COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Powering a climate-neutral economy: An EU Strategy for Energy System Integration
Date: 2020-07-08
Institutions: Directorate-General for Energy, European Commission
Subjects: EU energy policy, EU strategy, biofuel, electrical energy, energy consumption, energy efficiency, energy grid, green economy, reduction of gas emissions, renewable energy

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 8.7.2020  COM(2020) 299 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Powering a climate-neutral economy: An EU Strategy for Energy System Integration                
 
 
1.  AN INTEGRATED ENERGY SYSTEM FOR A CLIMATE-NEUTRAL EUROPE 

The European Green Deal1 puts the EU on a path to climate neutrality by 2050, through the 
deep  decarbonisation  of  all  sectors  of  the  economy,  and  higher  greenhouse  gas  emission 
reductions for 2030.  

The  energy  system  is  crucial  to  deliver  on  these  goals.  The  recent  decline  in  the  cost  of 
renewable energy technologies, the digitalisation of our economy and emerging technologies 
in batteries, heat pumps, electric vehicles or hydrogen offer an opportunity to accelerate, over 
the  next  two  decades,  a  profound  transformation  of  our  energy  system  and  its  structure. 
Europe’s  energy  future  must  rely  on  an  ever  growing  share  of  geographically  distributed 
renewable  energies,  integrate  different  energy  carriers  flexibly,  while  remaining  resource-
efficient and avoiding pollution and biodiversity loss. 

Today’s  energy  system  is  still  built  on  several  parallel,  vertical  energy  value  chains,  which 
rigidly  link  specific  energy  resources  with  specific  end-use  sectors.  For  instance,  petroleum 
products  are  predominant  in  the  transport  sector  and  as  feedstock  for  industry.  Coal  and 
natural  gas  are  mainly  used  to  produce  electricity  and  heating.  Electricity  and  gas  networks 
are  planned  and  managed  independently  from  each  other.  Market  rules  are  also  largely 
specific  to  different  sectors.  This  model  of  separate  silos  cannot  deliver  a  climate  neutral 
economy. It is technically and economically inefficient, and leads to substantial losses in the 
form of waste heat and low energy efficiency. 

Energy  system  integration  –  the  coordinated  planning  and  operation  of  the  energy 
system  ‘as  a  whole’,  across  multiple  energy  carriers,  infrastructures,  and  consumption 
sectors  –  is  the  pathway  towards  an  effective,  affordable  and  deep  decarbonisation  of  the 
European  economy  in  line  with  the  Paris  Agreement  and  the  UN’s  2030  Agenda  for 
Sustainable Development.  

Declining  costs  for  renewable  energy  technologies,  market  developments,  rapid  innovation 
regarding  storage  systems,  electric  vehicles,  as  well  as  digitalisation  are  all  factors  leading 
naturally towards greater energy system integration in Europe.  However, we have to go one 
step  further  and  connect  the  missing  links  in  the  energy  system  in  order  to  achieve  higher 
decarbonisation objectives for 2030 and climate neutrality by 2050 – and do it in manner that 
is  both  cost  effective  and  consistent  with  the  European  Green  Deal’s  green  oath  to  “do  no 
harm”. Relying on greater use of clean and innovative processes and tools, the path towards 
system  integration  will  also  trigger  new  investments,  jobs  and  growth,  and  strengthen  EU 
industrial leadership at a global level. It can also be a building block of the economic recovery 
in the aftermath of COVID-19 crisis. The Commission’s recovery plan2 presented on 27 May 
2020 highlights the need to better integrate the energy system, as part of its efforts to unlock 
investment in key clean technologies and value chains and increase economy-wide resilience. 
In addition, the EU sustainable finance taxonomy will guide investment in these activities to 
ensure  they  are  in  line  with  our  long-term  ambitions3.  An  integrated  energy  system  will 
minimise  the  costs  of  transition  towards  climate  neutrality  for  consumers  and  open  new 
opportunities for reducing their energy bills and active participation in the market. 

1  COM(2019) 640 final.  
2 
‘Europe's moment: Repair and Prepare for the Next Generation’, COM(2020) 456 final.  
3  
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the 
establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 

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The  Clean  Energy  Package4,  adopted  in  2018,  provides  a  basis  for  better  integration  across 
infrastructure, energy carriers and sectors; however, regulatory and practical barriers remain. 
Without  robust  policy  action,  the  energy  system  of  2030  will  be  more  akin  to  that  of  2020 
than a reflection of what is needed to achieve climate neutrality by 2050.  

This  Strategy  sets  out  a  vision  on  how  to  accelerate  the  transition  towards  a  more 
integrated  energy  system,  one  that  supports  a  climate  neutral  economy  at  the  least  cost 
across sectors – while strengthening energy security, protecting health and the environment, 
and promoting growth, innovation and global industrial leadership.  

Turning  this  vision  into  a  reality  requires  resolute  action,  now.  Investments  in  energy 
infrastructure typically have an economic life of 20 to 60 years. The steps taken in the next 
five-to-ten  years  will  be  crucial  for  building  an  energy  system  that  drives  Europe  towards 
climate neutrality in 2050. 

Thus,  this  Strategy  proposes  concrete  policy  and  legislative  measures  at  EU  level  to 
gradually  shape  a  new  integrated  energy  system,  while  respecting  the  differing  starting 
points of Member States.  It  contributes to the work of the Commission  on a comprehensive 
plan to increase the EU 2030 climate target to at least 50% and towards 55% in a responsible 
way and identifies follow-up proposals that will be prepared as part of the legislative reviews 
of June 2021, announced in the European Green Deal.  

The  parallel  Communication  ‘A  hydrogen  strategy  for  a  climate-neutral  Europe’5 
complements  this  Strategy  to  elaborate  in  more  detail  on  the  opportunities  and  necessary 
measures to scale up the uptake of hydrogen in the context of an integrated energy system. 

2.  ENERGY 

SYSTEM 
DECARBONISATION 

INTEGRATION  AND 

ITS  BENEFITS  TO  COST-EFFECTIVE 

2.1.  What is energy system integration? 

Energy  system  integration  refers  to  the  planning  and  operating  of  the  energy  system  “as  a 
whole”, across multiple energy carriers, infrastructures, and consumption sectors, by creating 
stronger  links  between  them  with  the  objective  of  delivering  low-carbon,  reliable  and 
resource-efficient energy services, at the least possible cost for society. It encompasses three 
complementary and mutually reinforcing concepts.  

First,  a  more  ‘circular’  energy  system,  with  energy  efficiency  at  its  core,  in  which  the 
least energy intensive choices are prioritised, unavoidable waste streams are reused for energy 
purposes, and synergies are exploited across sectors. This is happening already in combined 
heat  and  power  plants  or  through  the  use  of  certain  waste  and  residues.  There  is  however 
further potential, for example, in reusing waste heat from industrial processes, data centres, or 
energy produced from bio-waste or in wastewater treatment plants.  

Second,  a  greater  direct  electrification  of  end-use  sectors.  The  rapid  growth  and  cost 
competitiveness  of  renewable  electricity  production  can  service  a  growing  share  of  energy 

https://ec.europa.eu/energy/topics/energy-strategy/clean-energy-all-europeans_en. 

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5   COM(2020) 301 final. 

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demand  –  for  instance  using  heat  pumps  for  space  heating  or  low-temperature  industrial 
processes, electric vehicles for transport, or electric furnaces in certain industries. 

Third,  the  use  of  renewable  and  low-carbon  fuels,  including  hydrogen,  for  end-use 
applications where direct heating or electrification  are not feasible, not efficient or have 
higher  costs.  Renewable  gases  and  liquids  produced  from  biomass,  or  renewable  and  low-
carbon  hydrogen  can  offer  solutions  allowing  to  store  the  energy  produced  from  variable 
renewable sources, exploiting synergies between the electricity sector, gas sector and end-use 
sectors. Examples  include  using  renewable hydrogen in  industrial processes and heavy-duty 
road  and  rail  transport,  synthetic  fuels  produced  from  renewable  electricity  in  aviation  and 
maritime transport, or biomass in the sectors where it has the biggest added value. 

A more integrated system will also be a ‘multi-directional’ system in which consumers 
play  an  active  role  in  energy  supply.  ‘Vertically’,  decentralised  production  units  and 
customers  contribute  actively  to  the  overall  balance  and  flexibility  of  the  system  –  for 
instance, biomethane produced from organic waste injected in gas networks at a local level, or 
“vehicle-to-grid”  services.  ‘Horizontally’,  exchanges  of  energy  increasingly  take  place 
between consuming sectors – for instance, energy customers exchanging heat in smart district 
heating and cooling systems, or feeding in the electricity that they produce individually or as 
part of energy communities. 

