# IMMC.EESC-2022-05991-AC.ENG.xhtml.EESC-2022-05991-00-00-AC-TRA-EN.docx

| OPINION |
| --- |
| European Economic and Social Committee |
| State of the Energy Union 2022 |
| _____________ |
| Report from the Commission to the European Parliament,

  the Council, the European Economic and Social Committee and the Committee of the Regions – State of the Energy Union 2022 (pursuant to Regulation (EU) 2018/1999

  of the Governance of the Energy Union and Climate Action)

  [COM(2022) 547 final] |
| |
| TEN/791 |
| |
| Rapporteurs: Marcin NOWACKI, Angelo PAGLIARA, Lutz RIBBE |

OPINION

European Economic and Social Committee

State of the Energy Union 2022

_____________

Report from the Commission to the European Parliament,

  the Council, the European Economic and Social Committee and the Committee of the Regions – State of the Energy Union 2022 (pursuant to Regulation (EU) 2018/1999

  of the Governance of the Energy Union and Climate Action)

  [COM(2022) 547 final]

TEN/791

Rapporteurs: Marcin NOWACKI, Angelo PAGLIARA, Lutz RIBBE

EN

Referral

| Referral | European Commission, 24/11/2022 |
| --- | --- |
| Legal basis | Article 304 of the Treaty on the Functioning of the European Union |
| Section responsible | Transport, Energy, Infrastructure and the Information Society |
| Adopted in section | 07/03/2023 |
| Adopted at plenary | 22/03/2023 |
| Plenary session No | 577 |
| Outcome of vote
  (for/against/abstentions) | 208/4/7 |

Referral

European Commission, 24/11/2022

European Commission, 24/11/2022

Legal basis

Legal basis

Article 304 of the Treaty on the Functioning of the European Union

Article 304 of the Treaty on the Functioning of the European Union

Section responsible

Section responsible

Transport, Energy, Infrastructure and the Information Society

Transport, Energy, Infrastructure and the Information Society

Adopted in section

Adopted in section

07/03/2023

07/03/2023

Adopted at plenary

Adopted at plenary

22/03/2023

22/03/2023

Plenary session No

Plenary session No

577

577

Outcome of vote
  (for/against/abstentions)

Outcome of vote
  (for/against/abstentions)

208/4/7

208/4/7

1.Conclusions and recommendations

1.

Conclusions and recommendations

1.1With its 2022 Report on the State of the Energy Union, the European Commission presents a quite optimistic reflection on the measures taken and goals set in the last months.

1.1

With its 2022 Report on the State of the Energy Union, the European Commission presents a quite optimistic reflection on the measures taken and goals set in the last months.

1.2Reading the report it becomes clear that many objectives that were perceived before the war against Ukraine as being too ambitious are now presented as being realistic answers to the energy crisis. The question arises as to what hindered the EU as a whole from being more straightforward when it came to climate protection, security of supply, energy autonomy and resilience of the European energy system before 24 February 2022.

1.2

Reading the report it becomes clear that many objectives that were perceived before the war against Ukraine as being too ambitious are now presented as being realistic answers to the energy crisis. The question arises as to what hindered the EU as a whole from being more straightforward when it came to climate protection, security of supply, energy autonomy and resilience of the European energy system before 24 February 2022.

1.3While it is instructive to learn about the various facts and figures that are presented in the Communication, the Energy Union is about much more than mathematically or statistically definable targets for the roll-out of renewable energy, energy savings or emission reduction. The EESC points out that that the Energy Union is above all a political project with the following precisely defined political objectives, described as visions
  1
  :

1.3

While it is instructive to learn about the various facts and figures that are presented in the Communication, the Energy Union is about much more than mathematically or statistically definable targets for the roll-out of renewable energy, energy savings or emission reduction. The EESC points out that that the Energy Union is above all a political project with the following precisely defined political objectives, described as visions
  1

:

