Work on the EU Clean Energy Package well underway – how to make it even better?

The Finnish Government published the National Energy and Climate Strategy for 2030 on 24 November 2016. Six days later, the European Commission presented the clean energy package, a set of legislative proposals to implement the EU’s energy and climate goals in comprehensive and systematic ways. Estonia’s EU Presidency culminated this week when the Energy Council agreed its general approach on four legislative proposals of the package. It is time take stock of the progress of the clean energy package with regard to Finland’s and EU’s goals before the trilogues with the European Parliament start and see what we could do even better.

“Putting energy efficiency first” is a common vision for energy policy. It has held true for the clean energy package as well: in June 2017, the Council of the European Union agreed its general approach on the Energy Efficiency Directive and the Energy Performance of Buildings Directive. It also raised the stakes by redefining the EU’s energy efficiency goal for 2030 from 27% to 30%. Since the new goal is not binding, it is likely to be on the agenda in the codecision procedure with the European Parliament. The Energy Performance of Buildings Directive is the first item in the package also in the trilogue phase.

Finland has already worked hard for energy efficiency. However, our energy-intensive industry is a challenge when energy efficiency progress is measured mechanically in terms of overall energy consumption. The Council’s position on the Energy Efficiency Directive is in any case commendable. In general, more attention should be paid to achieving overall efficiency of energy systems and to ensuring better integration of the electricity, transport and heating and cooling sectors. For this, we will need smart grids and demand response systems. Highly detailed legislation on energy efficiency measures should be avoided.

EU’s electricity market design has far-reaching significance

Well-functioning electricity markets are the key to higher efficiency, greater economic growth and lower costs. Markets that give the correct price signals to demand and supply response will reduce the need for investments in power plants and electricity networks and give the consumers the opportunity to save on their electricity bill. The proposals discussed this week in the Council give a good foundation for progress: the basis is the so-called ‘energy-only market’ where the prices would be determined at 15-minute intervals, creating incentives to adjust demand and improve electricity storage. Well-functioning intraday and balancing markets would create better possibilities to deploy weather-dependent wind and solar power.

One flaw in the design is that the Council’s position would allow national regulation on consumer prices well into the future. In any case, this kind of price manipulation must not distort the European wholesale electricity market. The Council also kept the option to use the capacity mechanisms, although their use would depend on EU and regional level discretion instead of national discretion only. Particular caution is called for here: we do not want to destroy the operating conditions for electricity markets. For Finland, it is important to create well-functioning rules for the so-called strategic reserves, which are a reserve capacity for maintaining the level of electric power in exceptional circumstances. Strategic reserves do not influence the market mechanism as such.

Removing physical bottlenecks for electricity transmission is one of the most important means of promoting well-functioning electricity markets. In this regard, the Council could have shown more ambition. The transitional periods for removing the bottlenecks may turn out to be too long for example in Germany. Moreover, the formation of price zones should better reflect congestion in power networks.

Common rules for interconnectors to and from third countries were discussed when the Commission issued its proposal to amend the Gas Market Directive. This is an important issue for the countries on the borders of the EU. Since the current legislation and the proposals were made with a different situation in mind, it was a wise move from the Council to put the definitions of interconnectors on hold for a more thorough consideration later.

Recognition for bioenergy

Finland’s National Energy and Climate Strategy is very ambitious, and our aim is to raise the share of renewable energy to 50% of the final energy consumption by 2030. In the transport sector, the aim is to increase the share of renewable energy sources to 30% mainly by deploying advanced biofuels. In the clean energy package, our focus has been on how the EU deals with bioenergy, which is a key energy source in Finland. Logically, all renewable energy sources should be treated in equal and technology-neutral ways.

The continued deployment of wood-based energy was ensured earlier this autumn, when a well-functioning solution was found for the LULUCF regulation on land use and carbon sinks. It is a good result for Finland as it allows us to continue using our forest resources wisely and harvest domestic wood for our industry. The demand for wood raw material naturally depends on the needs of the forest industry and the wood processing industry; as a general rule, it is wise to produce bioenergy from industrial waste and residues only.

The Energy Council also discussed its position on the Renewable Energy Directive. Finding well-functioning sustainability criteria for both the general energy use of forest biomass and the biofuels for transport was important for Finland. We succeeded in both. According to the Council’s position, the sustainability of forest biomass will be assessed through a risk-based approach, which is both sensible and efficient in administrative terms.

The Council decided to continue using the current (ILUC) list of raw materials for biofuels. This solution, if accepted in the codecision procedure, would mean both continuity and predictability for the biofuel producing industry as well as for biofuel users in Finland and across Europe. In Finland, however, we did hope to have even more ambitious goals especially regarding advanced biofuels. These obligations will be finalised in the trilogues next year. Transport plays a key role everywhere when emissions are reduced in the effort-sharing sector. It is also clear that many different kinds of technologies will be needed to take into account differing conditions in individual Member States. Biodiesel, for example, is a cost-effective way to reduce the greenhouse gas emissions in heavy road traffic.

What is also positive about the Renewable Energy Directive is that it aims to promote renewable energy in its different uses, inter alia in the heating and cooling sector. However, national aid schemes would not be available for cross-border projects. Open aid schemes would be politically problematic since the idea is that Member States can use the aid to steer domestic production.

Governance design steers the implementation of the Energy Union

The regulation setting out the governing rules of the Energy Union will oversee the implementation of the EU energy goals and the coordination of national policies in Member States. An important tool will be the Member States’ integrated national energy and climate plans, which will be updated regularly and examined together with the Commission and the Member States. In the plans, the Member States will define their national targets for achieving the 2030 EU goals especially with regard to renewable energy and energy efficiency. In the negotiations, Finland emphasised the need to consider all relevant circumstances – including bioenergy regulation in the EU – when assessing a Member State’s performance in reaching the goals.

The idea is that the first integrated national energy and climate plans will be submitted to the Commission by the end of 2019. The long-term low emission strategy has the same deadline. In Finland, this will mean long days for us energy officials: Finland will assume the EU Presidency in autumn 2019 at a time when we not only have a brand new Parliament and Commission in the EU but also a brand new Parliament and Government in Finland. A general problem with the governance design is the heavy reporting duties.

Keeping in mind the quality and functioning of legislation

The cornerstones of Finland’s National Energy and Climate Strategy are cost-effective reduction of emissions, well-functioning energy markets and wide-scale deployment of renewable energy. Our energy and climate policy must take into account Finland’s natural conditions, such as heating needs in a cold climate as well as our long transport distances. We also need to take into consideration our own energy potentials and raw material resources, e.g. forest biomass.

It seems to me that the essential elements of the clean energy package will give us the tools to reach both Finland’s own and the EU’s strategy targets. We, who eventually will be implementing the clean energy legislation, put high value on the quality and efficient functioning of the legislation. Although the different parts of the clean energy package will be negotiated at different times and to some extent by different people, the final legislative package should be coherent. Another important issue for the negotiations is that the steering instruments should be predictable, cost-effective and reasonably scaled. Overall, empowering market-based tools are a better option than tailored measures based on detailed legislation.

Riku Huttunen
Director-General of the Energy Department