Thumbs up for the new European Commission?

This week, the President of the European Commission, Ursula von der Leyen, unveiled her team of new commissioners and set out their priorities for the next five years.

Amongst her new team are some key, experienced players for energy and climate, whose home countries are already avid supporters of the EU’s plans to decarbonise its economy.

Does this new, energy-charged Commission combined with Draghi’s report recommendations mean that we are going to see some drastic change in the next five years?

In this week’s episode, we hear initial reactions to the announcement from our own Brussel’s Correspondent and Eurelectric’s Policy Director.

Host: Richard Sverrisson - Editor-in-Chief, Montel

Guests: Siobhan Hall – Brussel’s Correspondent, Montel News; 
Cillian O’Donoghue – Policy Director, Eurelectric

Transcript

Richard Sverrisson - Editor-in-Chief, Montel: 0:06

Hello listeners and welcome to the Montel Weekly podcast where we bring you the latest news issues and changes happening in the energy sector. This week we're looking at the future of EU energy and climate policy of the President of the European Commission. Ursula von der Leyen unveiled a new team of commissioners. Set out their priorities for the next five years. We will also touch on a recent report by former Italian Prime Minister and European Central Bank Governor Mario Draghi on Europe's competitiveness, and discuss the implications for the energy sector. We're gonna be hearing more on that later from Cillian O’Donoghue, policy Director at European Electricity Association, your electric. But first, I'm joined by our Brussels correspondent Siobhan Hall. A warm welcome to you, Siobhan.

Siobhan Hall – Brussel’s Correspondent, Montel News: 0:51

Thank you Richard.

Richard Sverrisson - Editor-in-Chief, Montel: 0:51

Siobhan, you. You are celebrating 20 years reporting from Brussels on EU Energy and Climate Policy this year. What are the key takeaways? From Fonder Line's announcement this week?

Siobhan Hall – Brussel’s Correspondent, Montel News: 1:01

Yes, 20 years. This'll be the fifth time I've seen a new team of commissioners come in and new policy priorities drawn up. And the one thing that really stands out this time is that the key players for energy and climate are already very experienced and from countries that support the eus plans to decarbonize its economy. So we have. Former Danish Energy and Climate Minister, Dan Jørgensen. He's gonna be the new Energy and Housing Commissioner. And then we have the current EU Climate Commissioner, who is from the Netherlands. He started last year and he gets to continue, but with a wider brief that includes green growth and taxation. And then finally we have Spanish Energy and Climate Minister Teresa Rivera. She gets overall responsibility for making sure the EU stays on track with its policies to decarbonize its economy. And this is the famous European Green deal that we hear so much about. Now, she will also get competition policy, and that could be used as a really powerful tool to help. European industry competes more fairly with global rivals.

Richard Sverrisson - Editor-in-Chief, Montel: 2:14

Interesting. So very experienced people here at the helm and, but in terms of competitiveness, Siobhan, where does the Draghi’s reports play into this?

Siobhan Hall – Brussel’s Correspondent, Montel News: 2:22

Yes. What we heard is that competitiveness is going to be a top priority for Von der Leyen, and that's another key takeaway that the next five years we'll see a lot more focus on industrial policy and competitiveness. Alongside the decarbonization policies that we've seen with the European Green Deal. And that's gonna build a lot on the conclusions from this report, as you said, by the European Central Bank President, Mario Draghi, who put in lots of ideas of how to improve the eus competitiveness. So that's gonna be really influential on EU policy for the next few years. And that's also where having experienced commissioners will help because Von der Leyen is going to present a clean industrial deal within the first a hundred days of the new commission starting. So that's likely to be in early 2025, so early next year.

Richard Sverrisson - Editor-in-Chief, Montel: 3:13

Brilliant. Siobhan, with me to delve into this issue further is Cillian O'Donohue from Eurelectric. Cillian's actually been on the podcast before then. He was on the other side. He was re representing heavy industry. Welcome back to the podcast Cillian. Now you obviously. Part of the European Electricity Association. So I dunno whether your views have changed, but we'll we'll discover that throughout this podcast.