(1)An Energy Union built on solidarity and trust between Member States speaking with one voice in global affairs;

(1)

An Energy Union built on solidarity and trust between Member States speaking with one voice in global affairs;

(2)An integrated energy system where energy flows freely across borders, based on competition, effective regulation and optimal use of resources;

(2)

An integrated energy system where energy flows freely across borders, based on competition, effective regulation and optimal use of resources;

(3)A sustainable low-carbon and climate-friendly economy designed to last;

(3)

A sustainable low-carbon and climate-friendly economy designed to last;

(4)Strong, innovative and competitive European companies developing products and technology needed for energy efficiency and low carbon to reduce bills, actively participate in the market and where vulnerable customers are protected;

(4)

Strong, innovative and competitive European companies developing products and technology needed for energy efficiency and low carbon to reduce bills, actively participate in the market and where vulnerable customers are protected;

(5)Building up the skills of the European workforce that are necessary for building and managing Europe's energy economy;

(5)

Building up the skills of the European workforce that are necessary for building and managing Europe's energy economy;

(6)Creating investor confidence based on price signals communicating long-term needs and policy objectives, which assumes, inter alia, phasing out subsidies for fossil energies; and

(6)

Creating investor confidence based on price signals communicating long-term needs and policy objectives, which assumes, inter alia, phasing out subsidies for fossil energies; and

(7)Putting citizens at the centre of the Energy Union, who take ownership of the energy system transition, benefit from new technologies to reduce their energy bills, participate actively in the market and where vulnerable consumers are protected.

(7)

Putting citizens at the centre of the Energy Union, who take ownership of the energy system transition, benefit from new technologies to reduce their energy bills, participate actively in the market and where vulnerable consumers are protected.

The report provides a description of measures so far undertaken or planned toward the implementation of these visions. The EESC nevertheless regrets that the account provided in the report does not relate to the visions but, rather, to the five mutually reinforcing and closely interrelated dimensions designed to bring greater energy security, sustainability and competitiveness. This double set of on the one hand objectives or visions and on the other hand dimensions makes it extremely difficult to follow the implementation of the visions, also because for instance the issues of citizens at the centre of the energy union or the need for upskilling and reskilling of the workforce appear in several of the dimensions. The EESC regrets that this makes it very difficult to follow the progress made in implementing the objectives of the Energy Union Strategy.

1.4The Communication rightly makes reference to the REPowerEU plan, which has been supported by the EESC and which has revived and strengthened the Green Deal and Fit for 55 instruments, focusing on diversification, savings, security of supply and speeding up renewable energy source development. However, the current climate and energy crisis, and the lack of security, stability and predictability in supply and prices, are putting a huge strain on the European Union. The crisis would be less severe if more targeted action had been taken earlier and, for example, if the EU's own objectives (such as those of the European Energy Union) had been taken more seriously.

1.5According to the 2022 Report on the State of the Energy Union, an estimated EUR 300 billion of public money needs to be invested in the different lines of action aimed at achieving full independence from Russian fossil fuels between now and 2030, which will have a significant impact on the EU's total budget. Additionally, further private investment will be required, including investment by European citizens. The EESC believes that the money needs to be spent in a way that helps achieve the above-mentioned objectives of the Energy Union. Also, the spending should not lead to a reduction in resources for the just transition, for research and innovation, or for businesses and consumers affected by rising energy prices.

1.6The unprecedented rise in energy prices, triggered by Russia's invasion of Ukraine, is bringing about enormous social and economic consequences, as well as consequences for countries' industrial and productive fabric. The EESC underlines the lack of clear European coordination during the energy crisis and, as part of the response, calls for the creation of an instrument based on the SURE model, in order to support workers and businesses in difficulty.

1.7Recent events have increased the potential risk of cyber-attacks and acts of sabotage on critical infrastructures such as the energy grid and power plants. The EESC therefore recommends designing and adopting a comprehensive strategy to protect the EU against these kinds of threats.