2.2.  What are the benefits of energy system integration? 

Energy  system  integration  helps  to  reduce  greenhouse  gas  emissions  in  sectors  that  are 
more  difficult  to  decarbonise,  for  instance  by  using  renewable  electricity  in  buildings  and 
road transport, or renewable and low carbon fuels in maritime, aviation, or certain industrial 
processes.  

It could also ensure a more efficient use of energy sources, reducing the amount of energy 
needed and related climate and environmental impacts. In certain end-uses, new fuels will 
likely be required that use significant amounts of energy to be produced, such as hydrogen or 
synthetic fuels. At the same time, the electrification of a large share of our consumption can 
cut  primary  energy  demand  by  a  third6  thanks  to  the  efficiency  of  electrical  end-use 
technologies. Also, 29% of industrial energy demand dissipates as  waste heat, which can be 
reduced  or  reused.  Small-  and  medium  size  enterprises  can  create  synergies  by  both 
improving  energy  efficiency  and  increasing  the  use  of  renewable  resources  and  waste  heat. 
Overall, the transition to a more integrated energy system is projected to reduce gross inland 
consumption by a third by 20507, whilst supporting an increase in GDP of two thirds8.  

7 

6   For example, electric vehicles have an efficiency of around 60% compared to 20% for combustion engines 
on a tank-to-wheel basis, and heat pumps can deliver heat with three times less energy input than boilers.  
See COM(2018) 773 final, A Clean Planet for all. A European long-term strategic vision for a prosperous, 
modern, competitive and climate neutral economy. In-depth analysis in support of the Commission 
communication (LTS), figure 18: -21% in the 1.5TECH and -32% in the 1.5LIFE. 
See LTS, figure 92: 2050 GDP between 166% and 174% of 2015 or between GDP 154% and 161% of 2020 
GDP. 

8 

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Beyond  energy  and  greenhouse  gases  emissions  savings,  it  would  also  reduce  air  pollution 
and  the  energy  water  footprint9,  which  is  essential  for  climate  adaptation,  for  health  and  to 
preserve natural resources.  

Energy  system  integration  will  also  strengthen  the  competitiveness  of  the  European 
economy  by  promoting  more  sustainable  and  efficient  technologies  and  solutions  across 
industrial ecosystems related to the energy transition, their standardisation and market uptake. 
Specialised  companies  will  provide  services  locally  and  create  more  regional  economic 
benefits. This creates an opportunity for the Union to maintain and leverage its leadership in 
clean  technologies  such  as  smart  grid  technologies  and  district  heating  system,  and  lead  on 
new,  more  efficient  and  complex  technologies  and  processes  that  are  expected  to  play  a 
growing  role  in  the  energy  systems  worldwide,  such  as  batteries  or  hydrogen  technologies. 
Territories,  regions  and  Member  States  facing  the  biggest  transition  challenges  will  be 
supported by the Just Transition Mechanism and, as part of it, the Just Transition Fund. 

Moreover, better integration will provide additional  flexibility  for the overall management 
of the energy system and thus help to integrate increased shares of variable renewable energy 
production. It will also boost storage technologies: pumped hydropower, grid-scale batteries 
and  electrolysers  provide  flexibility  in  the  electricity  sector.  Home  batteries  and  electric 
vehicles  (‘behind-the-meter’)  in  buildings  can  help  manage  better  the  distribution  grids.  By 
2050, electric vehicles could provide up to 20% of the flexibility required on a daily basis10. 
Thermal  storage at  factory-level  can provide flexibility in  the industrial sector. Through the 
closer  integration  of  the  power  and  heat  sector,  electric  heat  appliances  could  already  make 
use of real time electricity prices to smarten demand response. Hybrid heat pumps11 and smart 
district  heating also  provide opportunities for arbitrage between electricity  and  gas markets. 
Moreover,  electrolysers  can  transform  renewable  electricity  into  renewable  hydrogen, 
providing  long-term  storage  and  buffering  capability,  and  further  integrating  the  electricity 
and gases markets. 

Finally,  by  linking  up  the  different  energy  carriers  and  through  localised  production,  self-
production and smart use of distributed energy supply, system integration can also contribute 
to greater consumer empowerment, improved resilience and security of supply. Some of 
the  technologies  needed  in  an  integrated  energy  system  will  require  large  amounts  of  raw 
materials,  including  some  listed  on  the  EU  list  of  critical  raw  materials.  But  replacing 
imported  natural  gas  and  petroleum  products  with  locally  produced  renewable  electricity, 
gases and liquids, combined with the greater implementation of circular models, will first and 
foremost  reduce  the  import  bill  and  lessen  dependency  on  external  fossil  fuel  supplies, 
creating a more resilient European economy.  

3.  MAKING  IT  HAPPEN  -  AN  ACTION  PLAN  TO  ACCELERATE  THE  CLEAN  ENERGY 

TRANSITION THROUGH ENERGY SYSTEM INTEGRATION 

This strategy identifies six pillars where coordinated measures are outlined to address existing 
barriers for energy system integration.  

9 

The water footprint of EU energy production was in 2015 198 km3 or 1068 litres per person and per day, or 
242 km3 or 1301 litres per person and per day including energy imports. Source: JRC, Water – Energy 
Nexus in Europe, 2019. 

10    According to METIS-2 S6 Study, baseline scenario (186TWh of 951TWh of total daily flexibility needs) 

would be provided by e-vehicles. Study to be published. 

11    Heat pumps coupled with a boiler. 

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3.1.  A more circular energy system, with ‘energy-efficiency-first’ at its core  

Applying the energy-efficiency-first principle across sectoral policies is at the core of system 
integration. Energy efficiency reduces the overall investments needs and costs associated with 
energy  production,  infrastructure  and  use.  It  also  reduces  the  related  land  and  material 
resources  use,  and  associated  pollution  and  biodiversity  losses.  At  the  same  time,  system 
integration can help the EU achieve greater energy efficiency, through a more circular use of 
available  resources  and  by  switching  to  more  efficient  energy  technologies.  For  instance, 
electric vehicles show much higher energy efficiency than combustion engines; and replacing 
a  fossil-fuel  based  boiler  with  a  heat  pump  using  renewable  electricity  saves  two  thirds  of 
primary energy12.  

The first challenge is to apply the energy-efficiency-first principle consistently across the 
whole energy system. This includes giving priority to demand-side solutions whenever they 
are  more  cost  effective  than  investments  in  energy  supply  infrastructure  in  meeting  policy 
objectives,  but  also  properly  factoring  in  energy  efficiency  in  generation  adequacy 
assessments.  The  Energy  Efficiency  Directive13  and  Energy  Performance  of  Buildings 
Directive14 already provide incentives for customers, but not enough for the full supply chain. 
Further  measures  are  needed  to  ensure  that  customers’  decisions  to  save,  switch  or  share 
energy  properly  reflect  the  life  cycle  energy  use  and  footprint  of  the  different  energy 
carriers, including extraction, production and reuse or recycling of raw materials, conversion, 
transformation, transportation and storage of energy, and the growing share of renewables in 
electricity supply. In certain industries for which the shift from fossil fuels towards electricity 
will result in more consumption, trade-offs will have to be carefully considered. 

In  this  context,  the  Primary  Energy  Factor  (PEF)15  is  an  important  tool  to  facilitate 
comparisons of savings across energy carriers. Most renewables are 100% efficient and have 
a low PEF. The PEF should reflect the real savings brought about by renewable electricity and 
heat. The Commission will review the level of the PEF and assess whether current provisions 
in EU legislation ensure an adequate application of the PEF by Member States.  

The  upcoming  ‘Renovation  Wave’  initiative,  announced  in  the  European  Green  Deal,  will 
also  propose  concrete  actions  to  accelerate  the  uptake  of  energy  and  resource  efficiency 
measures and of renewables in buildings across the EU in the next few years. 

The second challenge is that local energy sources are insufficiently or not effectively used 
in our buildings and communities. Applying the principle of circularity in line with the new 
Circular Economy Action Plan16, a big, yet largely unused potential is the reuse of waste heat 
from industrial sites, data centres, or other sources.  Energy reuse can take place on-site (for 
example  through  the  re-integration  of  process  heat  within  manufacturing  plants)  or  via  a 
district  heating  and  cooling  network.  The  Energy  Efficiency  and  Renewable  Energy 

12  Kavvadias, K., Jimenez Navarro, J. and Thomassen, G., Decarbonising the EU heating sector: Integration of 

the power and heating sector, 2019. 

