage this risk, and if we have the capacity to develop economically viable projects, then why not? This will contribute to reducing our external dependency and increasing our competitiveness.”
Another answer to Europe’s security of supply woes is the continued expansion of renewable generation. In January, the EC proposed that renewables should make up 27% of EU energy consumption by 2030, as part of a package of targets that are yet to be approved by member states. Typically, many European governments have supported renewable generators via feed-in tariffs, which guarantee such generators above-market rates for their power.
During a European Council meeting from March 20–21, EU leaders agreed to seek greater harmonisation in the way they support renewables, and switch towards “a more cost-effective and market-based system”.
Such goals are lauded by Ristori. “I am comforted by the agreement obtained in March concerning this approach. This is completely new, because during years and years in the past, many countries were opposed to any convergence of national support schemes or a new market-based approach.”
The agreement means the EU “should progressively eliminate all unjustified subsidies”, argues Ristori. He believes such subsidies are counterproductive, leading to a “distortion of competition, as well as uncontrolled cost”.
Many of the renewable energy sources being subsidised by EU countries are already competitive, he asserts, including technologies such as onshore wind and photovoltaic solar. Those that are not yet mature, such as offshore wind, should continue to be subsidised – but any support schemes need to be co-ordinated at a regional or European level, he adds.
Other subsidies should also be co-ordinated, Ristori believes, including subsidies for spare capacity, which are gaining traction as EU countries seek to accommodate rises in renewable generation. “We will not encourage or support efforts to ensure or develop capacity markets at national level. But we will facilitate any development organised at regional level,” he says.
On the question of subsidies, Ristori says he will not pre-judge the outcome of an EC state aid investigation into Hinkley Point C – a new nuclear power station being built in the west of England by a consortium including French power giant EDF. An investment contract between EDF and the UK government awaits approval under the EC's strict state aid rules, which generally prohibit selective support for industry. The investment contract is an early form of the contracts-for-difference expected to be used to support other green generators under the UK's forthcoming Electricity Market Reform.
Despite his reticence, Ristori says it is important to acknowledge that sometimes the market fails when it comes to financing. “Sometimes, we should admit to market failure regarding financing. If we have important investment required for new generation capacity and obviously there is no market solution, it is important to present and examine some possibilities of doing things differently… based on what it is necessary to accept.”
The week in Risk.net, February 10-16 2017Receive this by email