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Security of Energy Considering its Uncertainty, Risk and Economic Implications

Final Report Summary - SECURE (Security of energy considering its uncertainty, risk and economic implications)

Executive summary:

Security of energy considering its uncertainty, risk and economic implications (SECURE) is a research project funded by the European Commission under the Seventh Framework Programme (FP7) with the aim of building a comprehensive framework that covers the issues related to security of supply inside and outside the European Union (EU). SECURE is a collaborative project (small or medium-scale focused research project). Detailed information about SECURE can be found on the project's website (www.secure-ec.eu).

The ambition of the SECURE project was to build a comprehensive framework that considers all the issues related to the topic of security of supply, including geopolitics, price formation and the economic and technical design of energy markets inside and outside the EU.

The project intended to develop tools, methods and models to measure, assess and evaluate the vulnerability of the EU to the different risks which affect energy supplies in order to help optimising the Union's energy insecurity mitigation strategies. Energy security indicators have also been developed in order to identify the risk factors and quantify the EU exposure to volume and price risks in the short and long terms. Costs and benefits of energy security have been evaluated for different energy demand scenarios to help policy makers providing the most appropriate institutional, political and industrial solutions.

All major energy sources and technologies (oil, natural gas, coal, nuclear, renewable sources and electricity) have been addressed from upstream to downstream with both a global and sectoral analysis studying in depth issues such as technical, economic / regulatory and geopolitical risks. The analysis has not been limited to supply issues, but demand issues related to energy security have been integrated also.

The SECURE project has both a strong quantitative and qualitative component and has at the end not only provided a comprehensive, methodological and quantitative framework to measure energy security of supply, but it has also proposed policy recommendations on how to improve energy security taking into account costs, benefits and risks of various policy choices.

The project, which started in January 2008 and finished in December 2010, was carried out by a consortium of 15 partners, from 11 EU or European Economic Area (EEA) countries, with a diversified expertise. Observatoire Méditerranéen de l'Energie (OME, France) was the project coordinator. Scientific Coordinator was Fondazione Eni Enrico Mattei (FEEM, Italy). Stakeholders' consultation has been an important element of the SECURE project. Several workshops have been organised both in Europe and in the main energy supplying regions for Europe (Russia, North Africa and Persian / Arabic Gulf) in order to discuss and test draft project results.

Project context and objectives:

While the energy intensity of EU gross domestic product has progressively decreased, energy consumption remains at the heart of economic growth. This explains how important it is for Europe to keep its energy supply secure and reliable both in terms of volumes and prices, and why energy sometimes contributes to justify armed conflicts and terrorism. Energy security has recently gained importance on the policy agenda due to the growing dependence of industrialised economies on energy consumption and the increased frequency of disruption in supply. The current European domestic energy system is considered as not reliable enough to support sustained and stable economic growth. Energy consumption in European Organisation for Economic Cooperation and Development (OECD) countries is steadily increasing, while domestic European sources are becoming exhausted, leading to growing import dependence, especially for oil and natural gas. The real national and international challenge for economic development over the next years is to derive policies that address the three core European goals in a compatible and harmonious way.

SECURE has strong quantitative and qualitative components, providing a comprehensive framework to measure energy security of supply, and puts forward policy recommendations on how to improve energy security taking into account costs, benefits and risks of various policy choices.

The objective was to build tools aimed at evaluating the vulnerability of the EU to the different risks which affect energy supplies in order to help optimising the Union's energy insecurity mitigation strategies, including investment, demand side management and dialogue with producing countries.

This project therefore consists in developing energy security indicators for all the major energy sources in order to identify the risk factors and quantify the EU exposure to volume and price risks in the short and long terms, including the value consumers give to supply security. Costs and benefits of energy security has been evaluated for different energy demand scenarios to help policy makers providing the most appropriate institutional, political and industrial solutions.

All major energy sources and technologies (oil, natural gas, coal, nuclear, renewables and electricity) have been addressed from upstream to downstream with both a global and sectoral analysis studying in depth issues such as technical, economic / regulatory and geopolitical risks. The analysis has not been limited to supply issues, but has integrated also demand issues related to energy security.