13  Directive (EU) 2018/ 2002. 
14   Directive (EU) 2018/844. 
15   The primary energy factor indicates the amount of primary energy used to generate a unit of final energy 

(electrical or thermal), allowing a comparison of the primary energy consumption of products with the same 
functionality using different energy carriers. It shall be revised periodically according to Annex IV of the 
Energy Efficiency Directive. 

16   COM(2020) 98 final. 

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Directives  already  contain  provisions  targeting  this  potential,  but  there  is  a  need  to  further 
strengthen the regulatory framework to lift barriers hampering the wider application of these 
solutions. These barriers include insufficient awareness and knowledge about these solutions, 
the reluctance of companies to enter into a new business that is not their core activity, a lack 
of regulatory and contractual frameworks to share the costs and benefits of new investments, 
and barriers related to planning, transaction costs, and pricing signals. As regards data centres 
specifically, the Digital Strategy17 has announced the ambition to make them climate-neutral 
and  highly  energy-efficient  by  no  later  than  2030;  a  greater  re-use  of  their  waste  heat  will 
significantly contribute to that objective.  

A  third  challenge  is  linked  to  the  untapped  use  of  wastewater18  and  biological  waste  and 
residues  for  bioenergy  production,  including  biogas.  Biogas  can  be  exploited  on-site  to 
reduce fossil fuel consumption, or upgraded to biomethane to allow injection into the natural 
gas  grid  or  use  in  transport.  Also,  some  farm  infrastructures  are  suitable  for  an  integrated 
production  of  solar-origin  electricity  and  heat,  creating  the  potential  for  renewable  energy 
self-consumption  and  injection  into  the  grid.  The  implementation  of  the  new  Circular 
Economy  Action  Plan  and  waste  legislation  and  sustainable  agriculture  and  forestry 
management  systems  could  result  in  increased  sustainable  production  of  bioenergy  from 
wastewater,  waste  and  residues19.  More  efforts  are  needed  to  take  advantage  of  the  full 
potential  for  energy  system  integration,  exploiting  synergies  and  avoiding  trade-offs.  In 
agriculture,  through  the  Common  Agriculture  Policy,  farmers  could  be  incentivised  to 
contribute  to  a  greater  mobilisation  of  sustainable  biomass  for  energy.  Renewable  energy 
communities can provide a sound framework for the use of such energy in a local context. 

Key actions 

To better apply the energy-efficiency-first principle: 

 

Issue guidance to Member States on how to make the energy-efficiency-first principle 
operational across the energy system when implementing EU and national legislation (by 
2021). 

  Further  promote 

in  all  upcoming  relevant 
methodologies  (e.g.  in  the  context  of  the  European  resource  adequacy  assessment)  and 
legislative revisions (e.g. of the TEN-E Regulation20). 

the  energy-efficiency-first  principle 

  Review the Primary Energy Factor, in order to fully recognise energy efficiency savings 
via renewable electricity and heat, as part of the review of the Energy Efficiency Directive 
(June 2021). 

To build a more circular energy system: 

  Facilitate  the  reuse  of  waste  heat  from  industrial  sites  and  data  centres,  through 
to  district  heating  networks,  energy 

strengthened  requirements  for  connection 

17  C(2018) 7118 final. 
18   Wastewater treatment plants represent almost 1% of electricity consumption in Europe. This consumption 
can be reduced with more efficient technologies, and energy can be better recovered from those plants. 
19  The overall potential for increased biogas production from waste and residues remains high and, if fully 

exploited, could lead to biogas and biomethane production levels in 2030 of 2.7–3.7% of the EU’s energy 
consumption in 2030. See CE Delft, Eclareon, Wageningen Research, Optimal use of biogas from waste 
streams. An assessment of the potential of biogas from digestion in the EU beyond 2020, 2017. 

20   Regulation on Trans-European Networks in Energy, Regulation (EU) 347/2013. 

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 

performance  accounting  and  contractual  frameworks,  as  part  of  the  revision  of  the 
Renewable Energy Directive and of the Energy Efficiency Directive (June 2021). 
Incentivise  the  mobilisation  of  biological  waste  and  residues  from  agriculture,  food 
and  forestry  sectors  and  support  capacity-building  for  rural  circular  energy 
communities through the new Common Agriculture Policy, Structural Funds and the new 
LIFE programme (from 2021 onwards).  

3.2.  Accelerating  the  electrification  of  energy  demand,  building  on  a  largely 

renewables-based power system 

Electricity demand  is  projected to increase significantly on a pathway towards  climate 
neutrality, with the share of electricity in final energy consumption growing from 23% today 
to  around  30%  in  2030,  and  towards  50%  by  205021.  In  comparison,  that  share  has  only 
increased by 5 percentage points over the last thirty years.  

This growing electricity demand will have to be largely based on renewable energy. By 
2030,  the  share  of  renewable  energy  in  the  electricity  mix  should  double  to  55-60%,  and 
projections show a share of  around 84% by 2050. The  remaining gap should be covered by 
other low-carbon options22. 

Significant cost reductions in renewable power generation technologies have occurred in the 
last  decades  and  are  expected  to  continue  –  providing  prospects  that  market  forces  will 
increasingly  deliver  investments.  However,  given  the  scale  of  the  investments  needed,  it  is 
urgent  to  tackle  the  barriers  that  still  prevent  a  massive  roll-out  of  renewable  electricity, 
across all technologies. These include underdeveloped supply chains, the need for more  and 
smarter  grid  infrastructure  at  national  and  cross-border  level,  the  lack  of  public  acceptance, 
administrative barriers and lengthy permitting (including for repowering), financing, the need 
for  public  or  private  long-term  hedging  options,  or  high  costs  for  some  less  mature 
technologies.  

The  need  for  increased  electricity  supply  can,  alongside  other  relevant  onshore  renewable 
power technologies such as solar or wind energy, partly be met by offshore renewable energy 
production.  The  potential  of  offshore  wind  energy  in  the  EU  is  between  300-450  GW  by 
205023, against today's capacity of some 12 GW24. This represents a huge opportunity for the 
EU industry to become the global leader in offshore technology, but will require considerable 
efforts  to  increase  the  European  industrial  capacity  and  build  new  value  chains.  Offshore 
electricity production also creates an opportunity for the nearby localisation of electrolysers 
for hydrogen production, including the possible reuse of the existing infrastructure of depleted 
natural gas fields. In addition, the development of solar energy will be further facilitated. 

In the short term, the Commission will use the new recovery instrument Next Generation EU 
to  support  the  continued  deployment  of  renewable  energy.  It  will  assess  opportunities  to 

21  LTS, figure 20, looking at the 1.5LIFE and 1.5TECH scenarios for 2050. 
22  LTS, figure 23, looking at the 1.5LIFE and 1.5TECH scenarios for 2050. 
23  LTS, figure 24, including the UK. 
24  20 GW including the UK. 

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channel EU funds through, or in combination with, the new EU renewable energy financing 
mechanism25. 

On the demand side, certain incentives to electrification are provided for instance through the 
sectoral  targets  set  out  in  the  Renewable  Energy  Directive,  and  in  transport  through  CO2 
standards for vehicles, in the Alternative Fuel Infrastructure Directive and the Clean Vehicles 
Directive26.  But  challenges  for  increased  electrification  remain  and  differ  per  sector  and 
across Member States and more needs to be done.  

In buildings, electrification is expected to play a central role, in particular through the roll-out 
of heat pumps for space heating and cooling. In the residential sector, the share of electricity 
in  heating  demand  should  grow  to  40%  by  2030  and  to  50-70%  by  2050;  in  the  services 
sector, these shares are expected to be around 65% by 2030 and 80% by 205027. Large-scale 
heat  pumps  will  play  a  relevant  role  in  district  heating  and  cooling.  The  most  important 
barrier is the relatively higher level of taxes and levies applied to the electricity, and the lower 
levels of taxation for fossil fuels (oil, gas and coal) used in the heating sector, leading to lack 
of level playing field. Progress is also hampered by a number of other barriers, including unfit 
infrastructure planning, building codes and products standards, lack of skilled workforce for 
installation  and  maintenance,  lack  of  public  and  private  financing  instruments,  and  lack  of 
internalisation of CO2 costs in heating fuels. This translates into low replacement rates of the 
EU  fossil  heating  stocks,  low  development  and  modernisation  of  district  heating/cooling 
networks,  and  low  building  refurbishment  rates.  With  the  Renovation  Wave  initiative,  the 
Commission will ensure a higher penetration of renewables in buildings. It will also support 
training programmes under the Updated Skills Agenda. 

