6 minute read 6 Apr 2022

REPowerEU - Joint European action for more secure and sustainable energy

Authors
Kasia Klaczynska Lewis

EY Poland, EY Law, Partner, Advocate

International professional expert on the EU Green Deal. Manages cross-border projects related to decarbonization and sustainability.

Dariusz Kryczka

EY Poland, EY Law, Senior Associate

Manager in the field of Energy and Sustainablity Practice. Energy & climate expert.

Ewa Waslicka

EY Poland, EY Law, Associate

Sustainability Analyst and Coordinator of EY EU Green Deal Center of Excellence

Anna Popiołek

EY Poland, EY Law, Junior Associate

Anna is an analysis specialist in the field of low-emission technologies

6 minute read 6 Apr 2022

On 8 March 2022, the European Commission has proposed REPowerEU - an emergency action to increase the resilience of the EU-wide energy system in view of the Russian invasion of Ukraine. Renewables, hydrogen and biomethane on a fast track to replace gas imports from Russia.

Presently Russia provides more than 40% of the EU’s total gas consumption and accounts for 27% of oil imports and 46% of coal imports. To eliminate the EU’s dependency on Russian gas European Comission presented REPowerEU, Joint European action for more affordable, secure and sustainable energy.

The proposed measures address the following:

-          mitigation of energy retail prices to support low-income households and other heavily affected entities;

-          sufficient gas storage to prepare the EU Member States for the next winter;

-          actions to eliminate the European Union's dependence on Russian fossil fuels in the mid and long term, through:

  • diversification of gas supplies, via higher LNG and pipeline imports from non-Russian suppliers, and larger volumes of biomethane and renewable hydrogen production and imports
  • an integrated EU energy system, largely based on renewables, greater energy efficiency, electrification, and elimination of infrastructural and regulatory bottlenecks.

Measures to mitigate high retail prices of energy and support heavily exposed companies

The first set of measures outlined in the communication aims to address the skyrocketing energy prices, exacerbated by the uncertainty of supply caused by the Russian invasion, which are likely to increase poverty, affect business competitiveness and lead to higher prices for other commodities, notably food.  

Firstly, the Commission confirms that, according to Article 5 of the Electricity Directive, in the current exceptional circumstances, Member States can set regulated prices for vulnerable consumers, households and micro-enterprises in order to help protect consumers and the economy as a whole. Annex 1 of the Communication provides guidelines on the application of this article, recalling that it allows for exceptional, time-limited implementation of regulated prices in specific circumstances.

The Commission also confirms that Member States can consider temporary tax measures on windfall profits and redistribute part of the returns from high energy sector profits and emissions trading to consumers (transfer mechanism). Such measures need to fulfil certain criteria to ensure that they are proportionate, limited in time and that they avoid undue market distortions. Annex 2 sets out the conditions that those instruments should meet. The Commission also makes reference to the so called “general escape clause” of the Stability and Growth Pact (SGP), which allows the Member States to apply fiscal flexibility during severe economic shocks.

On the top of the above, the Commission encourages the continuation of the measures introduced by the ‘Energy Prices Toolbox’ from last October i.e. options to provide short-term support to companies affected by high energy prices through application of the EU State Aid Rules or possible establishment of a new State Aid Temporary Crisis Framework to grant aid to companies affected by the crisis (Annex 3). Assessment of options to improve the electricity market design and introduction of alternative pricing mechanisms are another urgent actions outlined in the Communication aimed at control of the prices.

Winter preparedness

The second set of measures refers to how to achieve higher filling of gas storage levels to be well-prepared for next winter. According to the Communication gas supplies are sufficient until the end of this winter even in case of full discontinuation of supplies from Russia. However, in order to be well-prepared for next winter, filling of gas storage across the EU should start now.

The Commission will make a legislative proposal to  require that existing storage infrastructures in the EU territory are filled up to at least 90% of their capacity by 1 October each year and will also propose to give full tariff rebates at storage points.

The Commission will support coordinated gas refilling operations, for example through joint procurement, collecting orders and matching supplies. Considering that not all Member States have storage capacities available on their territory, the Commission will set out a mechanism to ensure a fair allocation of security of supply costs. The new interconnectors, which are essential to ensure the uninterrupted energy flow within the whole EU, should be hydrogen compatible.

Measures to eliminate the EU’s dependency on Russian gas

The last set of measures refers to elimination of Europe’s dependence on Russian gas well before 2030 and is based, firstly, on diversification of energy supplies by increasing of LNG imports and pipeline imports from non-Russian suppliers.

Another step in diversifying energy sources is doubling of the production of biomethane per year by 2030, in particular from agricultural waste and residues.

Further replacement of Russian gas will be accelerated by the development of the regulatory framework to promote European market for hydrogen, support of the development of an integrated gas and hydrogen infrastructure, storage facilities and ports under Hydrogen Accelerator initiative. Development of the value chain for solar and wind energy and for heat pumps will further reduce EU’s dependence on fossil fuels.

Another measure to accelerate the roll out of renewable energy projects will be speeding up and simplifying the permitting for renewables.

The Commission will also provide guidance on when and how regulatory sandboxes are needed to enable testing of innovative technologies, products or services that aim to advance the coexistence of renewable deployment and environmental protection. Decarbonization of the industry to accelerate the switch to electrification and renewable hydrogen will further enhance our low-carbon manufacturing capabilities.

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Summary

Measures announced in REPowerEU come to a large extent from the EU Green Deal – a flagship initiative whose main goal is to make Europe climate neutral my mid-century. An important novelty is the accelerated time horizon, which gives the previously adopted legislative proposals under the Fit for 55 or December’21 package a new sense of urgency. While the businesses are still grappling to understand the implications of these new policies on their operations, they now need to consider a new dimension that arose under REPowerEU.

At EY, we are ready to help companies understand the significance of the measures to eliminate the EU’s dependency on Russian fossil fuels and assist in designing your diversification strategy. Our EU Green Deal Center of Excellence helps private and public stakeholders navigate the complexities of  all of the EU Green Deal policies, as well as manage the ensuing legal risks and take full advantage of the opportunities.

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About this article

Authors
Kasia Klaczynska Lewis

EY Poland, EY Law, Partner, Advocate

International professional expert on the EU Green Deal. Manages cross-border projects related to decarbonization and sustainability.

Dariusz Kryczka

EY Poland, EY Law, Senior Associate

Manager in the field of Energy and Sustainablity Practice. Energy & climate expert.

Ewa Waslicka

EY Poland, EY Law, Associate

Sustainability Analyst and Coordinator of EY EU Green Deal Center of Excellence

Anna Popiołek

EY Poland, EY Law, Junior Associate

Anna is an analysis specialist in the field of low-emission technologies