SECURE comprises eight Work package (WP)s. WP1 on methodology provides guidance to each research area: the elicitation of user attitudes to energy security (WP2), the development of qualitative long term policy storylines (WP3), the modelling of the impacts of insecurity and of the responses to energy security using economy-wide and partial equilibrium models (WP4) and the modelling of impacts and responses to impacts by energy source, including accidents and terrorist attacks and the demand dimension of energy security (WP5). WP4 also carries out quantitative risk analysis and compares the costs of energy security measures (WPs 4,5) with measurable economic benefits (WPs 4,5). The results from WP4 and WP5 feed into the overall results and recommendations (WP6). WP7 organises stakeholder consultations and disseminates the project's results and WP8 manages the project.

Project results:

The output of SECURE includes a comprehensive methodological and quantitative framework to measure energy security of supply, energy security scenarios and policy recommendations on how to improve energy security taking into account costs, benefits and risks of various policy choices.

The first year of the project has seen the development of the main methodological activities of the whole project, dealt with by WP1 ('Methodological developments') and WP3 ('Development of qualitative long-term scenario policy lines'), the setting up of the survey on the willingness to pay for energy security, dealt with by WP2 ('Assessment of the value of energy security improvements for consumers: by sector and by source (oil, natural gas, and electricity)'), and of the numerical analysis with the Prospective outlook on long-term energy systems (POLES) and Energy risk assessment (ERA) models, dealt with by WP4 ('Global quantitative models').

During the second year, the SECURE project has carried out the bulk of its research activities. In particular, the consortium has completed the methodological framework of WP1, fine-tuned the storylines in WP3, setup and pre-tested the empirical survey of the willingness to pay for energy security amongst European energy consumers in WP2, developed the quantitative framework of the POLES model according the methodological framework of WP1 and the storylines of WP3, carried out sectoral analyses in WP5.1-5.6 according to the general methodological framework of WP1, analysed accident and terrorist threats in WP5.7 ('Development and application of methodology for assessing impacts of severe accidents and terrorist threat on energy security') and the role of energy demand in WP5.8 ('The demand dimension of energy security'), and finally started up the distillation of policy recommendation in WP6 ('Results and recommendations'), in particular by preparing the framework for the Multi-criteria decision analysis (MCDA).

During its third year, the project has focused on the completion of the research activities of WPs 2,4 and 5-5.8 (Sector specific analysis of energy security: coordination, oil, gas, coal, nuclear energy, renewable energy, electricity, severe accidents and terrorist threat on energy security, demand dimension of energy security), and on drafting the policy recommendations in WP6. In particular the residential consumer surveys of WP2 have been finalised, allowing the estimation of the willingness to pay for improvement in energy security in the electricity, gas and oil product markets. The quantitative scenarios of WP4, based on the refined storylines of WP3, have allowed a detailed quantification of the trade-offs and synergies between energy security and climate change mitigation under alternative assumptions about the degree of cooperation among world countries in the climate policy arena. Sectoral analyses on security threats and possible remedies in the oil, gas, coal, nuclear, renewables electricity sectors, as well as on the risks posed by accidents and terrorism and on the role of energy demand have been completed, leading to interesting results. The main lessons for energy policies derived by these analyses have been condensed into policy recommendations by WP6, and a multi-criteria analysis tool to take into account the difference in perspectives of relevant stakeholders has been developed within the same WP.

In the second half of 2010, these recommendations were proposed to regional stakeholders in three workshops in energy supplying countries (Moscow, Cairo, Manama), and on the basis of the feedback received, finalised and presented at an European audience at the final conference in Brussels in November 2010.

The main Policy Insights of the SECURE project are summarised below.

Security of supply should be addressed only within a wider, consistent approach that integrates the other two fundamental pillars of the EU energy policy: sustainability and competitiveness. 'Smart' energy policies must combine these three dimensions without nevertheless neglecting the international relations context.