In  industry,  heat  represents  more  than  60%  of  energy  use.  Industrial  heat  pumps  can  help 
decarbonise the low temperature heat supply within industries, and can be coupled with waste 
heat recovery. Other technologies are being developed for higher temperature heating (such as 
microwave  or  ultrasound)  and  for  electrifying  processes  by  electrochemistry.  Barriers  to 
deployment include lack of information and long pay-back, due to the high price of electricity 
relative  to  gas  and  the  high  abatement  cost  associated  with  these  technologies,  relative  to 
current  CO2  prices.  Changes  in  the  production  process  leading  to  higher  costs  could  also 
affect the competitiveness of sectors exposed to international competition. EU support could 
help  develop  a  number  of  flagship  projects  and  demonstrate  innovative  electricity-based 
processes.  Furthermore,  the  industrial supply chain  for these technologies is  not  sufficiently 
mature  and  the  integration  of  these  electrification  technologies  into  industrial  processes 
requires training and new skills. The Commission will explore, together with industry, ways 
to address these issues.   

In transport28, the Sustainable and Smart Mobility Strategy is foreseen for later this year, and 
will  set  out  how  our  transport  system  needs  to  decarbonise  and  modernise  to  reduce  its 
emissions by 90% in 205029. Electric mobility is key, and will accelerate decarbonisation and 
reduce  pollution,  especially  in  our  cities,  and  new  mobility  services  will  increase  the 
efficiency of the transport system and reduce congestion. The rapidly falling cost of electric 

25  https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12369-Union-renewable-Financing-

mechanism 

26  Directive (EU) 2019/1161 on the promotion of clean and energy-efficient road transport vehicles. 
27  LTS, figure 42. 
28 
29     LTS 

Including mobile machinery. 

8 

 
 
                                                           
vehicles means that they could be competitive with combustion engine vehicles around 2025, 
on a total cost of ownership basis30. The European Green Deal points to the need of stepping 
up the roll out of recharging infrastructure, starting with the ambitious objective of having at 
least one million publicly accessible recharging and refuelling points by 2025, as well as the 
use of on-shore power supply in ports. To that end the Commission will mobilise InvestEU – 
which  will  be  reinforced  and  include  a  new  Strategic  Investment  Facility  –  and  the 
Connecting  Europe  Facility  funding  to  broaden  the  coverage  of  the  charging  infrastructure 
network. Support through the Recovery and Resilience Facility and through Cohesion Policy 
to  clean  vehicles  and  alternative  fuels  infrastructure  will  be  a  priority  as  part  of  the 
strengthened focus on delivering the European Green Deal in our regions and cities, including 
in  public  buildings,  offices,  depots  and  private  dwellings.  The  Renovation  Wave  initiative 
also  offers  opportunities  to  promote  electric  chargers  and  electric  vehicle  charging  stations. 
The Commission will also propose to revise the Alternative Fuels Infrastructure Directive and 
the TEN-T Regulation – also assessing how to further strengthen synergies between the TEN-
T  and  TEN-E  policies.  The  Commission  will  accompany  the  continued  support  under  the 
Connecting  Europe  Facility  with  a  further  mapping  of  funding  opportunities  and  regulatory 
initiatives  for  the  roll-out  of  recharging  infrastructure.  The  Commission  will  also  tackle 
challenges  to  make  electro-mobility  more  attractive  to  the  user  such  as  the  non-transparent 
pricing  at  public charging stations  and the persistent  lack  of cross-border  interoperability of 
charging services. Measures are also needed to boost the use of renewable electricity at ports, 
to  facilitate  the  electrification  of  road  freight  transport.  Further  electrification  of  railways 
could be explored taking into account its economic viability31. 

Overall,  a growing use of electricity in end-use sectors will  mean a need to keep under 
review the adequacy of renewable electricity supply, to ensure that it can match the scale 
required to support the decarbonisation of the abovementioned sectors. 

Electrification  can  present  challenges  for  the  management  of  the  electricity  system. 
Regional  and  cross-border  coordination  between  Member  States  will  become  increasingly 
important. This will be addressed by the development of Regional Coordination Centres32 in 
2022,  allowing  for  more  robust  security  analysis,  emergency  and  outage  coordination  and 
common infrastructure planning, and the deployment of storage and other flexibility options. 
The Commission will support the uptake of energy storage through full implementation of 
the Clean Energy Package  and  in  the upcoming  legislative reviews, including the  review of 
the TEN-E Regulation. 

Challenges are also expected at a more local level.  For instance, the full electrification of 
passenger  road  transport  will  require  in  parts  of  the  Union  upgrades  to  the  local  grid 
infrastructure.  At  the  same  time,  it  can  create  opportunities  for  providing  storage  and 
flexibility  to  the  system33.  In  particular,  smart  charging  and  so-called  Vehicle-to-Grid 
(V2G)  services  will  be  essential  to  manage  grid  congestion  and  limit  costly  investments  in 
grid capacity. The Electricity Directive contains a number of provisions that lay the basis for 
enabling smart charging and the development of V2G services, but challenges still remain, for 
instance  regarding  the  deployment  of  smart  recharging  points,  common  standards  and 
communication  protocols,  grid  charges,  taxation  and  access  to  the  in-vehicle  data.  The 

30  See for instance BNEF, Electric Vehicle Outlook, 2020. 
31  Over 50% of the rail network and around 80% of the rail traffic is already electrified. 
32  Regulation (EU) 2019/943. 
33  See Trinomics, Energy storage – Contribution to the security of the electricity supply in Europe, 2020. 

9 

 
 
                                                           
development of a new Network Code on Demand Side Flexibility as well as the review of the 
Alternative  Fuels  Infrastructure  Directive  both  present  opportunities  to  create  a  robust 
framework  for  the  successful  integration  of  demand-side  flexibility  in  general,  and  electric 
vehicles in particular. 

Electrification  efforts  of  areas  not  connected  to  the  continental  grid,  such  as  the  Outermost 
Regions,  some  islands,  or  remote  or  sparsely  populated  areas  present  specific  challenges. 
Technical  and  financial  support  for  energy  system  integration  is  particularly  relevant  for  a 
cost-effective transition in these regions. 

Key actions 

To ensure continued growth in the supply of renewable electricity: 

  Through the Offshore Renewable Strategy and follow-up regulatory and financing actions, 
ensure  the  cost-effective  planning  and  deployment  of  offshore  renewable  electricity, 
taking  into  account  the  potential  for  on-site  or  nearby  hydrogen  production,  and 
strengthen EU's industrial leadership in offshore technologies (2020).  

  Explore establishing minimum mandatory green public procurement (GPP) criteria and 
targets  in  relation  to  renewable  electricity,  possibly  as  part  of  the  revision  of  the 
Renewable  Energy  Directive  (June  2021),  supported  by  capacity  building  financing 
under the LIFE programme.  

  Tackle  remaining  barriers  to  a  high  level  of  renewable  electricity  supply  that  matches 
the  expected  growth  in  demand  in  end-use  sectors,  including  through  the  review  of  the 
Renewable Energy Directive (June 2021). 

To further accelerate the electrification of energy consumption: 

  As  part  of  the  Renovation  Wave  initiative,  promote  the  further  electrification  of 
buildings’  heating  (in  particular  through  heat  pumps),  the  deployment  of  on-buildings 
renewable  energy,  and  the  roll-out  of  electric  vehicle  charging  points  (from  2020 
onwards) , using all available EU funding, including the Cohesion Fund and InvestEU. 
  Develop  more  specific  measures  for  the  use  of  renewable  electricity  in  transport,  as 
well  as  for  heating  and  cooling  in  buildings  and  industry,  in  particular  through  the 
revision  of  the  Renewable  Energy  Directive,  and  building  on  its  sectoral  targets  (June 
2021). 

  Finance  pilot  projects  for  the  electrification  of  low-temperature  process  heat  in 

industrial sectors through Horizon Europe and the Innovation Fund (by 2021).  

  Assess  options  to  support  the  further  decarbonisation  of  industrial  processes,  including 
through electrification and energy efficiency, in the revision of the Industrial Emissions 
Directive (2021)34. 

  Propose to revise CO2 emission standards for cars and vans to ensure a clear pathway 

from 2025 onwards towards zero-emission mobility (June 2021). 

