REPowerEU: Reinventing Europe's energy architecture

Introduction

On 18 May 2022, the European Commission presented its €300 billion REPowerEU plan to cut the EU fully loose from its largest energy supplier (Russia) by 2027. An outline for that plan was first presented on 8 March. Now in record time, the Commission has done the groundwork. 

The result is a patchwork of binding and non-binding measures (communications, recommendations and guidance), leaving the Member States with their homework cut out around three pillars: (i) saving more energy; (ii) producing more renewable energy in the EU; and (iii) diversifying the EU's energy supply. Most of the funding will come from the reallocation of existing funds, in particular under the Recovery and Resilience Facility (RFF). 

In one breath, the Commission also announced some work that had been in the making already around mitigating high energy prices, both through short-term interventions and long-term improvements to the EU's power market design. This follows on from the Energy Toolbox Communication in October 2021 and now coincides with the renewed awareness around energy independence, following Russia's invasion of Ukraine. Lastly, the Commission announced a new strategic partnership between the EU and the Gulf Cooperation Council (GCC), covering various policy areas, with particular attention on energy.

The essence: three pillars

The Commission has stressed that the REPowerEU plan is not a shift in priority away from the Green Deal and the Fit for 55 package. Indeed, the speedy adoption and subsequent implementation of the proposals in the Fit for 55 package is considered key to achieving the goal of becoming energy independent of Russia. Nonetheless, the Commission has proposed further amendments to the (amended/recast) Renewable Energy Directive, Energy Efficiency Directive and Energy Performance of Buildings Directive, strengthening some of the overall targets and obligations, and slashing red tape for investments in energy efficiency and renewables, in particular by shortening permitting tracks. Diversifying supply and reallocating funds are meant to seal the deal.

Saving energy

According to the Commission, the quickest and cheapest (though certainly not the easiest) way to reduce energy dependency is by using less of it. Building on the "energy efficiency first" principle already underlying the Fit for 55 package, the Commission proposes to increase the overall binding target of an EU-wide 9% increase in energy savings to 13% by 2030 (compared to the 2020 baseline). Member States are further encouraged to organise campaigns encouraging behavioural change and offer fiscal stimulus for energy efficiency investments.

More renewables

Accelerating (even more) the energy transition, in particular the rollout of renewable power production in the EU, sits at the heart of REPowerEU. The Commission proposes to increase the headline Fit for 55 target of renewables representing 40% of the EU's overall gross final energy consumption to 45% by 2030. 

The share of wind and solar in domestic power production will need to double from 33% to 67% by the same deadline. On a more granular level, in a new Solar Strategy, the Commission wants to pick the low-hanging fruits and aims to double solar capacity to over 320GW by 2025 and 600GW of installed capacity by 2030. It also wants to double the amount of heat pumps to 10 million units in five years' time. All new buildings will need to allow for the connection of solar panels. Solar rooftop panels will become mandatory for new government and commercial buildings as of 2026 and for new residential buildings as of 2029.

To meet those ambitions, the Commission is finally serious about doing away with one of the main bottlenecks: permitting. Slow and complex permitting procedures have been a major hurdle for the development of renewables and associated network assets. To tackle this, the Commission proposes to write into law that renewable power production is an overriding public interest. In a Recommendation, Member States are asked to identify "go-to" areas with lower environmental risk, where investments can go ahead with short-tracked permitting procedures not exceeding one year (for wind) or three months (for solar). Particular attention is given also to the availability of skilled workers to produce solar panels and components in the EU, with a skills partnership and the creation of a Solar PV Industry Alliance, in the same vein as the Clean Hydrogen Alliance.

Diversifying supply

Increasing energy savings and more (domestic) renewable energy will go a long way in shifting the European energy system away from Russian fossil fuels in the mid- to long-term. To meet its short-term goal of cutting off two thirds of Russian gas imports into Europe by the end of the year, additional supply-side action is needed with a more immediate return. Diversifying supply of fossil fuels, in the form of LNG and non-Russian pipeline gas, will need to replace around 60 bcm of Russian gas this year (around a third of what Russia supplied to the EU in 2021) - the remainder being covered by energy savings and renewables.

