ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(80)220
Vol.1980/0070

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80)220 final
Brussels,22ndApril1980
ACOMMUNITY PROGRAMME FORTHEPROMOTION
OFINVESTMENT INENERGY
/
(Communication /fromtheCommission totheCouncil)
l.-- <■■■>.C
V,vi\l>^-1/.I|
C0MC80)220final

ACOMMUNITY PROGRAMME FOB THE PROMOTION
OPINVESTMENT INENERGY
The Need for aProgramme
1»1 Fortheperiod 1980-90 member states oftheCommunity envisage investment
ofaround **00billion EUA,orupto2%ofGDP,intheenergy sector .(Seetable
atAppendix 1)©Onthis basis ,andassuming anannual average rate ofeconomic
growth ofaround 3*5% 9Community demand forenergy could by1990 require the
import ofupto100million tons ofoilperyear more than atpresent *
' * •
1©2 Although there isasyetnoreal shortage ofoil,tension onworld markets
hasalready reached the point atwhich theenergy problem hasbecome alimiting •*
constraint oneconomic development *.Onpresent policies agenuine excess of
potential demand over available supply islikely todevelop towards 1990 ,With
therisk ofserious economic dislocation© The best insurance against these
dangers would beforthemajor oilconsuming nations tohold imports tonomore
than their current level atmost© . ■" ■
- '
1o3 FortheEuropean Community the .extra investment inalternative fuels and
energy saving required tomeet this goal would beofthe *order of50-100 billion
EUA© Most ofthis extra expenditure would need tobecommitted early inthe1980%
toyield results within tenyears ,andthere will beaneed foracontinuing
effort thereafter toensure asufficient growth intheavailability ofenergy ,
inthe 1990*8 *
1o*f Sothe\redeployment ofonly %«•Yt%ofGDPinto energy investment inthe
course ofthe1980 'swould afford the "Community asubstantial measure of
protection against aserious energy shortage by1990 .Measured against the
political andeconomic dangers ofsuch ashortage thescale ofadjustment
required within oureconomies isrelatively modest andmanageable© It .could
indeed have astimulating effect ,especially inproviding employment©
1»5 Nevertheless ,experience since 197^isthat although therapid expansion
ofenergy investment ,isessential inthepublic interest ,opportunities and
incentives atthelevel oftheindividual investor have been inadequate®
Forecasts offuture energy production have been steadily reduced during the
last sixyears© There istherefore aneed foramajor political initiative
topromote thenecessary investment© i
1c6 This note considers some ofthereasons whyenergy investment 1hasbeen
slow toappear #andsuggests howandwhere Community support isneeded to
remove these obstacles© >

ObstaclestoInvestmentinEnergy
2.1Theobstacleswhichprevent,ordelayenergyinvestmentintheCommunity
include s
-Politicalandadministrative obstacles,
-Difficulties inaccesstofinance,
-Doubtsaboutenergymarketdevelopments . ■..
-Highfirstcostandlongpaybackperiods,
-Technicalriskso * ,
2.2PoliticalandAdministrative Obstacles oSomeconstraints onthedevelopment
ofenergyresourcesareofanoneconomiccharacter oInparticular,thedevelop­
mentofcoalproduction anduse,andofnuclearenergy,isinhibitedbyproblemsofpublicacceptability whiclirequiretheseindustriestoobserveverydemanding
environmental standardsandimposecostlyandtimeconsumingadministrative
procedures onnewinvestment o
2.3AccesstofinancehasnotinthepastbeenaproblemoApartfromthecoal
industrytheenergyindustrieshavebyandlargebeenself,financing,andpresent
investmentplansassumethattheywillremainso<>Buttheneedforimproved
efficiencyintheenergyindustrieswilldemandextrainvestment,forexample
inthecollectionofassociated gasfromoffshoreoilfieldsandtheestablish­
mentof^heatgridstodistributewasteheatfrompowerstationswhichcould
imposeastrainwhenaddedtotheneedforconventional investmentinproduction®
2.VAndtheneedforarisinglevelofinvestmentbyconsumersinsuchareas
ascoalfiringcapacity,unconventional sourcesofenergysuchassolarheat,
andenergysavingwillrequirethedevelopment ofnewchannelsoffinance0
Inthecaseofhouseholds andsmallfirmsaccesstofinancemaybeanobstacle
thatcanonlybeovercomethroughGovernmentgrantsorloans,®
2o5Doubtsaboutenergymarketdevelopments .Althoughtheprospectofanoil
shortageandtheconsequentincreases *inpriceprovidealong-termincentive
toinvestmentinalternatives ,thelessonofthelastsixyearsis^thatinthe
shorterrunthereremainlargeareasofcommercialriskwhichdeterthe
individual investor s
TheinvestmentclimateoTheimmediateeffectofsharpincreases
inthecostofimportedoilistoincreasetherateofinflation
andthecostofborrowingandtoweakenbusinessconfidence.
Economicgrowthmayreducetothepointwherethere-appearstobe
ariskofanenergysurplus(eogoinelectricityproduction)
whichmakesenergyinvestmentunattractive atthelevelofthe
individualinvestor.Economicrecession meanslessinvestment
byindustryandhencelessopportunitytoinstallenergysaving
equipmentinreplacement ofinefficient equipment.,
O/O

