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EC bets on energy to kickstart economy


February 18, 2009 - The European Commission hopes that injecting €3.5 billion into critical energy infrastructure projects like grid upgrades, gas pipelines, offshore wind and carbon capture and storage will help to drag the EU economy out of recession.


But where is the money coming from and which projects will benefit?


Just as Franklin D Roosevelt's famous New Deal aimed to get America to work on much needed infrastructure programs during the Great Depression, governments around the world are looking at infrastructure projects to help kickstart their economies after the Credit Crunch.


The European Commission late last month proposed €5 billion ($6.4 billion) be spent on energy infrastructure and broadband internet rollout across the EU.


Of this, €3.5 billion ($4.6 billion) is earmarked for energy projects, specifically gas and electricity interconnection (€1.75 billion), offshore wind projects (€0.5 billion) and carbon capture and storage (€1.25 billion).


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The package is part of a wider €200 billion "economic recovery plan" agreed by EU leaders in December.


"These projects will make a clear contribution to the objectives of security of energy supply and reducing greenhouse gas emissions," the EC said as it announced the package on January 28, adding that the recent gas crisis and volatile oil prices showed the "vulnerability" of the European energy supply scheme in the context of falling indigenous energy resources and increased import-dependence.


"The EU's Recovery Plan is all about 'smart investment' - a short-term stimulus targeted on long-term goals.


That is exactly what the Commission has adopted today: a list of specific projects to direct €5 billion of unspent money from the EU budget to build a stronger Europe for the long term, said EC President Jose Manuel Barroso when the package was announced.


"We need to learn the lessons of the recent gas crisis and invest heavily in energy. We also need to stimulate the European economy by providing information highways in rural communities," Barroso said.


The EC added that the gas crisis had "demonstrated serious weaknesses in interconnection in this context, leaving several member states with no clear alternatives at the time of shortage," and warned that the current financial crisis would otherwise deter investment.


Of the total €3.5 billion destined for energy, €1.5 billion is earmarked for spending from 2009, with the further €2 billion earmarked from 2010.


"The main volume of payments will be made between 2009 and 2012 with the last payments, notably for carbon capture and storage projects, foreseen for 2014/2015," the EC memorandum on the program said.


The funding plans are set out in a proposal for a regulation, which must be approved by the EU Council of Ministers, representing the 27 EU governments, and the European Parliament before beneficiaries can formally apply for the funding.


The European Parliament is currently scheduled to vote on the package on May 6, according to the EP's law tracking database.


Funding criteria


The funding is new and additional to other finance that has already been agreed or discussed, such as using funds from the Trans-European Networks budget to finance interconnectors, or using proceeds from the Emissions Trading Scheme to finance carbon capture and storage.


But it is to come from existing EU funds in the form money that is already in the EU budget but remains unspent.


In its proposal for a regulation, the EC states that the projects it has identified for funding were chosen in response to EU energy policy objectives. Specifically the projects were chosen because they:


  • Contribute to the EU climate change goals by "taking a tangible step towards the ... objective of developing up to 12 demonstration plants for sustainable fossil fuel technologies by 2015 in order to make carbon capture and storage a commercially viable technology by 2020;"
  • Establish an integrated European offshore wind grid "which substantially reinforces the contribution of wind power to the EU renewable energy target and strengthens the EU industrial leadership in the field of wind power;"
  • Adapts the EU's power and gas grid infrastructure to meet the needs of the single energy market "in particular solving the problems of bottlenecks, security and diversification of supply and to overcome environmental, technical and financial obstacles.


Establish an integrated European offshore wind grid "which substantially reinforces the contribution of wind power to the EU renewable energy target and strengthens the EU industrial leadership in the field of wind power;"


Adapts the EU's power and gas grid infrastructure to meet the needs of the single energy market "in particular solving the problems of bottlenecks, security and diversification of supply and to overcome environmental, technical and financial obstacles.


The EC said it would carry out an evaluation of the program to ensure that it was contributing toward EU energy policy objectives and that "effective use" was being made of the finance appropriated to member states.


It would later present an evaluation report to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the success (or otherwise) of the investment program.


In its proposal for a regulation, the EC said it "may request a beneficiary member state to provide a specific evaluation of projects financed under Chapter 2 Section 3 of this regulation or, where appropriate, to supply it with the information and assistance required to undertake an evaluation of such projects."


Chapter 2, Section 3 of the regulation specifies that EU action will allow project objectives to be achieved and that it is "able to complement national action to attain the overall objectives of the Union, reflecting the transnational character of the economic crisis and of the challenge of energy security."


The regulation also stresses that it is limiting support to a relatively small number of large projects in order to ease the administrative burden on the EC.


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