Already on 23 March, the Commission published a proposal for a new Regulation on gas storage, under which Member States would need to ensure gas storage levels (currently at 36%) are at a minimum of 90% by November each year (80% in 2022) - this proposal is being fast tracked in an accelerated legislative procedure (with a compromise 85% filling target for 2022 being tabled by the co-legislators on 19 May, to offset the numerous exemptions, according to Euractiv). Under the REPowerEU plan, the Commission is providing the tools to meet that obligation. The EU Energy Platform has been set up to aggregate demand and enable (voluntary) joint purchasing of gas, LNG and hydrogen. In a new External Energy Strategy, the Commission is making energy diplomacy and diversification of supply through partnerships (such as the one with the GCC) a priority. Ties with the EU's neighbours in the East (besides Ukraine, also Moldova and the Western Balkans) are tightened. Actions have already been taken to synchronise Moldova's power grid with the EU's interconnected system. A separate REPowerUkraine initiative will pave the way for future power and hydrogen trade with post-war Ukraine.

Green hydrogen and, to a lesser extent, renewable and low-carbon gases will play a key role in filling the gaps. The Commission has set a target of 10 million tonnes of domestic green hydrogen production and another 10 billion tonnes of imports by 2030. A Biomethane Action Plan lays out a roadmap for increasing biomethane production, which can be added to the natural gas system, to 35 bcm by 2030. The focus on renewable and low-carbon gases (including hydrogen) is in sync with the gas decarbonisation package that was published as part of the Fit for 55 package at the end of last year, and the Commission's draft delegated regulation with detailed rules for the production of renewable liquid and gaseous transport fuels (the "hydrogen delegated act"). The latter was published for a public consultation on 20 May and basically sets out the conditions under which hydrogen and other (transport) fuels can be considered renewable.

Finding the funds

Most of the funding for the Commission's ambitious plans, around €225 billion, will have to come from redirecting loans under the RRF towards REPowerEU. The Commission has issued guidance on including REPowerEU chapters into Member States' RRF plans. Another €20 billion is to come, somewhat controversially, from selling EU ETS allowances currently held in the Market Stability Reserve (MSR). Other funds would need to come from voluntary transfers out of the current multiannual financial framework (MFF - the EU's long-term budget), particularly from cohesion funds and the common agricultural policy, into the RRF. More money would also be made available from the ETS Innovation Fund and the Connecting Europe Facility (CEF), under the Trans-European Energy Networks (TEN-E). The latter will be mainly used for adjustments to the gas grid, to allow for more non-Russian gas to flow and facilitate the future conversion to hydrogen.

While some funding (around €12 billion, mainly under TEN-E) will go into completing some missing links in gas, LNG and oil infrastructure, the bulk (around 95%) will be supporting the clean energy transition.

What it means

This new REPowerEU package (actually several packages) of proposals has a lot to digest and, as usual, remains very much subject to changes down the line.

One primary observation is that, unlike the Fit for 55 package, it consists mainly of soft law. In its various communications, recommendations and guidance, the Commission has given the Member States a lot to work with, and to think about. It remains to be seen where those Member States will land with all of that in practice and how coherent the outcome will be. In its Communication on short- and long-term interventions, which builds on its earlier Communication on energy prices and state aid temporary crisis framework of 23 March and its toolbox, the Commission outlines options for Member States to intervene in the gas and electricity markets, including via retail price regulation, but it stops short of signing off on wholesale price caps. Only in the exceptional scenario where Russia would halt all gas exports to Europe, a coordinated crisis intervention could be warranted, including rationing of gas stocks and a solidarity mechanism, which would in effect result in an administrative price cap.

As always, first reactions to the Commission's latest throw have been mixed. While there is overall praise for the sense of urgency and speed at which the Commission has pulled this (and earlier releases in March and April) together, certain sectors (like the solar sector) are certainly better served than others. With more than four times more wind capacity in permitting procedures than under construction in the EU (according to Energy Monitor), the importance of faster permitting is obvious. While environmentalists support the push for green energy, there remains concern around the impact of loosening permitting procedures (including dropping the requirement for environmental impact assessments in certain cases) on the environment and biodiversity, as well as public acceptance. Funding part of the transition by selling banked EU ETS allowances from the MSR (which are meant to be gradually released) all at once, could increase carbon dioxide levels in the short run and curtail the EU's climate ambitions (although the Commission insists it will not). Diverting money from cohesion funds and the common agricultural policy is also likely to stir some resentment in the European Parliament and the Council, with fractions and countries that depend a lot on those.

With the REPowerEU package, more so than other packages from this very productive Commission, the proof of the pudding will be in the eating.

Key documents