Cillian O’Donoghue – Policy Director, Eurelectric: 3:35

Thanks, Richard. Great. Great to be here. Long-term listener second time guest. And yeah, last time I was on podcast about three years ago, I was representing power intensive industries. Since then I've jumped to the power sector. But I would just say I think a lot of the interest are very much aligned. I think from the power sector side of things, the industry is extremely important and we need to find win-wins particularly in the post-crisis world. So it's good having the experience of the power sector now working for the electricity sector. I think that's, that helps a lot.

Richard Sverrisson - Editor-in-Chief, Montel: 4:00

Absolutely. We've heard from Siobhan who gave us some details about the key people in the new European Commission. What's your view of the new appointments? Did anything come as a surprise?

Cillian O’Donoghue – Policy Director, Eurelectric: 4:10

Yeah, so I would say I think firstly, if you look at key people, if we're speaking strictly climate energy here. There's four key faces. The fourth person who is important in all this will be the next industry commissioner, which is Ur. He's the French replacement of Briton. So why he is not strictly energy, I think. Industry and energy are gonna be very much embedded in this next term of the commission. So that's why he's very key as well.

Richard Sverrisson - Editor-in-Chief, Montel: 4:35

So securing European competitiveness in a sense.

Cillian O’Donoghue – Policy Director, Eurelectric: 4:38

Indeed. Indeed.

Richard Sverrisson - Editor-in-Chief, Montel: 4:39

And the reaction from Europe's power sector has been positive or mixed, or how would you, what would you, how would you describe it?

Cillian O’Donoghue – Policy Director, Eurelectric: 4:46

I think so I think there's two things there. There's the appointments and there's also the mission letters. I must say the mission letters were very good. There's a couple things we are very happy about. I think the first thing to say is they've said they're gonna come with an electrification action plan, which is something we've been advocating for a while. The reason we're pushing so hard for it is we feel our sectors is doing our bits, per se. We're 75% decarbonized now, so three quarters there. The issue is electrification rates are stagnating, so we're still stuck at 23% economy wide electrification. We need to get that at least 58, maybe above 70% by 2050. So we hope this electrification action plan can be catalyst. So we're very happy to see that. I think also we're also very happy that the mission that is focused a lot on infrastructure. And that was also a key thing in the drag report. The commission came with this action plan on grids a few months ago, and we're very pleased to see that the kind of the emphasis is still going to be there on that. That was a kiosk for us. And then the last thing I'll just pick out, which we're also very happy about is security of. They're quite clear that they're going to come with a new concept of security supply. A consultation is opened and they're saying the need to do that to reflect the new kind of more electrified world. I think that's important'cause our security supply concept is, it's outdated, it's 15 years old now. It's linked to kind of gas from Ukraine. These kind of things. And we need to update it to reflect new physical threats GI given the geopolitical environment to reflect new cyber threats. But also electrification of the economy and the fact we're gonna have an electricity system more dominated by variable renewable energy. I think you need a new concept of secure supply to reflect all that. So there were three things we're very happy about.

Richard Sverrisson - Editor-in-Chief, Montel: 6:30

How about Dan Jørgensen's appointment? Some countries, some sectors have expressed a view that he's anti-nuclear. Do you think that, do you think that's a fair evaluation?