To accelerate the roll-out of electric vehicle infrastructure and ensure the integration of new 
loads: 

  Support the roll-out of 1 million charging points by 2025, using available EU funding, 

10 

 
 
 
 
 
                                                           
 
including  the  Cohesion  Fund,  InvestEU  and  Connecting  Europe  Facility  funding,  and 
communicate  regularly  on  the  funding  opportunities  and  regulatory  environment  to  roll 
out a charging infrastructure network (from 2020 onwards). 

  Use  the  upcoming  revision  of  the  Alternative  Fuels  Infrastructure  Directive  to 
accelerate the roll-out of the alternative fuels infrastructure, including for electric vehicles, 
strengthen  interoperability  requirements,  ensure  adequate  customer  information,  cross-
border usability of charging infrastructure, and the efficient integration of electric vehicles 
in the electricity system (by 2021).  

  Take  up  corresponding  requirements  for  charging  and  refuelling  infrastructure  in  the 
revision of the Regulation for the Trans-European Transport network (TEN-T) (by 2021) 
and  explore  greater  synergies  through  the  revision  of  the  TEN-E  Regulation  in  view  of 
possible energy network related support for cross border high capacity recharging as well 
as possibly hydrogen refuelling infrastructure (by 2020). 

  Develop  a  Network  Code  on  Demand  Side  Flexibility35  to  unlock  the  potential  of 
electric  vehicles,  heat  pumps  and  other  electricity  consumption  to  contribute  to  the 
flexibility of the energy system (starting end-2021). 

3.3. 

Promote  renewable  and  low-carbon  fuels,  including  hydrogen,  for  hard-
to-decarbonise sectors  

While  direct  electrification  and  renewable  heat  present  the  most  cost-effective  and  energy-
efficient  decarbonisation  options  in  many  cases,  there  are  a  number  of  end-use  applications 
where they might not be feasible or have higher costs. In such cases, a number of renewable 
or  low-carbon  fuels  could  be  used,  such  as  sustainable  biogas,  biomethane  and  biofuels, 
renewable  and  low-carbon  hydrogen  or  synthetic  fuels.  These  cases  include  a  number  of 
industrial  processes,  but  also  transport  modes  such  as  aviation  and  maritime,  where 
sustainable alternative fuels such as advanced liquid biofuels and synthetic fuels will have an 
essential role to play. Rapid action is necessary: for example, in aviation, only around 0.05% 
of total jet fuel consumption comes from liquid biofuels.   

Unlocking the potential of renewable fuels produced from sustainable biomass 

Today,  biofuels36,  biogas  and  biomethane37  account  for  only  3.5%  of  all  gases  and  fuels 
consumption38  and  are  largely  based  on  food  and  feed  crops.  Their  full  potential  should  be 
achieved in a sustainable manner, which mitigates climate, pollution and biodiversity risks 39.  

Biofuels will have an important role to play, notably in hard-to-decarbonise transport modes, 
such as aviation  or maritime –  including through hybridisation projects  linking biofuels and 
renewable hydrogen production. The Commission will in particular explore how to support to 

35  Under Regulation (EU) 2019/943. 
36  Biofuels are liquid fuels produced from biomass, through a variety of processes and using a variety of 

feedstock, such as biodiesel, bioethanol and Hydrotreated Vegetable Oils (HVO). 

37  Biogas is a gaseous mixture (primarily methane and carbon dioxide) produced from biomass, through the 

decomposition of organic matter in the absence of oxygen (anaerobically). Biogas can be used directly as a 
fuel, or be purified or “upgraded” into biomethane, which can thus be used for the same applications as 
natural gas and injected into the gas grid. 

38  Source: Eurostat. 
39  Directive 2018/2001 establishes a cap to first generation biofuels and limitations to high Indirect Land Use 

Change (ILUC) risk food and feedstocks, while reinforcing and extending sustainability criteria. 

11 

 
 
 
                                                           
the quick development  of innovative low-carbon  fuels  such as  advanced  biofuels, alongside 
synthetic  fuels,  across  the  whole  value  chain  of  the  industry  in  Europe,  leading  to  better 
coordination of the market actors and rapid increase of production capacity. Biomethane can 
contribute to the decarbonisation of the gas supply. However, the deployment of biofuels and 
biogases has so far been hampered by regulatory uncertainty. The revised Renewable Energy 
Directive has taken a first step to address these issues by introducing a target of 3.5% for the 
consumption of advanced biofuels and biogas in transport40. The 6% greenhouse gas emission 
target of the Fuel Quality Directive also supports the deployment of biofuels. In addition, the 
Communication  ‘The  role  of  Waste  to  Energy  in  the  circular  economy’41  clarifies  which 
waste-to-energy approaches are more sustainable, including for the production of biomethane, 
while the Biodiversity Strategy underlines that the use of whole trees and food and feed crops 
for energy production should be minimised.  

The  revision  of  the  Renewable  Energy  Directive,  as  well  as  the  Commission  initiatives  to 
boost  the  supply  and  uptake  of  sustainable  aviation  and  maritime  fuels  announced  in  the 
European Green Deal, will present opportunities for further targeted support to accelerate the 
development of the market for biofuels and biogases.  

Promoting the use of renewable hydrogen in hard-to-decarbonise sectors 

Today, hydrogen  contributes less than  2% of  Europe’s energy consumption42, and is  almost 
exclusively  produced  from  unabated  fossil  fuels.  Hydrogen  has  an  important  role  to  play  in 
reducing emissions in hard-to-decarbonise sectors, in particular as a fuel in certain transport 
applications  (heavy-duty  road  transport,  captive  fleets  of  buses,  or  non-electrified  rail 
transport,  maritime  transport  and  inland  waterways)  and  as  a  fuel  or  feedstock  in  certain 
industrial  processes  (steel,  refining  or  chemical  industries  –  including  to  produce  ‘green 
fertilisers’  for  agriculture).  Carbon  dioxide  in  reaction  with  hydrogen  can  also  be  further 
processed  into  synthetic  fuels,  such  as  synthetic  kerosene  in  aviation.  In  addition,  hydrogen 
brings other environmental co-benefits, such as the lack of air pollutant emissions. 

Hydrogen  produced  through  electrolysis  using  renewable  electricity  can  play  a  particularly 
important “nodal” role in an integrated energy system, where it can help integrate large shares 
of  variable  renewable  generation,  by  offloading  grids  in  times  of  abundant  supply,  and 
providing long term storage to the energy system. It can also allow local renewable electricity 
production to be used in a range of additional end-use applications.  

The  Hydrogen  Strategy,  adopted  today,  presents  measures  to  create  the  conditions  for 
hydrogen to contribute to decarbonising the economy in a cost-effective way, addressing the 
whole  hydrogen  value  chain  to  support  economic  growth  and  recovery.  The  priority  for  the 
EU  is  to  develop  hydrogen  production  from  renewable  electricity  which  is  the  cleanest 
solution. In a transitional phase however, other forms of low-carbon hydrogen are needed to 
replace  existing  hydrogen  and  kick-start  an  economy  of  scale.  In  addition  to  providing 
financial  support  in  certain  end-use  applications,  the  Commission  will  consider  establishing 

40  The use of “advanced” biofuels and biogas (gained from certain residues and by-products from agriculture 
and forestry activities, industrial and municipal waste in full respect of the waste hierarchy, and other ligno-
cellulosic material) is encouraged under the Directive 2018/2001. Biofuels and biogas need to meet 
sustainability requirements to be statistically accounted as renewable under that Directive. 

41  COM(2017) 034 final. 
42  Calculated on the basis of production data provided by Fuel Cells and Hydrogen Joint Undertaking, includes 

the use of hydrogen as a feedstock; FCHJI, Hydrogen roadmap, 2019. 

12 

 
 
                                                           
minimum shares or quotas of renewable hydrogen in specific end-use sectors. Renewable and 
low-carbon fuels (including hydrogen) can be promoted most effectively if they can be easily 
distinguished  from  more  polluting  energy  sources.  Therefore,  the  Commission  will  work  to 
introduce  a  comprehensive  terminology  and  a  European  certification  system  covering  all 
renewable and low carbon fuels43. Such a system, based notably on full life cycle greenhouse 
gas emissions savings, will allow for more informed choices when deciding on policy options 
at the EU or national level. 

