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Price of EU’s plan to cut dependence on Russian gas

repowereu plan to cut dependence on Russian gas price

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March 9, 2022

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Published:

March 9, 2022

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The European Union’s intention to cut its dependence on imports of Russian gas is very difficult to implement, but possible, although the cost will be very high. Member states will need to use subsidies to mitigate the impact on households and businesses, and one of the sources could be taxing windfall profits. In the light of the energy transition, it could be a great push for renewables, but also a step back due to the expected increase in the use of coal power plants.

REPowerEU is the EU’s newest plan, presented yesterday by the European Commission, to mitigate high energy prices and replenish gas stocks for next winter. The commission believes Europe’s imports of Russian gas could be cut by two thirds by the end of the year and that the dependence on Russian fossil fuels could end well before 2030.

The measures include a 90% filling target for gas storage by October 1, diversification of gas supplies, more rooftop solar panels, heat pumps and energy savings, decarbonization of the industry with electricity and renewable hydrogen, acceleration of the rollout of renewable power plants, and an increase in biomethane production.

A plan similar to the EUR 750 billion that was earmarked for pandemic recovery may be necessary

According to the Recharge and an analysis published by Reuters, it is possible for the EU to cut dependence on Russian fossil fuels, but the changes will be immense, and the cost high. Reuters noted that the EU has adopted a EUR 750 billion stimulus plan for the countries hit the hardest in the pandemic, and added a similar step would be needed here also.

WindPower Europe and SolarPower Europe said they are confident that the industry can deliver what is asked, but that an appropriate regulatory framework is needed.

Finding another supplier is expensive

The commission intends to replace 70 percent of gas imports from Russia with liquified natural gas (LNG), gas storage, imports via pipelines from North Africa and Azerbaijan, energy savings, as well as to substitute gas power plants with coal, nuclear energy, green power plants.

The commission intends to reduce gas imports from Russia by 112 billion cubic meters by the end of year, of which it plans to secure 50 billion cubic meters via LNG imports.

Of note, the 27-country block covers 90% of its gas consumption from other countries and Russia accounts for 45% of imports. It also has shares of 25% in incoming oil shipments and 45% in the coal purchased abroad.

LNG is more expensive than Russian gas even in normal circumstances, and now the prices have risen 10-fold in one year

The first problem in the implementation of the proposed measures will be the poor connection between the EU’s LNG ports in the UK, France, Spain, and the rest of the continent. However, the main obstacle for the LNG imports will be to secure enough quantities, so the International Energy Agency sees an increase by 20 billion cubic meters as more realistic.

LNG is more expensive than Russian gas even in normal circumstances, and now the prices have risen 10-fold in the past year. This means that consumers, both households and businesses, are going to pay more for energy, which will affect the living standard of all European citizens and the competitiveness of many firms, which puts governments in a delicate situation to act, according to the analysis.

It is possible to increase quantities bought from North Africa

The increase of pipeline imports by 10 billion cubic meters is achievable, and an arrangement with Algeria, for example, could secure additional quantities. Also, it is not difficult to introduce an obligation to fill 90 percent of EU gas storage, which covers 30 percent of winter consumption, but analysts warn that some of the storehouses are owned by Russian gas giant Gazprom.

The commission estimates 14 billion cubic meters of gas could be saved if EU citizens reduce the temperature on thermostats in their homes by one degree Celsius. But it remains to be seen what citizens have to say about the measure.

Substitution of gas power plants implies a rise for coal power plants, nuclear energy

The substitution of gas power plants could also decrease imports from Russia. In order to do that, EU countries must use coal and nuclear power plants and install new wind farms and solar power plants. All four segments bring challenges.

For example, Germany intends to phase out its remaining three nuclear plants – Emsland, Isar and Neckarwestheim – by the end of 2022, and the phasing out of coal power plants is ongoing in many countries. However, a few days ago, Executive Vice-President of the European Commission Frans Timmermans said EU countries can delay the coal phaseout to avoid Russian gas.

The commission plans to substitute 20 billion cubic meters of gas with new wind farms and solar photovoltaic capacities. Again, the IEA estimates that it is possible to achieve a three times lower result, according to the analysis.

Wind, solar industries: the goal is achievable if we solve permitting, introduce the right frameworks

The commission suggests that another 30 GW of wind energy, on top of the 450 GW that its decarbonisation scenarios foresee, could be deployed by the end of 2030.

Crucially, all of this depends on permitting, WindEurope said and added that the commission understands that long and overly complex permitting procedures are the main bottleneck to the expansion of wind energy.

WindEurope said the commission would present its guidance to national governments in May 2022 on how to improve permitting.

Taxing windfall profits must be done under the conditions set by the commission

In its newest plan the commission pointed to taxing windfall profits to mitigate high energy prices, but for a limited period of time and linked to predefined market conditions.

WindEurope asked the Commission to ensure that national governments comply with its rules.

Of note, the organization has recently warned that the EU is currently building only around half of the new wind farms that it needs to build to deliver its 40 percent renewable energy target.

Solar needs right frameworks in place

SolarPower Europe said the commission aims 1.5 solar rooftops installation this year. Including the rooftop solar goal, the RePowerEU strategy sets out a 420 GW target for additional EU solar capacity by 2030, bringing total solar installation in the EU to 565 GW.

According to Walburga Hemetsberger, CEO of SolarPower Europe, solar power industry is set to deploy over 30 GW, including 1.5 million solar rooftops, this year.

SolarPower Europe’s business-as-usual, most-likely scenario already predicts 672 GW of solar in the EU by 2030, or over 1 TW in the optimistic scenario, but with the right frameworks in place.

In response to the commission’s proposals, SolarPower Europe has published a pathway to the solar TW level in Europe.

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