-3-
Thepriceofoil*MostanalystsnowagreethatOPEChasboththe
powerandthewilltosustainthereallevelofoilpricesby
reducingsupplytomatchfallingworlddemand#Butuntilthisis
demonstratedinthemarket,theexperienceof197^-78,coupled
withpoliticaluncertainties inrelationtotheMiddlaEast
meansthatthereisfortheindividualinvestorawidemargin
oferrorsurrounding anyforecastoffutureoilprices.'
ThisuncertaintyismadeworsebyGovernmentpolicieswhichhold
consumerpricesofenergybelowtrueeconomiclevels®
Complementarity ofinvestments oEvenifasecuremarketforenergy
isassured,theinvestorneedstobeconfidentthatsupplywill
matchthepatternaswellastheoverallvolumeofdemando
Inthecoalindustry,investmentinnewminesortransportinfra­
structurecanonlybejustifiedifconsumersmakeparallelinvest­
mentsincoalburningcapacityo Andtherapidpenetration ofenergy
savingtechniqueswillrequireabalancingofincentivestoconsumers
withthegrowthofinvestmentinthemanufacture ofenergysaving
equipment^toavoidbothbottlenecks andoverproduction ..
2.6.HighfirstcostandlongpaybackperiodsoThetableatAppendix2gives
someroughestimatesoftheinvestmentcostofvariousformsofenergy#
Asitbecomesnecessarytomineanddrilldeeper,andemployadvancedtech­
niquesfortheharnessingofrenewableenergysources,energyproduction ,
(andsomeenergysaving)becomesmorecapitalintensive# Atatimeofvolatile
interestratesthiscreatesproblemsforanyinvestor,especiallysincethe
leadtimesformajorenergyprojectstendtobeverylong.
2.7Forinvestment byconsumersthesituationisdifferent.Analysisofthe
returnoninvestmentinsolarheatorenergysavingusingconventional dis­
countingcriteriashowsthatthistypeofinvestmentoftencomparesfavourably
withconventional energyproduction anddistribution ,evenwithouttaking
accountofenvironmental advantages..Butit.callsforaninitialoutlaywhich
maybetwiceashighasconventional formsofenergyproduction ;thereafter
thereturnoninvestmentisassured,withminimalrunningandmaintenance
costs,butthepaybackperiodmaybelongerthanmanyconsumers,especially
inthedomesticsector,canrealistically envisage.
2.8Infact,energysavingisperhapsthemostpromisinginvestmentofall.
Butthoughsomesimpletechniques,suchasroofinsulation,havebeencost
effectiveatleastsince1973»theiruseisnotspreadingquicklyenough*
RisingoilpriceswillhelpbutGovernmentandCommunityincentivesareneeded
tomaintaintheimpetusafterthefirst'easy'stagesofenergysavingand
toensurethatthe-multitudinous individualprivateinvestmentdecisionsare
dulygivenapublic-interest weighingo
2.9Technicalriskse.Commercialrisksareparticularly acuteforinvestors
inadvancedtechnology andnovelengineering techniques *Fortheenergyproducer
themarginoferrorininitialestimatesofinvestmentandoperatingcostsis
wide,andthisisanimportantfactorinthedevelopment ofcoalgasification
andbiomass,aswellasforthegenerationofelectricity from-renewable
resources.Forconsumerinvestmentsthemaindifficultyisthat,astechniques
improverapidly,aninvestormaybewisetodelayinvestmentintheexpectation
ofbeingabletoacquiresuperiorequipmentatalaterdate;similarconsider­
ationsmayinhibitinvestmentinthemanufacture ofenergysavingequipment®
i \
•/o

