EnergyNews from Brussels Energy Infrastructure Latest Developments The European Commission adopted on 19 October its longawaited energy infrastructure legislative package aimed at creating and developing the strategic energy networks and storage facilities needed to deliver on the EU’s energy objectives. This follows an initial policy communication published in November 2010 which called for a new energy infrastructure policy considered necessary for coordinating and optimizing network development on a continent scale. The package comprises two proposals. The first is for a regulation on guidelines for trans-European energy infrastructure, which is intended to set up the regulatory framework to overcome regulatory, permitting and public acceptance barriers to a single European energy network, along a series of priority corridors. These cover electricity, gas, oil and carbon dioxide transport networks and include a Northern Seas supergrid, NorthSouth gas interconnections in Western Europe and in Central/ Eastern Europe, a Southern Gas Corridor and Baltic Energy Market Interconnection for gas and electricity. The Commission is proposing to select a number of “projects of European interest” within these corridors which will benefit from accelerated and simplified permitting procedures, as well
Nov 2011 Welcome to Hill & Knowlton’s monthly update on key European regulatory developments that will directly impact businesses in the energy sector.
as co-financing from the EU budget. Such projects should display economic, social and environmental viability and involve at least two EU countries. They will be selected according to a common method, whereby regional groups of Member States, regulators, transmission system operators and project promoters will draw up a list of proposed projects. The Commission will then have a final list of selected projects by July 2013, which it will update every two years thereafter. The permitting procedure for the projects of European interest must not exceed three years (versus the current average of ten years, according to the European Commission) and will be handled by a “one-stop shop” single national competent authority, rather than needing to apply to the authorities of each Member State concerned. The proposal also requires citizens to be involved in the permit procedure from the earliest opportunity, before the application is submitted, so that their views may be identified and taken into account from the earliest stage. The second proposal comprises the financing element of the package, by creating a new instrument, the Connecting Europe Facility, which will also cover energy. The Commission proposes that €9.1 billion be made available between 2014-2020 for cofinancing up to 50% of the cost of a project, and in exceptional circumstances, up to 80% for projects that are crucial for regional or EU-wide security of supply or solidarity, require innovative solutions or have cross-sector synergies. Financing will take the
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form of grants as well as loans and innovative financial instruments including project bonds from the European Investment Bank, designed to spread the investment risk and incentivise private financing. The proposals will now be subject to codecision negotiations in the European Parliament and the Council, with the Commission hoping for final adoption by the end of 2012 and entry into force in 2013.
Impact & Opportunities The push to modernise Europe’s energy infrastructure marks obvious opportunities for prospects engaged in smart infrastructure, carbon capture & storage, and offshore renewables, among others. By way of example, the development of the North Sea supergrid for offshore wind is included as a priority corridor for electricity, thus underlining the importance of this project to the EU’s energy future, as well as gas infrastructure in Central and Eastern Europe, which will be vital to ensure modernisation and security of supply in the region, of particular interest to the unconventional gas sector. Interested companies should closely assess the two proposals referred to above, decide on their positioning and seek to provide input to the two co-legislators, the European Parliament and the EU Council, at this still early stage of the discussions.
Offshore oil and gas drilling Following over a year of preparatory discussions, the European Commission published at the end of October its proposed new regulation on safety standards for offshore oil & gas drilling. This represents the EU executive’s legislative response to the Gulf of Mexico spill of 2010, in order to ensure that safety standards in European waters are the strictest possible, and are applied equally across the EU. A separate proposal on allocation of financial liability is due in 2012. The proposal, as expected, draws heavily on the existing regime in the North Sea countries, requiring a specific Major Hazard Report for every operation, incorporating a full risk assessment and emergency response plan, to be prepared prior to drilling operations commencing, along with independent verification of safety plans before and during operations. National authorities will be required to ensure that licenses are only granted to operators with the adequate technical and financial resources to guarantee safe activities and environmental protection. The existing rules on environmental liability are tightened considerably, with environmental liability extended from the current zone of 12 nautical miles offshore to 200 nautical miles, ensuring
that the entirety of EU waters is covered. Oil and gas companies will be fully liable for environmental damages caused to protected marine species and natural habitats. The Commission views its approach as one of “EU Best Practice” whereby the level of risk management and emergency preparedness is raised to best practice level throughout the EU, ensuring consistency and greater transparency of industry and regulatory performance. The Commission believes that applying the proposed new regulation would reduce risk costs by 50%. The proposal now passes to the Council and the Parliament for negotiation. While it echoes many of the positions set out in the Parliament’s earlier resolution calling for action on offshore safety, one element which was discussed previously but did not make it into the final proposal was a requirement for EU firms to apply these standards to their operations outwith the EU. However, there may be scope for MEPs to introduce amendments containing such a requirement during the parliamentary discussions on the proposal, although it is unclear at this stage whether they would enjoy enough support to be adopted in the final text.