Enabling  carbon  capture,  storage  and  use  to  support  deep  decarbonisation,  including 
synthetic fuels 

Even  a  fully  integrated  energy  system  cannot  completely  eliminate  CO2  emissions  from  all 
parts  of  the  economy.  Together  with  alternative  process  technologies,  carbon  capture  and 
storage (CCS) is likely  to play a role in  a  climate-neutral  energy system. In particular CCS 
can  address  hard-to-abate  emissions  in  certain  industrial  processes,  thus  enabling  these 
industries  to  have  a  place  in  a  climate  neutral  economy  and  maintaining  industrial  jobs  in 
Europe. In addition, if the stored CO2 was captured from biogenic sources or directly from the 
atmosphere, CCS could even compensate residual emissions in other sectors. 

An alternative to the permanent storage of CO2 is to combine it with renewable hydrogen to 
produce  synthetic  gases,  fuels  and  feedstock  (Carbon  Capture  and  Use,  or  CCU).  Synthetic 
fuels can be associated with very different levels of greenhouse gas emissions depending on 
the  origin  of  CO2  (fossil,  biogenic,  or  captured  from  the  air),  and  the  process  used.  Fully 
carbon-neutral  synthetic  fuels  require  sourcing  the  CO2  from  biomass  or  the  atmosphere. 
Synthetic  fuels  are  currently  inefficient  in  terms  of  energy  required  for  production  and  are 
confronted  with  high  production  costs.  Support  to  progress  the  development  of  this 
conversion technology, including demonstration and upscaling of the full production process, 
is relevant with a view to having substitutes for fossil fuels in particular in the most difficult 
to decarbonise sectors, which may continue to rely on high energy density liquid fuels, such 
as  aviation.  As  their  production  requires  large  amounts  of  renewable  energy,  their  uptake 
would have to be matched by a corresponding increase in renewable energy supply.  

It is of key importance to properly monitor, report and account the emissions and removals of 
CO2 associated with the production of synthetic fuels to reflect correctly their actual carbon 
footprint.  Complementing  the  current  greenhouse  gas  emission  monitoring  and  reporting 
system,  a  robust  carbon  removal  certification  mechanism  will  ensure  the  traceability  of  the 
CO2  along  its  emission,  capture,  use  and  potential  reemission  throughout  our  economic 
system.  The  Development  of  a  carbon  removal  certification  system,  as  announced  in  the 
Circular  Economy  Action  Plan44,  can  provide  regulatory  incentives  for  market  take-up  of 
synthetic fuels. 

The uptake of CO2 capture and usage in Europe is slow, with investment and operational costs 
still high. There are also barriers that prevent the transport of CO2 to those places where it will 
be  stored  or  used.  In  some  parts  of  the  EU,  there  are  also  concerns  among  citizens  and 
political  decision-makers  regarding  the  storage  of  CO2.  An  annual  European  CCUS  Forum 
could  be convened as part of the Clean Energy  Industrial Forum  to  further study options to 
foster CCUS projects. 

43     See also Hydrogen Strategy, COM(2020) 301 final. 
44  COM(2020) 98 final. 

13 

 
 
                                                           
Key actions 

  Propose  a  comprehensive  terminology  for  all  renewable  and  low-carbon  fuels  and  a 
European  system  of  certification  of  such  fuels,  based  notably  on  full  life  cycle 
greenhouse  gas  emission  savings  and  sustainability  criteria,  building  on  existing 
provisions including in the Renewable Energy Directive (June 2021). 

  Consider  additional  measures  to  support  renewable  and  low-carbon  fuels,  possibly 
through  minimum  shares  or  quotas  in  specific  end-use  sectors  (including  aviation  and 
maritime),  through  the  revision  of  the  Renewable  Energy  Directive  and  building  on  its 
sectoral  targets  (June  2021),  complemented,  where  appropriate,  by  additional  measures 
assessed under the REFUEL Aviation and FUEL Maritime initiatives (2020). The support 
regime for hydrogen will be more targeted, allowing shares or quota only for renewable 
hydrogen. 

  Promote  the  financing  of  flagship  projects  of  integrated,  carbon-neutral  industrial 
clusters  producing  and  consuming  renewable  and  low-carbon  fuels,  through  Horizon 
Europe, InvestEU and LIFE programmes and the European Regional Development Fund 
(from 2021). 

  Stimulate  first-of-a-kind  production  of  fertilisers  from  renewable  hydrogen  through 

Horizon Europe (from 2021).  

  Demonstrate and scale-up the capture of carbon for its use in the production of synthetic 

fuels, possibly through the Innovation Fund (from 2021). 

  Develop  a  regulatory  framework  for  the  certification  of  carbon  removals  based  on 
robust and transparent carbon accounting to monitor and verify the authenticity of carbon 
removals (by 2023). 

3.4.  Making energy markets fit for decarbonisation and distributed resources 

In  an  integrated  energy  system,  trustworthy  and  efficient  markets  should  guide  customers 
towards the most energy-efficient and cheapest decarbonisation option, on the basis of prices 
that properly reflect all the costs of the energy carrier used.  

Ensuring non-energy price components contribute to decarbonisation across energy carriers 

In many EU Member States, taxes and levies on electricity are higher than for coal, gas or 
heating oil, both in absolute value and as a share of total price45. Over the past years, charges 
and levies on electricity, such as those financing renewable support schemes, have continued 
to increase. At the same time, the energy component of the final (retail) electricity price has 
reduced both in absolute and relative terms. This has widened the asymmetry in non-energy 
costs between electricity and gas: for retail household electricity prices, for instance, taxes and 
levies now add up to 40% of the final price, compared to 26% of gas or 32% for heating oil46. 
Some  other  energy-  or  carbon-intensive  sectors  such  as  international  aviation  and  maritime 
transport,  as  well  as  agriculture,  can  be  subject  to  low  or  no  VAT,  and,  under  the  current 
Energy Taxation Directive, to low energy excise duties.  

Also,  carbon  costs  are  only  partially  internalised,  or  not  internalised  at  all,  in  some  sectors 
(e.g. road and maritime transport or space heating) or in some Member States, or may not be 

45  DG Energy, Energy Prices and Costs Report, 2019. 
46   DG Energy, Energy Prices and Costs Report, 2019. 

14 

 
 
 
 
                                                           
sufficient  to  incentivise decarbonisation in  some sectors  covered by  the  ETS  (e.g. aviation). 
Finally, fossil fuel subsidies also persist in the EU.  

Overall, applicable taxes and levies, including carbon pricing, are not applied homogeneously 
across energy carriers and sectors, and create distortions towards the use of specific carriers.  

Finally,  the  specificities  of  electricity  used  for  energy  storage  or  for  hydrogen  production 
should also be considered, avoiding double taxation (so that energy is only taxed once when 
delivered for final consumption), and avoiding unjustified double grid charges.  

Placing consumers at the centre 

Clear  and  easily  accessible  information  is  essential  to  enable  citizens  to  change  energy 
consumption  patterns  and  switch  to  solutions  that  support  an  integrated  energy  system. 
Customers  –  citizens  and  businesses  alike  –  should  be  informed  on  their  rights,  on  the 
technology options available to them and their associated carbon and environmental footprint, 
so  they  can  make  informed  choices  and  truly  drive  decarbonisation.  It  is  important  that 
vulnerable households are not left behind and energy poverty is addressed47. In the context of 
the Climate Pact,  the Commission  will launch a  consumer information  campaign on their 
rights related to the energy market.  

Customer  information  rights  for  electricity  customers  have  been  enhanced  with  the  Clean 
Energy Package – further work remains to be done for gas and district heating customers to 
align those with the electricity sector. 

Furthermore,  markets for sustainable products and services are still missing, for instance 
for  products  such  as  steel,  cement  and  chemicals  produced  from  renewable  or  low-carbon 
fuels.  As  part  of  the  broader  efforts  announced  in  the  Circular  Economy  Action  Plan  to 
improve  sustainability  of  such  intermediary  products,  consumers  should  receive  relevant 
information that may encourage them to pay a price premium.  

Making electricity and gas markets fit for decarbonisation48 

The  Clean  Energy  Package  already  laid  the  foundation  to  make  electricity  markets  fit  to 
integrate large amounts of variable electricity and the integration of flexibility from demand 
response  and  storage,  while  improving  the  market  signals  to  stimulate  investments  and 
empowering  electricity  customers.  The  challenge  now  lies  in  implementing  the  measures 
properly,  in  particular  the  completion  of  market  coupling  through  day-ahead  and  intraday 
trading.  