-b-IM«!,J){i
TheNeedforaCommunityProgramme
3»1Whiletherequiredincreaseininvestmenteffortcouldinprinciplebe
undertakennationally,thescaleoftheproblemdemandsaCommunityresponse#
PlannedlevelsofInvestmentarenotonlyInsufficient ,theya?6aleevary-
unevenlydistributedwithintheCommunityoNaturalenergyresources,levels
ofenergyefficiency,theabilitytofinanceinvestment (atthesametimeas
financingoilimports),andthepoliticalpriorityaccordedtotheenergy
problemallvarywidely#.Butbothbecauseoftheinterdependence ofoureconomies,
andofthepoliticalweaknessinherentintooheavyarelianceonimportedoil,
thosecountrieswhicharestronginenergytermshaveacommoninterestwith
theweakinreducingtheoildependenceoftheCommunityasawhole*■
2.2ACommunityeffortwouldhavethepoliticaladvantageoverdifferinglevels
ofnationalresponseofmobilising andsustaining,throughtheoperationand
development ofaCommunityprogramme,acollectivedetermination toovercome
theenergyproblem *.- .
3#3Thedifficultyoffindingamarketinthenewsectorswhereinvestment
isrequiredwilldiminishindirectrelationtotheextentofthatmarketo
Indeed,althoughCommunityintervention isneededtomobilisethenecessary
effort,theaimwouldbetocreateaclimateofopinioninwhichtheindividual
investorrecoveredconfidenceintheabilityofthemarkettoensurethe
.vnecessarylevelsofcomplementary investment 0
ACommunityeffortwouldalsohelptoovercomethemanyuncertainties and
obstaclesinthewayofinvestmentinthenew(andhighercost)energysources
towhichwemustincreasingly turno 4:
TheaimofCommunitypolicywouldbetodealwithalltheobstacles
thathavebeendescribed,includingthoseofanon-financial character#
ButifCommunity ,policyistohaveavisibleandcoherentimpactitmust
haveacentralelementofcommonfinancialsupport#
0/O

-5
Areas for Intervention
M-.1 Thescale oftheenergy problem asitconfronts theCommunity today is
such that nopotential souree ofenergy ean beignored .Community support must
thepare^e teee*-g«nlee«i in$waythat res9gnisea thevapiaHems ift§©fiaifclenis
both between andwithin member states ,andprovides themaximum incentive
forthe exploitation oflocal opportunities oForthis reason itwould bequite
wrong toattempt adefinitive list ofareas where intervention would be
appropriate© But itispossible ,inthelight oftheanalysis insection 2
above ,tosuggest certain priority areas where existing opportunities cannot .
beproperly exploited without public support o
*f.2 Energy saving .Investment inimproved energy efficiency should bepursued
uptothe point ofeconomic equivalence totheresource costs ofinvestment in
increased energy production® Ifaccount istaken ofthe wider implications ,
such asthebenefits fortheenvironment ,apremium could begiven toinvest­
ments inenergy savings Inpractice theanalysis insection 2suggests that
this type ofconsumer investment encounters obstacles which donotapply
totheproduction ofenergy ,and most member states have recognised that price
incentives tosave energy need tobesupplemented byfinancial aids *
^•3 Inthedomestic sector thescope forsaving ,through techniques which are
cost effective atcurrent prices such asinsulation ,double glazing andmore
efficient appliances maybeupto50%o Inindustry ,through recovery ofwaste
heat andimproved processes , Inthetransport sector ,through improved
standards for fuel efficiency andmaintenance ,and improvements inpublic
transport ,25-35^® Improvements intechnology andincreasing energy prices
seem likely toopen upnewopportunities asrapidly asexisting ones are
exploited *.
Aparticularly promising area forthe improvement ofenergy efficiency
inthe economy asawhole isthe development ofheat grids inwhich waste heat
generated forindustrial processes ,and especially for the generation ofelec «-
tricity ,can bedistributed for district heating purposes® But the scale of
investment required isvery large ,and beyond the immediate financial means
ofthetraditional energy industries intheabsence ofpublic support o
^•5 Newenergy sources oAconsiderable research ,development anddemonstration
effort isnowunder wayand itseems likely that bythe eiidofthe 1980»s tech«
niques fortheharnessing ofwind ,wave andtides ,thegeneration ofsolar "
electricity ,andthedevelopment ofsynthetic fuels from biomass will have
reached the point atwhich commercial exploitation becomes feasible .*
Atthepresent state oftheartonly twotechniques appear tobepotentially
commercial throughout the Community :
Geothermal energy isavailable insufficient quality forthegeneration
ofelectricity atalimited number ofsites intheCommunity .
-Butmost member states have lowtemperature geothermal resources
which arecapable ofdevelopment fordistrict heating schemes .
Inaddition totheconsiderations at above there maybeaneed
forpublic support tounderwrite thegeological risks .
Solar energy .Solar electricity hasnotyetreached thepoint of
commercialisation .Passive solar heating (thedesigning ofabuilding
formaximum solar heat efficiency )iseconomic atpresent prices ,
but itsrate ofpenetration can benofaster than theturnover ofthe
building stock .Active solar heating isalready economic fordomestic
water heating ,andthedifficulties andfinancing considerations are
identical tothose fordomestic energy saving .