1.8The main medium-term strategic objective of the EU countries – specifically in the light of what has happened with the war in Ukraine and also considering a possible further complication of the international situation – must remain that of energy autonomy. We understand "strategic energy autonomy" to mean a political concept that will help shape the future EU energy market, where autonomous decisions made by the EU will guarantee energy independence from unreliable suppliers. The EESC regrets the fact that this topic is not properly considered in the report and remains in the shadows, with the focus solely on independence from energy imports from Russia.

1.9In order to reach the EU's strategic autonomy objectives, the EESC calls on the Council and the Commission to develop appropriate instruments, including through the establishment of a European Sovereignty Fund, to boost investment in clean domestic energy technologies and energy infrastructure. At the same time, it is crucial to encourage the Member States to use the funds optimally and efficiently for clean energy development. Such a strategy must also include guidance on how to motivate businesses, community institutions, members of the public and energy communities to invest more. The instruments and resources that are currently provided appear insufficient for the major challenges that need to be addressed. The EESC invites the Commission to take particular care with regard to the impact of new resources and supplies on the environment, and with regard to new dependencies on third countries.

1.10When developing energy autonomy, the EESC proposes to follow a bottom-up approach since this approach makes it easier to achieve the objectives mentioned in point 1.3.

1.11The Green Deal is not yet accompanied by the equivalent social policies to make this transition a just transition. Given that employment and industrial systems will be greatly affected by the transition processes, the EESC regrets the fact that the report does not properly take into account the importance of comprehensive employment, skills and social policies. Educational investments, reskilling and upskilling need to be seen as a socio-economic responsibility.

2.General comments

2.1The ideal answer to the supply shock generated by the Russian aggression against Ukraine and the answer most in line with the strategic goals of the Energy Union would be an energy system based on 100% domestic clean energy. We are aware that there is no agreement as to whether it is feasible for this objective to be met. But in the expected scenario, such an energy system would bring as a central benefit absolute autonomy and high resilience. Once the capital expenditure for investments in renewable energy installations, smart technologies, clean transport and energy efficiency is refinanced, it would offer the most affordable energy to the final consumer while strengthening local and regional economies and creating more jobs than the old system. All those benefits are clearly described in the respective recitals of the Clean Energy Package. While renewable energy theoretically has the potential to ensure energy autonomy in operational terms, it still needs to be ensured that the whole ecosystem, including the material for the renewable installations itself, allows for local production. However, the State of the Energy Union Report shows that the European energy system is still a long way from meeting this goal.

2.2This situation thus calls for differentiation: if absolute autonomy is not reachable, the EU will need strategic autonomy. Strategic autonomy would involve defining to what degree energy imports will remain unavoidable in the future and what this means for the vulnerability/resilience of Europe's energy system. However, the State of the Energy Union does not give any answer to this, neither does any other strategy paper of the Commission provide such indications.

2.3To answer the question mentioned in point 2.2, the contribution of renewable energies, including electrical storage and demand management and other flexibility options, to cover the demand in the sectors of electricity, heating and transport needs to be calculated (capacity credit). The capacity credit is the fraction of the installed capacity of a power plant which can be relied upon at a given time. As renewable energies are distributed energies, it makes perfect sense to start this assessment in the place where they are generated. Following this approach, the first capacity credit would need to be assessed at a local level (e.g. district level) expressing the contribution that prosumers, renewable energy communities and other generators can achieve. It is at local level that one of the objectives or visions of the Energy Union – putting citizens at the centre of the energy system – needs to be implemented. The next level would be regional level, where deficits (capacity credit below 100%) and surpluses (capacity credit above 100%) could be balanced as far as possible. Inter-regional, national and eventually European level would follow. As renewables entail considerable systemic costs for energy infrastructure, the main aim is to consume energy from renewable sources locally; otherwise, the costs must be borne by energy producers.