As  we  progress  towards  climate-neutrality,  the  volume  of  natural  gas  consumed  in  Europe 
will progressively reduce. While gaseous fuels are expected to continue to play an important 
role  in  our  energy  mix49,  the  mix  of  gaseous  fuels  will  highly  depend  on  the  chosen 
decarbonisation  pathway.  By  2050,  the  share  of  natural  gas  in  gaseous  fuels  is  projected  to 

47  

48 

In line with the European Pillar of Social Rights (principle 20) that guarantees the access to essential 
services, including energy. 
Issues connected to the creation of open and competitive markets for hydrogen are covered in the dedicated 
Hydrogen Strategy. 

49  LTS, figure 33: the 1.5TECH and LTS 1.5LIFE scenarios project a share of 18-22% for gaseous fuels in the 

EU energy mix by 2050, compared to 25% today.  

15 

 
 
                                                           
reduce to 20%, and most of the remaining 80% gaseous fuels should be of renewable origin50. 
But  the  future  mix  of  these  gaseous  energy  carriers  –  biogas,  biomethane,  hydrogen  or 
synthetic gases – is hard to project.  

The gas market regulatory framework should be re-examined so as to facilitate the uptake of 
renewable  gases  and  customer  empowerment,  whilst  ensuring  an  integrated,  liquid  and 
interoperable EU internal gas market. 

In  this  context,  issues  to  consider  include  the  connection  to  infrastructure  and  the  market 
access for distributed production of renewable gases, including at the distribution level, which 
would  complement  the  use  of  renewable  gases  in  a  more  local,  circular  context  (such  as 
biogas  used  on  farm).  In  addition,  with  renewable  gases  injected  into  the  gas  network,  and 
supply sources further diversified, the quality parameters of gas consumed and transported in 
the  EU  would  change.  To  avoid  this  leading  to  market  segmentation  and  trade  restrictions, 
there  is  a  need  to  look  at  how  to  ensure  the  interoperability  across  gas  systems  and  the 
unhindered flow of gases across Member States’ borders.  

Updating the State aid framework 

The  current  review  of  the  State  aid  framework,  and  notably  its  guidelines  on  energy  and 
environmental  protection,  will  contribute  to  energy  system  integration  by  providing  a  fully 
updated  and  fit-for-purpose  enabling  framework  for  a  cost-effective  deployment  of  clean 
energy and the well-functioning of energy markets51.  

Key actions 

To promote a level-playing field across all energy carriers: 

  Issue  guidance  to  Member  States  to  address  the  high  charges  and  levies  borne  by 
electricity and to ensure the consistency of non-energy price components across energy 
carriers (by 2021). 

  Align  the  taxation  of  energy  products  and  electricity  with  EU  environment  and  climate 
policies,  and  ensure  a  harmonised  taxation  of  both  storage  and  hydrogen  production, 
avoiding double taxation, through the revision of the Energy Taxation Directive52. 
  Provide  more  consistent  carbon  price  signals  across  energy  sectors  and  Member  States, 
including through a possible proposal for the extension of the ETS to new sectors (by 
June 2021).  

  Further  work  towards  the  phasing  out  of  direct  fossil  fuel  subsidies,  including  in  the 
context  of  review  of  the  State  aid  framework  and  the  revision  of  the  Energy  Taxation 
Directive (from 2021 onwards).  
the  revision  of 

the  State  aid  framework  supports  cost-effective 

  Ensure 

that 

decarbonisation of the economy where public support remains necessary (by 2021). 

50  LTS, figures 28 to 32. 
51  Beyond those provisions, the Research, Development and Innovation Framework and the Communication 
setting out criteria for the analysis of the compatibility with the internal market of State aid to promote the 
execution of important projects of common European interest are also relevant. 
Initial Impact Assessment for the revision of the Energy Taxation Directive: 
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12227  

52 

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To adapt the gas regulatory framework: 

  Review the legislative framework to design a competitive decarbonised gas market, 
fit for renewable gases, including to empower gas customers with enhanced information 
and rights (by 2021).  

To improve customer information: 

 

 

In the context of the Climate Pact, launch a consumer information campaign on energy 
customer rights (by 2021). 
Improve  information  to  customers  on  the  sustainability  of  industrial  products  (in 
particular steel, cement and chemicals) as part of the sustainable product policy initiative, 
and, as appropriate, through complementary legislative proposals (by 2022). 

3.5.  A more integrated energy infrastructure 

Energy  system  integration  will  translate  into  more  physical  links  between  energy  carriers. 
This  calls  for  a  new,  holistic  approach  for  both  large-scale  and  local  infrastructure 
planning,  including  the  protection  and  resilience  of  critical  infrastructures.  The  objective 
should be to make the most of the existing infrastructure while avoiding both lock-in effects 
and stranded assets. Infrastructure planning should facilitate the integration of various energy 
carriers  and  arbitrate  between  the  development  of  new  infrastructure  or  re-purposing  of 
existing  ones.  It  should  consider  alternatives  to  network-based  options,  especially  demand-
side solutions and storage.  

The  various  components  of  the  energy  network  will  all  need  to  evolve.  Modern  low-
temperature district heating systems should be promoted, as they can connect local demand 
with  renewable  and  waste  energy  sources,  as  well  as  the  wider  electric  and  gas  grid  – 
contributing  to  the  optimisation  of  supply  and  demand  across  energy  carriers.  However, 
district  heating  networks  account  for  12%  of  the  total  final  heating  and  cooling  energy 
consumption,  are  highly  concentrated  in  a  few  Member  States,  and  only  a  limited  share  of 
them are highly efficient and based on renewables.  

Implementing the Clean Energy Package will contribute to a more efficient use of electricity 
grids.  Nevertheless,  accelerated  electrification  of  new  end-uses  will  require  to  reinforce  the 
grid,  mainly  at  distribution  but  also  at  transmission  level53,  and  to  make  it  smarter. 
Electrolysers  will  link  up  to  the  electricity  grids,  and  possibly  to  existing  gas  grids.  In  the 
context  of  the  assessment  of  Member  States'  National  Energy  and  Climate  Plans,  the 
Commission will also analyse the progress towards the 15% electricity interconnection target 
and  consider  appropriate  action,  including  in  the  context  of  the  revision  of  the  TEN-E 
Regulation. 

The existing gas network provides ample capacities across the EU to integrate renewable and 
low-carbon  gases  and  repurposing  gas  network  for  hydrogen  applications  may  provide  in 
some cases a cost-efficient solution, including to transport renewable hydrogen from offshore 
renewable electricity parks. Ports could transform into centres receiving electricity produced 
offshore,  as  well  as  liquid  hydrogen,  and  thereby  contribute  to  enable  the  global  trade  of 
renewable hydrogen or synthetic fuels.  

53  

In line also with the EU electricity interconnection target included under Regulation (EU) 2018/1999 on the 
Governance of the Energy Union and Climate Action 

17 

 
 
 
 
                                                           
While gas networks may be used54 to enable blending of hydrogen to a limited extent during a 
transitional phase, dedicated infrastructures for large-scale storage and transportation of 
pure  hydrogen,  going  beyond  point-to-point  pipelines  within  industrial  clusters,  may  be 
needed.  The  expansion  of  hydrogen  refuelling  stations  will  also  be  assessed  as  part  of  the 
revision  of  the  Alternative  Fuels  Infrastructure  Directive  and  the  Regulation  on  the  TEN-T 
guidelines. 

Similarly,  further  reflection  is  needed  on  the  role  of  CO2-dedicated  infrastructure, 
transporting CO2 across industrial sites for further use, or to large scale storage facilities. 

The Regulation  on Trans-European Networks in  Energy (TEN-E) provides  a  framework for 
the  selection  of  infrastructure  projects  of  common  interest  in  electricity,  gas  and  CO2 
networks.  In  this  context,  currently,  10-Year  Network  Development  Plans  (TYNDPs)  at 
national  and  EU  level  are  developed  in  parallel  for  gas  and  electricity  by  Transmission 
System Operators. Future network planning will require a more integrated and cross-sectoral 
approach, notably of the electricity and gas sectors. It will also require full consistency with 
climate and energy targets, including alignment with National Energy and Climate Plans, an 
adequate consideration of all relevant actors, and should be informed by local conditions. 