European climate policies bring a significant double dividend in terms of reduced vulnerability to energy shocks, even in a non-cooperative framework. However energy scenarios opening the path to low carbon energy systems require an improved framework and incentives for electricity investment (including renewables), a high degree of integration of the European electricity systems, a favourable institutional and regulatory framework for Carbon capture transport and storage (CCTS) and no foreclosure towards nuclear development. In addition to supply policies, demand policies must be strongly pursued as well.

Since none of the requisites above are self-evident, and if low-carbon technologies fail to be available in time, the whole transition path to a low carbon economy is likely be at risk. Governments might thus be required to step in and provide the adequate support. The most efficient way for the EU to develop cost-effective low carbon energy use is to have a generalised and viable EU-wide emission trading system capable of delivering standardised carbon prices or an effective EU-wide carbon tax. This is an important example of an area where energy security of supply and market development converge.

Another area where the energy security of supply and the competitiveness dimensions converge is the internal market's development. Integration of markets by developing regulatory policies, which enhance interconnections in gas and electricity infrastructure and thus foster competition, would be a big step in the right direction for European security of supply.

The unsatisfactory functioning of the international oil markets and the resulting uncertainty and volatility in oil prices is seen as the main security threat for future oil supplies because it hinders investment. Measures to reduce this artificially increasing volatility should be envisaged.

Climate policies strongly influence the menu of policy solutions to energy security problems and illustrate the type of uncertainties that the EU and its energy suppliers will have to face in the next decades. Efforts are thus needed to combine institutional solutions with a dialogue with EU's partners on a medium term programming of investments in the energy sector, in a balanced perspective of mutual understanding.

Potential impact:

SECURE has been designed to respond to the knowledge needs, in the field of energy security of supply, of the new course of the EU energy policy, as expressed in the green paper on a European strategy for a sustainable, competitive and secure energy. In terms of the expected impact specified in the call FP7-ENERGY-2007-1-RTD, SECURE contributes to the assessment of the main economic and social issues related to energy security.

SECURE represents an input for quantified measures aiming at improving energy security in Europe. SECURE added value for EU energy policy lays in its interdisciplinary approach, its full coverage of energy sectors, and its focus on both internal and external energy security issues.

SECURE is a supporting tool for the EU decision-making process towards the definition of policies and strategies to:

- achieve the right energy mix regarding energy security and sustainability requirements;
- develop stable relations with energy exporting countries and external partners;
- build efficient regulatory frameworks addressing incentives and obligations for energy companies and consumers; optimise the synergies among Member states to improve security of supply;
- define sound public service missions to compensate for potential market failures.

The final policy recommendations, distilled after testing our original recommendations at the regional stakeholder workshops where they benefited from the debate with stakeholders and experts from energy producing countries, were collected in a printed brochure and presented at the final SECURE conference in Brussels in November 2010.

Dissemination (WP7: Stakeholders consultations and dissemination) of projects results has been a key objective of the project, which has been mainly addressed both by means of stakeholder meetings organised directly by the consortium and by means of presentations of the results of the project at external events. In particular, a total of four thematic stakeholders workshops on all the main issues of energy security dealt with in the project have been organised in Europe. Moreover, a regional stakeholders' workshop have been organised in each of the three main energy supplying region for Europe (Russia, North Africa and the Gulf). Finally, an audition at the European Parliament and a final conference allowed to disseminate the final results to the main EU policy makers and other decision takers.

In addition to these important meetings, several ancillary dissemination activities were undertaken by SECURE partners during the whole duration of the project. In particular, several scientific publications (papers, policy briefs, working documents) have been published within the SECURE context and the SECURE project and its preliminary and final results have been presented to various international conferences.

Finally, the SECURE website (www.secure-ec.eu) was successfully delivered and continuously updated by FEEM. The website includes both an Intranet service, reserved only to SECURE members, as well as a public area accessible by everyone.

List of websites: http://www.secure-ec.eu/ , secure@feem-project.net

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