2.4This bottom-up approach described in point 2.3 best suits the nature of renewable energies and flexibility options with respect to producers of all sizes, including large energy powerhouses as well as small producers, including so called prosumers.

2.5In terms of the Energy Union, the approach described in point 2.3 has three basic advantages.

2.5.1Firstly, from an investment planning perspective, the volume of energy imports to the EU needed today and in the future must be anticipated. Only then can failed investments and especially locked-in effects be avoided. To put it very concretely: it is impossible to properly ascertain the actual demand for LNG in 2025, 2030, and 2035 without the described analysis. Any purchase decision, especially those based on long-term contracts, risks being incorrect if the capacity credits are not assessed at local, regional, inter-regional and European level. This is of particular importance as long-term contracts are needed for securing LNG now. The success of the Energy Union depends on this analysis, but it does not exist.

2.5.2The second advantage of analysing the capacity credits of renewables, including flexibility options, at local, regional, inter-regional and European level is that it would help to effectuate a forward-looking energy infrastructure planning system covering the electricity grid, the low-carbon gas network, and the district heating systems. Here, it is fundamentally important to state that the gas infrastructure in Europe must be H2-ready. However, no reliable criterion for H2-readiness currently exists. The EESC calls on the Commission to start developing such standards, with a view to submitting a proposal as soon as possible.

2.5.3A third advantage is closely linked to the one mentioned in point 1.10: a rethink of system stability is needed. The future system of transmission and distribution networks in Europe and at the level of EU Member States should be a matrix of standardised connections, interconnected and covering both centrally managed high-voltage lines and energy cooperatives based on commercialised medium and low-voltage lines. At the local level, it is essential to accelerate the roll-out and simplified development of distributed energy through legal and organisational mechanisms that enable the use of so-called direct lines, cable pooling, and cooperation with RES producers on joint, defined PPA (Power Purchase Agreement) principles.

2.6Today, transmission grid operators at national level are not sufficiently interested in developing local networks which would increase flexibility in the electricity sector, as, from their point of view, this may destabilise the power system. Distribution grid operators are not encouraged to invest in local networks because the current regulatory and political environment lacks clear guidance. The grid fee regulation only incentivises the transmission and distribution of electricity. No incentives are given for smart electricity management concepts. The EESC is convinced that the development of energy cooperatives and the prosumer model of energy generation makes it possible to strengthen energy security at the local level and reduce the load on the power grid. Local consumption of volatile renewable energy reduces pressure on the grid, which is why local consumption should be the preferred option whenever resource and cost efficient. Prosumers and energy communities (with the participation of energy distributors, local governments, entrepreneurs, and citizens) can balance the available resources and demand for electricity in their households, companies, and public buildings – especially with the development of energy storage and digital technologies. The EESC points to the risk of electricity distributors being in a conflict of interest in this regard, and requests that the competent surveillance authorities consider measures to avoid negative effects of vertical integration.

2.7Against the backdrop of the bad practice described in point 2.6, it becomes even more important to follow the approach described in point 2.3 in order to realise the three advantages explained in points 2.5.1, 2.5.2 and 2.5.3. The EESC therefore calls on the Commission to develop a proposal on how to incorporate this approach into its Energy Union policy. Achieving the strategic perspective of energy independence, net of the necessary emergency interventions in the last year, will require constantly monitoring and developing the following issues:

·the balance of existing resources (oil, gas, renewable and nuclear sources, etc.);

·the balance of potential resources (exploration, extraction of conventional resources, development of innovative technologies, etc.);

·the programme and hierarchy of optimal development of different energy sources in Europe; the financing system for the energy independence programme.

This also requires an assessment of which existing installations still in operation should be maintained, and which old sources, including conventional capacities, should be replaced in a smooth and complementary process. There should also be an analysis of the benefits and costs of Steam Methane Reforming (SMR) and carbon capture and storage (CCS)/carbon capture and utilisation (CCU) technologies.

