International Energy Agency’s World Energy Outlook analysis of the implications of the European Union’s Energy Union on key energy sector indicators.

Project Information

WEO

Grant agreement ID: 811148

DOI

10.3030/811148

Project closed

EC signature date 25 July 2018

Start date 1 March 2018

End date 31 July 2019

Funded under

• SOCIETAL CHALLENGES - Secure, clean and efficient energy

Total cost

€ 600 361,25

EU contribution

€ 500 000,00

Coordinated by

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
France

Periodic Reporting for period 1 - WEO (International Energy Agency’s World Energy Outlook analysis of the implications of the European Union’s Energy Union on key energy sector indicators.)

Reporting period: 2018-03-01 to 2019-07-31

Summary of the context and overall objectives of the project

The overall objective of this project was to analyse quantitatively the impact of the European Union’s (“EU”) Energy Union and derive lessons for other parts of the world. The analysis was carried out by the International Energy Agency’s (“IEA”) World Energy Outlook (“WEO”) team and was reported in relevant sections of the 2018 edition of the IEA’s flagship WEO publication by providing insights on the implications of the EU’s Energy Union on key energy sector indicators. The intended specific objectives for the project were:
1. Provide in relevant sections of the 2018 edition of WEO an analysis on the implications of the EU’s Energy Union on key EU and global energy sector indicators.
2. Leveraging the analysis mentioned above in point 1, relevant sections of the 2018 edition of WEO were to include policy insights related to the aim of the EU’s Energy Union to provide more secure, affordable, competitive and sustainable energy to EU Member States.

Regional co-operation and integration can ease many of the strains facing the energy sector today. There are many actual or potential examples of this, from Southeast Asia to the Southern Cone in Latin America. In the IEA’s World Energy Outlook 2018, we include detailed analysis of what Europe’s “Energy Union” could mean for the electricity and gas outlook across the continent in light of the new 2030 targets for renewables and energy efficiency, and the revisions to the EU’s Emission Trading System. Our projections in the New Policies Scenario illustrate the scale of the transformation underway in Europe’s power generation mix, much of which is driven by policy choices. The two largest sources of generation today, nuclear power and coal, both decline; the drop in coal-fired generation is particularly sharp. Wind power, bolstered by the rapid growth of offshore wind, is set to become the first source of electricity generation within a decade, and overall generation from renewables reaches 55% in 2030 (and 63% in 2040). The share of variable renewables increases to 40% by 2040. The European Union’s aim to achieve an “Energy Union” illustrates the role that regional integration can play in facilitating the integration of renewables.

Overall, the analysis underlines the potential for an Energy Union to boost energy security, bring down underlying costs and lead to a more efficient allocation of resources. It also highlights the interactions across different aspects of European policy, and the importance of good policy co-ordination to avoid unintended consequences. For example, meeting the 32% renewables target in gross final consumption leads in our projections to a 60% reduction in power sector CO2 emissions by 2030 (compared with 2005, the reference year for the EU emissions trading system). To the extent that this is not counterbalanced by the newly created Market Stability Reserve of the Emissions Trading System, this could lead in turn to a lower CO2 price signal that would be insufficient on its own to incentivise coal-to-gas switching.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The key findings from this project were published in the 2018 edition of IEA’s World Energy Outlook report, and are covered in the Executive Summary, Chapter 1, Chapter 4, and Chapter 8 of the World Energy Outlook report.
Information about the World Energy Outlook 2018 report is available at https://www.iea.org/weo2018/.
Chapter 4 and Chapter 8 of the World Energy Outlook 2018 report provide graphs/diagrams made for this project.
Additionally graphs/diagrams from the project are available at the following links:
- https://www.iea.org/newsroom/news/2019/march/a-long-term-view-of-natural-gas-security-in-the-european-union.html
- https://www.iea.org/newsroom/news/2018/december/how-will-the-electricity-market-of-the-future-work.html
- https://www.iea.org/weo2018/electricity/

The international launch in London to press took place on 13 November 2018, followed by a dedicated launch in Brussels, and various other WEO 2018 launch events were the traditional approach of spreading key findings of WEO-2018 and the Energy Union analysis to press and key stakeholders.
The findings additionally proliferated due to continued dissemination activities during the months after the launch through various media, but in particular on the web and social media channels.
The Brussels launch of the IEA’s World Energy Outlook 2018 took place on 27 November 2018, organised by Friends of Europe, to a room of around 300 people (ambassadors, industry representatives, EU officials, NGOs, etc.). Speakers included Fatih Birol (Executive Director of the International Energy Agency) and Maroš Šefčovič (European Commission Vice-President for Energy Union).
Event summary from organisers provided at https://www.friendsofeurope.org/publication/governments-not-markets-will-determinegreener-energy-future-reveals-2018-iea-world

Overview of results for natural gas: The gradual projected decline in gas demand in the European Union means lower utilisation rates for cross-border transmission pipelines over time. However, gas infrastructure will remain a crucial security of supply asset for Europe, accommodating seasonal variations in both demand and supply, while alleviating the effects of extreme weather events. It will also become increasingly important for the electricity system, implying a higher degree of interdependence between gas and electricity security. Our analysis indicates that the EU’s current gas infrastructure can accommodate a wide range of supply configurations. However, this is only the case if gas is able to flow freely across borders, unencumbered by physical and regulatory constraints.

Overview of results for power sector: The Energy Union has the potential to bring about enhanced energy security, lower consumer bills and a better allocation of resources, though effective co-ordination is a necessary pre-condition for achieving these benefits. Policy interactions and co-ordination will be key to avoid unintended consequences. Meeting the 32% renewables target in gross final consumption leads to a 60% reduction in CO2 emissions from the power sector by 2030 compared to 2005, the reference year for the EU emissions trading system. Although the EU ETS would help to deliver part of the renewable investments, support mechanisms remain an important driver for renewables-based electricity over the outlook period. This could result in reduced demand for ETS allowances and, if the recently reinforced Market Stability Reserve (MSR) mechanism is not sufficient to absorb the surplus, less pressure on the ETS could lead to a CO2 price signal that is insufficient to incentivise coal-to-gas switching.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The intended outcome of this proposal was to increase understanding and raise awareness about the implications the EU’s Energy Union can have on key energy sector indicators, in particular in relation to the Energy Union’s five fundamental dimensions: security, solidarity and trust; a fully integrated internal energy market; energy efficiency and moderation of demand; decarbonisation of economy; research, innovation and competitiveness. The insights from this project can stimulate policy discussion at both the EU level and in Member States themselves, but also contribute to the international energy and climate change debate.

IEA World Energy Outlook 2018 cover image