M6M
Atalocallevel,onfavouredsites,othertechniques may.alreadybeeconomic,
thoughthelimitationofthemarketdictateshighcosts*Itisimportantthat
consumerinvestments ofthiskindshouldbeencouragedirrespective ofthe'
generalapplicability ofthemethodsinvolved,becauseofthedevelopment and
dumonatrfctlon nffeet# .
^.6CoalistheCommunity'slargestindigenousenergyresource,butdevelopment
^hasbeeninhibitedbycompetition fromoilandgas,andfromimportedcoal.
Thereisscopeforsubstantial investmentinnewmines andinthe
modernisation ofexisting mines;bothwouldimprovethecompetitivity
ofCommunitycoalandavoidover-reliance onimportswhosepriceislikely
torisesteadily.Fluidisedbedcombustion nowpermitscoaltobeburntat
higherlevels ^ofefficiencyandlowerlevelsofpollutionsthaninthepast©
Coalconsumption (indigenousandimported)intheCommunitycould,growby
between30and^0%duringthe1980's,butthiswillrequireacoordinated
investmentprogrammecoveringproduction,transportandhandling,aswellas
coalburningcapacity.
PossibleareasforCommunityfinanceincludes ^
-Coalproductiontoachievehigherproductivity andlowerlong-term«osts,
-Gasification andliquefaction ,
-Construction andmodernisation ofcoalfiredpowerstationsandconversion
ofoilandgasfiredstationstocoal,,■ .' ■ <
-Conversionofindustrialplantstocoal,
-Transportandhandlingfacilities,includingportfacilitiesforimports
andintraCommunitytradeo
*f.7Hydrocarbons .Althoughtheeconomicsofoilandgasproductionarefavourable
thereisaneedforinvestment whichmaybeonlymarginally economicatcurrent
pricestoextendthelifetimeofCommunityresources.Anexampleistheplan
foragascollectiongridintheNorthernbasinoftheNorthSeawithanassociated
crosschannelpipeline.Similarlyenlargment andextensionoftheAlgeria-Italy
gaspipelinewouldpermittheconsumption withintheCommunityofgaswhichis
atpresentflared.'
^.8Nuclearenergyisnotingeneralinhibitedbyfinancialproblems,which
oughtinprincipletobe,metbyappropriateelectricitypricingpolicies/
butratherfrompoliticaldifficultiesarisingfromtheproblemofnuclearsafety.
ThisbeingthecasethepossibilityofCommunitysupportfordemonstration projects,__
designedtoovercometheoppositiontonuclearenergyincertainquarters,cannotbe
ruledout.
0/©
»