2.8In this regard, the EESC reiterates that the process of speeding up the permitting of renewable projects is critical. This is an important thing, relatively easy to deliver on the process side. The level of bureaucracy clearly slows down some projects, especially those involving large generation capacities. We see and appreciate the Commission's efforts in this area, but changes must finally be delivered.

2.9While fulfilling the task set out in point 2.5.3, the Commission should also take into account the strategic link between the European energy strategy and the need for a strong, sustainable and innovative European industrial system, which has not been considered in the Reports on the State of the Energy Union so far. The EESC recommended, in its opinion on the State of the Energy Union 2021 (TEN 767), that Energy Union governance and management more carefully reflect on synergies with the new EU industrial strategy. The EESC calls on the European Commission to take into consideration, starting from the next report, the importance of this strategic link and to ensure better coordination with the strategic foresight report.

2.10Likewise, the central and active role of citizens, who should be placed at the centre of the policies, is not appropriately considered in the document or the annexes. The EESC strongly believes that the citizens should be at the core of the Energy Union, integrating them into the market, and making them real "prosumers". The concept of prosumption needs to be widened to include energy sharing, virtual self-consumption and other cases of prosumption that use the public grid. To this end, the EESC calls on the policy-makers to encourage and promote all the necessary measures to enable people to become energy prosumers.

2.11Member States are obliged to submit their National Energy and Climate Plans (NECPs) by June 2023. To this end, Member States must receive a clear message with a roadmap enabling them to appropriately plan their path in the energy transition as described in point 2.3 and taking the recommendations given in points 2.7, 2.8, 2.9 into account.

2.12The planned activities for developing a new market design need to be set in the context of the above-mentioned aspects. The EESC agrees that action is needed to optimise and improve the EU's electricity market design, also in view of the future evolution of the energy landscape as described in point 2.3, new emerging technologies, geopolitical developments and the lessons learned from the current crisis. The EESC takes favourable note of the intention of the Commission to review the REMIT framework to mitigate the risks of market abuse and calls on the Commission to put in place all the necessary measures to preserve the functioning of the market and avoiding the distortive effects in pricing and speculation. The European energy market should not work like the financial markets. Our internal energy market needs to reflect the realistic picture of the situation in the energy system in Europe. The EESC draws attention to the recent report of the European Court of Auditors, that points to the inadequacy of the resources of ACER to monitor the market to prevent abuse, and calls on the Commission to make sure that ACER can fulfil its tasks in this regard.

2.13The EESC is concerned about the reduction in renewable energy subsidies seen in 2021, while fossil fuel subsidies remain stable. After the crisis, decisive steps are needed to end the "competition for subsidies" between renewables and fossil energies. In its report, the Commission does not give any kind of indication to this effect.

2.14The EESC points out that the 2022 Report on the State of the Energy Union does not pay due attention to the issue of costs and consequences related to the European strategy's pillar for reducing energy demand. The EESC therefore recommends that the Commission further explore how this reduction could affect different regional contexts, and outline the tools needed to mitigate its effects.

2.15Climate policies will have a strong impact on workers and businesses and will require massive training, reskilling and upskilling. This transition should be used as an opportunity to create quality jobs with good working conditions in all sectors and regions. The Just Transition is not taken sufficiently into account in the report. The EESC urges the Commission to strengthen the just transition mechanism, with a particular focus on the impacts on workers, jobs and the industrial system. Similarly, social partner involvement in developing policies for sustainability, security and solidarity should be continuous and structural in nature. The "just transition" is not just a question of financing the transition. It also includes the objective of safeguarding workers' rights, creating decent work, quality jobs and social security, and maintaining and further increasing the competitiveness of European businesses, and requires specific action at all levels, particularly at regional level.

Brussels, 22 March 2023

Christa SCHWENG

The president of the European Economic and Social Committee

_____________