The REPowerEU plan, introduced in May 2022, is reshaping Europe’s energy landscape while enhancing security of supply. This article explores its impact and the challenges in replacing fossil fuel imports.
A Paradigm Shift in Energy Policy
The REPowerEU initiative, unveiled in May 2022, is set to leave a profound and lasting imprint on the European Union’s (EU) energy security landscape. Notably, it has triggered a remarkable shift in the energy policy discourse and the broader political arena. In the past, the energy transition and security of supply often seemed at odds with each other. The prevailing argument was that while renewable energy sources were vital for the transition, fossil fuels remained indispensable for safeguarding energy security. However, a fundamental transformation is now evident: the pursuit of energy transition is becoming synonymous with ensuring security of supply.
The REPowerEU initiative plays a pivotal role in expediting this transition and diversifying energy sources. By focusing on accelerating the transition and diversifying supplies, it has catalysed a significant change in the political mindset. The energy transition, previously viewed primarily through the lens of climate policy, and environmental concerns, has evolved into a path leading towards genuine energy independence for Europe.
Overcoming Challenges in Fossil Fuel Replacement
While progress has been made, challenges persist in areas like energy use and transportation. The rise of electric vehicles is a notable development.
Despite these transformative strides, replacing fossil fuel imports comes with its set of challenges. Notably, the hurdles extend beyond power generation and touch on aspects such as energy consumption and transportation. However, encouraging signs are emerging. For instance, by the end of the previous year, electric vehicles accounted for over 20% of all new registered cars in Europe. This figure marks a remarkable shift towards cleaner transportation alternatives.
At the EU Sustainable Energy Week (EUSEW), the deputy minister of energy of Ukraine emphasized the connection between renewables and energy independence, underlining the significant role played by REPowerEU in hastening the transition and reinforcing Europe’s energy autonomy.
EU’s Investment in Gas Independence
The EU supports reducing gas dependence through investments in renewables and energy efficiency, using public funds to leverage private sector investments.
The EU’s commitment to reducing its dependence on gas is evident through substantial investments in renewables and energy efficiency, a practice in place for at least two decades. These investments have been channelled through various EU funds, including the structural funds, and the Connecting Europe Facility, along with research programs. The Recovery and Resilience Facility has amplified the prominence of these initiatives. While multiple EU funds finance energy investments, a key consideration is the efficient organization of this funding.
It is essential to acknowledge that a significant portion, approximately 80-85%, of the required investment for the clean energy transition must originate from the private sector. Therefore, the utilization of public funds to leverage private investments or cover areas with limited profit potential becomes crucial. Financial instruments are a valuable leverage option in this context. The EU budget, although modest in comparison, can exert substantial influence by directing overall investment, as evidenced by successful examples like the Energy Efficiency Financial Investment Group (EEFIG) and the Investors Dialogue on Energy.
Synopsis:
REPowerEU has changed the political mindset and diversified energy sources. The EU’s collective action during energy crises underscores its resilience and commitment to stability.
The impact of energy prices on inflation appears to be stabilizing after nearly two years of volatility. Wholesale gas prices have approached pre-crisis levels, signalling greater market stability ahead. A significant transformation has occurred in the energy supply landscape. At the beginning of 2022, Europe relied on Russia for over 40% of its gas imports. Today, that dependency has drastically reduced to only 6-7% of Russian pipeline gas and approximately 20 billion cubic meters of liquefied natural gas (LNG). This rapid realignment of energy trade flows is an unprecedented achievement within such a short timeframe. It was not only a politically justifiable move but also the right policy decision, albeit a formidable undertaking.
The successful reduction of gas dependence without compromising energy security is a testament to the European Union’s resilience and adaptability. Despite higher costs incurred during the transition, Europe did not experience any blackouts. This achievement defied initial scepticism and demonstrated the region’s ability to swiftly reduce overdependence on a single energy source. The market fundamentals have improved, with ample gas storage and access to global markets, primarily through LNG. Norway has emerged as a leading gas supplier, complemented by Algeria, the USA, and Azerbaijan. Collectively, these developments instil confidence in the EU’s capacity to manage its energy supply efficiently, influencing both price volatility and levels.
The EU’s actions and measures last year significantly stabilized the situation in response to energy prices. Firstly, they maintained political coherence and a unified approach across EU member states. Secondly, these measures targeted demand reduction and energy supply augmentation for Europe. However, it is crucial to acknowledge that households and industries achieved the ultimate demand reduction. The European Parliament collaborated with the European Council to implement these measures effectively. Europe, in a coordinated manner, met energy demand, averting regional or localized blackouts that could have occurred without a functional internal energy market.
Looking beyond energy policy in its broadest sense, last year’s crisis response illustrates the EU’s resilience and its ability to act decisively during adversity. Despite doomsday predictions, the EU consistently weathered crises, emerging stronger each time. These crises refined the EU’s crisis-handling capacity, and the energy crisis last year showcased a level of political commitment surpassing economic or financial considerations. The EU’s response stemmed from a dedication to becoming a formidable geopolitical actor and fostering stability in Europe. This crisis represented a historical task, with everyone actively participating, distinguishing it from previous crises witnessed during my career in the Commission.
Feel free to contact the Energy Transition Centre today with questions.
· Julius Moerder, Head of Energy Transition Centre julius.moerder@centurionlg.com
· Oneyka Ojogbo, Head of Energy Transition Centre, Nigeria & West Africa oneyka.ojogbo@centurionlg.com
· Leon van Der Merwe, Head of Energy Transition Centre, South Africa leon.vdmerwe@centurionlg.com
Author: Memoona Tawfiq