,-7-
Definition ofACommunityProgramme
5*1Itistooearlytodefineindetailthescaleandorganisation ofa
Communityprogramme o..Sincetheaimwillnotbetoreplacebuttosupplement
existingnationaleffortsthefirststepweuiabeexaminetheseep®
foradditionaleffortwithineachmemberstate®Buttakingasanappropriate
guidetheassumptionthatextrainvestmentwillrequire,onaverage,publicsupport
ofuptoonethird,andthatCommunityexpenditure wouldbematchedbyequal
levelsofextranationalexpenditure,theinitialaimmightbeaprogramme
withCommunity -'spend'buildinguptoaround1billionEUAperyear,
whichwouldincreaseenergyavailability byaround6milliontoeperyear
foreachyearoftheprogramme©
5»2Procedures ®.Thepoliticalandpsychological impactoftheprogramme
wouldbeweakenediffundsweresimplydispersedthroughawiderangeof
unconnected projects JTheaimwouldthereforebetosupplementnational
programmesinlinewithCommunityenergypolicyobjectives.
Toqualify -forsupport,investmentprogrammes wouldberequiredtomeet ■–
thefollowingcriteria:
a)Theprogrammeshouldcontributetothereductionofoildependence
and/ortheenergy/GDPratio,
b)Publicsupportmustberequiredtoovercomeobstaclestoprivate
investment,ortobringforwardthatinvestmentintimeo
Supportcouldtaketheformofgrants,interestratesubsidies,orloan
guarantees,andinsomecasesitmightbeappropriate forCommunityfunds
tobematchedbyequalcontributions frommemberstatebudgets®
Theprocedureforthechoiceofprogrammes wouldaimtoestablish
alinkbetweenthepromotionofextrainvestment,the"reinforcement of
existingplansforenergyinvestment,andthedevelopment ofthepolicies
ofmemberstates,especiallyinrelationtoenergypriceandtaxation
inlinewithCommunityobjectives® .TheCommission wouldexaminewith
memberstatesthedetailoftheirnationalpolicieswithaviewtoiden­
tifyingweaklinksandpointsofdivergencefromCommunityobjectives,
tochoosingareasforftffiiBraction,andtodefiningpriorities®
Inordertosimplifyadministration ,themanagementofprogrammes,
onceagreedintheirdetails,willessentially becarriedoutbyexisting
administrative infrastructures inmemberstates#
Τ
Theproposedmeasureofassistanceforanincreasedinvestmentprogramme
wouldnotreducetheneedforacoherentenergypricingandtaxationpolicy
intheCommunity,asexaminedinC0M(80)152final,designedtoavoid
distortions andtocreatetherightclimateforprivateinvestmentdecisionso
2annexes

-8-,
Appendix 1
Estimated planned investment inEnergy
within theCommunity _ 1
1980 -1990
Solid fuel .
Oil and Gas ,
-production .
-refining ,transport
and distribution
Electricity production
I ' •
-nuclear
-other primary
-secondary
Electricity transmission
and distribution
«
Energy savingEUA
billions
26
106
62
■1^8
112
5
31
Bk
/50%
'mmm
6
26
35
20
12
TOTAL
ofwhich :primary energyjflif
187100
^5
\

Appendix 2
Investment Costa
Theestimates given below are forth«investment required toprovide extra
energy availability ofoneton ofoilequivalent peryear®
Continental shelf oil
New coal mine
Coal fired power station HOO
Coal liquefaction plant 600-800
Nuclear power station 660 ^
(including fuel cycle investment )
Geothermal power station **00
Solar hot water 700-1300
^ Full InstalledGeothermal heating 1000 cogtlBol„dlng
Energy saving (industry ) 300-500 infrastructure
Energy saving (domestic ) 1000-1500 /
Except where otherwise stated ,these estimates are forinitial investment
inprimary production only and are therefore not comparable with' each other
interms ofthevalue formoney associated with each type ofinvestment
Forexample ,inthecase ofcoal production ,tocalculate thefull cost
itisnecessary toaddtotheinitial investment thelabour costs (60#
offull cost )andother running costs including fuel andmaintenance , .
plus thecosts ofdistribution® Thelatter arealready provided for
innational programmes ,but tothe extent that itmight benecessary
toscap existing oilrelated infrastructure and replace .itwith coal
adapted plant ,theswitch tocoal would involve additional costs »
Foranenergy saving investment ,attheother extreme ,theexploitation
costs are nil ornegligible and the cost tothe investor isoffset
fortheeconomy asawhole byareduced requirement forinvestment
inenergy infrastructure®
Themix ofinvestments will ofcourse vary with local conditions and
opportunities ,andthere will beatendency forinvestment tomove towards
thecapital intensive endoftherange over time ,aslower cost investment
opportunities are exhausted **Forthepurposes ofthis paper itisassumed
that theaverage cost ofincreasing energy availability by1toeyear lies
intherange 500-1000 EUAovestment )EUA
170-250
210
*K)0
600-800
660
kOO
700-1300
1000
300-500
1000-1500Full Installed
cost including
infrastructure