Impact & Opportunities The proposal effectively amounts to an extension of the existing goal-setting regulatory approach in the North Sea to the entirety of the EU, something which is recognized by the Commission. As such, there will be little change for operators on the North Sea shelf, other than to create what the Commission calls a “composite North Sea benchmark” by harmonizing the existing best practices, as well as some new requirements on transparency and the development of an anonymous whistleblowing procedure, which will be worth following to ensure proportionality. On the other hand, standards in the Mediterranean, Baltic and Black Seas will be tightened considerably, which will be of considerable relevance as new fields are developed off Cyprus, Romania and Malta, among others, some of which are in water depths of over 1km. Given the enclosed nature of these seas, and the numerous countries whose territorial waters they include, improving safety standards to best practice level will be vital for the development of a successful oil and gas industry. The goal-setting approach is promoted by industry and regulators as the best means of guaranteeing continuous improvement in safety, and as such industry’s partnership with regulators and the EU institutions in the legislative process should continue in order to develop without delay a modern, safetycase regulatory framework.
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Shale Gas Latest Developments The debate on shale gas exploration and production is intensifying in Brussels, following recent actions taken in France and other EU countries, and pressure from various parties to assess the EU regulatory framework for hydraulic fracturing. In the European Parliament, the Environment Committee (ENVI) made available over the summer an external study it commissioned on the environmental effects of shale gas drilling. This called for a more stringent regulatory framework with regard to use of chemicals, environmental impact assessment and water quality, among others. The study was the subject of an emotional debate in the Environment Committee in early October, with some parliamentarians echoing the study’s calls for greater environment-related regulation of shale gas activities, while some others specifically requested for a new more neutral assessment to be conducted. Meanwhile, a hearing in the Industry, Energy and Research Committee (ITRE) at the start of last month focused more on the economic, competitiveness and supply-security aspects of shale gas. This saw a more balanced and rational discussion, indicative of the divisions between different parliamentary committees which will continue as the debate over shale gas progresses. In fact, ENVI is now considering preparing a non-binding owninitiative report on the environmental effects of shale gas, while ITRE wishes for any parliamentary initiative to consider the wider energy questions and economic impact as well. Such a report, if adopted by the Parliament as a whole, would be used to pressure the Commission to take legislative action. Within the European Commission, the Directorate General (DG) for Energy is currently carrying out a study on the future economic benefits
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of shale gas for Europe, which will be ready by early 2012, as well as a legal study on the EU and national regulatory frameworks in place for shale gas exploration, which should be published in the coming weeks. In parallel, the Directorate General for Environment is concerned over the issues of horizontal drilling and high volume fracturing, use of process chemicals, management of waste water and well integrity. A desk study on potential risks will be published in the first quarter of 2012. DG Environment has also requested the Helsinki-based European Chemicals Agency (ECHA) to examine REACH registrations for a number of substances used in hydraulic fracturing.