The  Commission  will  ensure  that  the  ongoing  revision  of  the  TEN-E  Regulation  makes  it 
fully consistent with climate neutrality and enables the cost-effective integration of the energy 
system, as well as its integration with the digital and transport systems. The ongoing revision 
of the Regulation on the Trans-European Transport network (TEN-T) will also seek synergies 
with 
the 
decarbonisation of transport from the new vision of energy infrastructure planning. 

to  generate  additional  opportunities  for 

the  TEN-E  Regulation,  aiming 

Finally,  increasing  interdependencies  mean  that  disruptions  in  one  sector  can  have  an 
immediate  impact  on  operations  in  others  and  a  new  coherent  security  approach  for  both 
physical  and  digital  infrastructures  is  necessary.  The  new  Security  Union  Strategy  will 
address both critical infrastructure and cybersecurity and needs to be accompanied by sector-
specific  initiatives  to  tackle  the  specific  risks  faced  by  critical  infrastructures  such  as  in  an 
integrated energy system and infrastructure. 

Key actions 

  Ensure  that  the  revisions  of  the  TEN-E  and  TEN-T  regulations  (in  2020  and  2021, 
respectively)  fully  support  a  more  integrated  energy  system,  including  through  greater 
synergies between the energy and transport infrastructure, as well as the need to achieve 
the 15% electricity interconnection target for 2030. 

  Review  the  scope  and  governance  of  the  TYNDP  to  ensure  full  consistency  with  the 
EU’s  decarbonisation  objectives  and  cross-sectoral  infrastructure  planning  as  part  of  the 
revision of the TEN-E Regulation (2020) and other relevant legislation (2021). 

  Accelerate investment in smart, highly-efficient, renewables-based district heating and 
cooling networks, if appropriate by proposing stronger obligations through the revision of 
the Renewable Energy Directive and the Energy Efficiency Directive (June 2021), and the 

54  A blend of 5-20% by volume can be tolerated by most systems without the need for major infrastructure 
upgrades or end-use appliance retrofits or replacements. See for instance BNEF, Hydrogen Economy 
Outlook, 2020. 

18 

 
 
 
                                                           
financing of flagship projects. 

3.6.  A digitalised energy system and a supportive innovation framework 

Digitalisation supports energy system integration – it can enable dynamic and interlinked 
flows  of  energy  carriers,  allow  for  more  diverse  markets  to  be  connected  with  another,  and 
provide  the  necessary  data  to  match  supply  and  demand  at  a  more  disaggregated  level  and 
close to  real  time. A  combination of novel  sensors, advanced data  exchange infrastructures, 
and  data  handling  capabilities  that  make  use  of  Big  Data,  Artificial  Intelligence,  5G  and 
distributed  ledger  technologies  can  enhance  forecasting,  allow  the  remote  monitoring  and 
management  of  distributed  generation  and  improve  asset  optimisation,  including  the  on-site 
use  of  self-generation.  Digitalisation  is  also  key  to  unleash  the  full  potential  of  customers 
having  a  flexible  energy  consumption  across  different  sectors  to  contribute  to  the  efficient 
integration  of  more  renewables.  More  generally,  digitalisation  provides  an  opportunity  for 
economic growth and worldwide technological leadership. 

Digitalisation  represents  a  challenge  in  terms  of  increased  energy  demand  for  ICT 
equipment, networks and services which needs to be adequately managed in the context of an 
integrated energy system. Digitalisation also brings other challenges for the energy sector, in 
particular on ethics, privacy and cybersecurity, with consideration to the specificity of the 
energy sector.  

A system-wide Digitalisation of Energy action plan could accelerate the implementation of 
digital  solutions,  building  on  the  Common  European  energy  data  space55,  announced  in  the 
European Data strategy. As part of the implementation of the Clean Energy Package, it will 
roll-out  smart  metering,  foster  demand  response,  and  ensure  the  interoperability  of  energy-
related data. It will also use EU funding opportunities such as the Connecting Europe Facility, 
InvestEU,  the  Digital  Europe  Programme,  and  structural  funds  to  scale-up  solutions 
developed through Horizon Europe.  

Finally, research and innovation will be a key enabler to create and exploit new synergies in 
the energy system, for instance in relation to e-mobility, to heating or to the decarbonisation 
of energy intensive industries. Research should focus on enabling lower maturity technologies 
to come into the market, while more mature and innovative technologies should be scaled up 
through large scale demonstrations through the proposed Horizon Europe and its partnerships 
and  making  use  of  complementarities  among  the  various  EU  funding  programmes. 
Technology development must go hand in hand with societal innovation. 

Key actions 

  Adopt a Digitalisation of Energy Action plan to develop a competitive market for digital 
energy  services  that  ensures  data  privacy  and  sovereignty  and  supports  investment  in 
digital energy infrastructure (2021). 

  Develop  a  Network  Code  on  cybersecurity  in  electricity56  with  sector-specific  rules  to 
increase  the  resilience  and  cybersecurity  aspects  of  cross-border  electricity  flows, 

55  https://ec.europa.eu/info/sites/info/files/communication-european-strategy-data-19feb2020_en.pdf  
56  Under Regulation (EU) 2019/943. 

19 

 
 
 
 
                                                           
common minimum requirements, planning, monitoring, reporting and crisis management  
(by end 2021). 

  Adopt the implementing acts on interoperability requirements and transparent procedures 

for access to data within the EU (first one in 2021)57. 

  Publish  a  new  impact-oriented clean  energy  research and innovation outlook for  the 
EU to ensure research and innovation supports energy system integration (by end 2020). 

4.  CONCLUSIONS 

This  communication  sets  out  a  strategy  and  a  set  of  actions  to  ensure  that  energy  system 
integration can contribute to the energy system of the future – one that is efficient, resilient, 
secure and driven by the twin goals of a cleaner planet and a stronger economy for all.  

The transition  to  a more integrated energy system  is  of crucial importance for Europe, now 
more  than  ever.  First,  for  recovery.  The  COVID-19  outbreak  has  weakened  the  European 
economy  and  undermines  the  future  prosperity  of  European  citizens  and  business.  This 
strategy is part of the recovery plan. It proposes a path forward that is cost-effective, promotes 
well-targeted investments in infrastructure, avoids stranded assets and leads to lower bills for 
businesses  and  customers.  In  short,  it  is  key  to  accelerating  the  EU’s  emergence  from  this 
crisis  and  for  mobilising  necessary  EU  funding,  including  the  Cohesion  Fund,  as  well  as 
private investments. Second, for climate neutrality.  Energy system integration is essential to 
reach  increased  2030  climate  targets  and  climate  neutrality  by  2050.  It  exploits  energy 
efficiency  potential,  enables  a  larger  integration  of  renewables,  the  deployment  of  new, 
decarbonised fuels, and a more circular approach to energy production and transmission.  

Finally,  a  truly  integrated  energy  system  is  vital  for  shaping  Europe’s  global  leadership  in 
clean  energy  technologies,  by  leveraging  Europe’s  existing  strengths  –  an  established 
leadership  in  renewable  energy;  a  regional  approach  to  system  operation  and  infrastructure 
planning; liberalised energy markets; and excellence in energy innovation and digitalisation.  

We are still far from where we need to be by 2050. To get there, both fundamental and far-
reaching action is urgently needed. The Clean Energy Package adopted in 2018-2019 lays the 
foundation  for  system  integration  and  should  be  fully  implemented.  In  the  context  of  the 
Green Deal, the new actions outlined in this communication will add the necessary scope and 
speed  to  move  towards  the  energy  system  of  the  future,  contributing  to  the  EU’s  increased 
climate  ambition  and  to  shaping  the  legislative  revisions  to  be  proposed  in  June  2021.  The 
time to act is now.  

Obviously,  system  integration  will  not  be  a  one-size-fits-all  process:  despite  a  common 
objective of EU climate neutrality by 2050, EU Member States have different starting points. 
As  such,  Member  States  will  follow  different  pathways,  depending  on  their  respective 
circumstances, endowments and policy choices, which are already reflected in the respective 
National  Energy  and Climate Plans (NECPs). This  strategy offers a  compass to  direct  these 
efforts in the same direction. 

Citizens have a central  role in system integration. This means that they should contribute to 
shape  the  implementation  of  this  Strategy,  using  the  Climate  Pact  as  well  as  other  existing 
citizen fora to advance the system integration agenda.  

57  Under Article 24 of Directive (EU) 2019/944. 

20 

 
 
                                                           
With  this  document,  the  Commission  invites  the  Council,  the  Parliament,  other  EU 
institutions and all stakeholders to focus on how to take forward energy system integration in 
Europe. It intends to invite interested parties to debate in a  large dedicated public event at 
the end of this  year and to  contribute to  the public consultations and impact assessments 
that  will  inform  the  preparation  of  the  follow-up  proposals  envisaged  for  2021  and 
beyond. 

21