Impact & Opportunities The increased debate on shale gas in the European institutions highlights its growing importance in the discussions around the EU energy mix. On the one hand, the divisions between the ENVI and ITRE committees within the European Parliament comes as little surprise, and there is a risk for industry that opponents of shale gas drilling are able to prevail through the drafting of a report limited to the environmental effects of shale gas. On the other hand, Poland currently holding the six-month rotating presidency of the EU Council has put shale gas on the Brussels political agenda. This brought about fierce arguments from opponents, which only questions the actual strategy of the Polish government. It is therefore vital for industry to ensure that the debate on shale gas at European level takes full account of the economic and security of supply impact it would have. Furthermore, the forthcoming reviews of numerous pieces of environmental legislation, including the Environmental Impact Assessment Directive and the Water Framework Directive, may be used by opponents of shale gas to push for tighter environmental restrictions on shale gas drilling so as to render it uncompetitive.
Internal Energy Market Latest Developments
market and operational rules (software), and highly compatible network and generation systems (hardware). This requires adequate transmission capacity, with the simultaneous evolution of national legislation and rules.
The high-level conference on “The Completion of the EU internal energy market: Getting to 2014”, organized by the European Commission on 29 September in Brussels, was designed to take stock of progress made thus far in completing the EU energy market and to define further actions that must be taken in order to achieve the objective of having a fully operative internal energy market by 2014.
Fatih Birol, chief economist at the International Energy Agency, explained that a drive in renewable energy is needed should Europe wish to reach its climate objectives involving less nuclear. He also mentioned that CCS is perhaps needed, “which is a challenge in terms of technology and cost, and we may have to push lots of coal-fired power plants for early retirement”.
The conference consisted of discussions around three main topics: quantifying the benefits of an internal energy market, establishing and enforcing internal energy market rules, and harmonizing market rules and network operation rules , each followed by a moderated panel discussion involving key figures from the energy landscape. EU Energy Commissioner Günther Oettinger delivered what might be interpreted as a relatively pessimistic message regarding the achievements made so far in the implementation of the Third Energy package, highlighting that the majority of Member States have still not adopted the national legislation to transpose the third energy package into their national laws more than six months after the deadline. Consequently, on 29 September the Commission launched infringement proceedings against 17 countries in the field of electricity (Belgium, Finland, France, Spain, Estonia, Slovakia, Slovenia, Cyprus, Romania, the UK, Ireland, Sweden, Luxembourg, Austria, Bulgaria, Lithuania, the Netherlands) and 18 on gas (plus Denmark). Oettinger also added that moving to a low carbon and secure energy generation across the EU will require putting in place new coordination mechanisms – following the most recent meeting of the 27 EU energy ministers, a decision was made to set up an Electricity Coordination Group. In the field of renewables, Oettinger said that common rules should be applied to subsidy schemes. Daniel Dobbeni, the President of the European Network of Electricity Transmission System Operators (ENTSO-E) discussed the role of renewables, stating that a 30% renewable share implies highly compatible
On the industry side, several business representatives expressed their support for an integrated energy market, arguing that coordination of national decisions is key. A fourth legislative package is clearly not considered necessary, and the focus should be on the implementation of the current legislation. Fulvio Conti, the President of the Association of the electricity industry in Europe (EURELECTRIC), argued that with gas becoming “the” commodity, “it must follow electricity’s lead in terms of market integration and compatibility, otherwise it will stay behind while the electricity market pulls ahead”. The major challenges are integrated and harmonised regional markets, liquid and competitive gas markets, a reinforced grid infrastructure and a level playing field with regard to support for renewable sources.
Impact & Opportunities The discussions highlighted the need for a reinforced collective effort in removing the remaining barriers to the flow of gas and electricity in the EU. Günther Oettinger further cited the Regulation on energy market integrity and transparency (REMIT) as a useful tool which will set clear rules for energy trading and create confidence in smooth market functioning. He also signaled the opportunities for different stakeholders who play a crucial role in the completion of the EU internal energy market, in particular national regulators in their supervisory capacity, and highlighted the need for “active engagement” from the energy gas and electricity industries to ensure market rules are to the consumer’s benefit.
Further information: Andrew Laurence
Glen Hodgson
Vice Chairman Corporate +44 7768 034 000
Director & Head of Energy Practice, Brussels +32 2 737 95 39
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