Cillian O’Donoghue – Policy Director, Eurelectric: 6:39

Yeah. I think first thing, when you look for an energy commissioner, you want someone who has expertise. And I think he ticks that box. So we're very happy that we have someone who has expertise on the files and he can dive straight in. I think. He's obviously from a member state, which is very pro wind and I think Denmark. I was at the IA earlier this week and we're discussing integration of variable renewable electricity, and Denmark is the only country with a share of variable renewables above 50%. Obviously, your member state or your country, Iceland, or where you reside. Now, Norway is higher than 50, but that's not variable renewable. So he's obviously from a member state, which is very pro wind, and he'll push that. But I wouldn't necessarily say he's anti-nuclear. And I think if you look at the letters and the kind of general direction of the commission, I think there's a general acceptance that member states have different positions on that and it's just, it's maybe more important to give space to member states who want to promote the nuclear angle going forward. I would say this is in sharp contrast to five years ago. If we cast our mind back to five years ago, we're discussing nuclear phase down now in places like France, Sweden, even a Czech Republic. We have a new project now we're discussing kind of new nuclear projects. So that's how I read it. I think that in the Parliament hearing, which will take place, he will get obviously a lot of questions about nuclear and he'll need to prove that he's not anti-nuclear per se.

Richard Sverrisson - Editor-in-Chief, Montel: 7:59

He has to be objective, surely, in as the commissioner. But, Cillian, how about the discussions around Russian gas? Do expect the commission's position to harden here?

Cillian O’Donoghue – Policy Director, Eurelectric: 8:09

Yeah they've come with a clear kind of, we need to phase ourselves out of Russian gas. We've done an awful lot of the work before the war we're what, 155, a hundred BCM of Russian gas. So we still have a little bit more to do. But we see that can be replaced and replaced with LNG imports. So the last kind of 20% is what we need to do, but I think that can be done. And it's also gonna be a broad discussion of replacing imports of Russian energy. So we just talked about gas, but obviously we have, on the nuclear side, we import some uranium. And obviously on the oil side we still import Russian oil, so it's gonna be broader discussion there. But I think it will be a key challenge of the next Commissioner.

Richard Sverrisson - Editor-in-Chief, Montel: 8:47

Do you think it'll be a smooth transition from the previous commission? The previous commission obviously managed the en energy crisis very well. Obviously the hiccups, but the lights didn't go out. What's your view here?

Cillian O’Donoghue – Policy Director, Eurelectric: 8:58

Yeah, let me first comment on the previous commission. I'll go into the next one then. I think we should be very complimentary. Towards the previous commission, particularly Commissioner Cadre Simpson and Mr. Timmermans. When the energy crisis came in 2022, it was an unprecedented crisis, and instead of rolling back, we said, no, we're gonna speed up with the transition. And I think that was the right way to go. We talked previously about Russian gas. We said basically we're going to replace 155 BCM in Russian gas by front loading renewables. So 600 gigawatts of renewables, and we speeded up the permitting processes and we said we need to invest in grids. That was the right thing to do, so I think the commission did a very good job there. For the new commission. I think the challenge will be somewhat different. If I was to put kind of everything in one line is the following. The challenge of the new commission is to restore industrial competitiveness while also meeting our climate targets. And that's, we're gonna take some of the ideas from the drag report and other elements. But that's the key challenge. I think there's more focus on industry competitors now 'cause we are seeing a deindustrialization of the continents. Power intensive industries who I used to work for, have some very legitimate concerns of the way things are going. So we need to find solutions there to firstly incentivize industry to electrify and to ensure that they stay here in Europe.'cause the picture at the moment is not very rosy.

Richard Sverrisson - Editor-in-Chief, Montel: 10:16

Do you think that mean a focus on creating European champions to compete with the US and China?

Cillian O’Donoghue – Policy Director, Eurelectric: 10:22

I think we're going to go with a more, I would say lacks competition policy. If you look at what Ursula von der Leyen has done, she has appointed Teresa Rivera as commissioner for both climates and also for competition policy. So I think there's an idea that we need to have certain value chains for our resilience in Europe. I think we will have competition rules which try and promote that. I expect that. I know there's. That's important. If I look at, just take the battery value chain it's something which is clearly gonna be central going forward. I think batteries powered by renewables will be essential and it's important or it's, I ideally Europe we would have a say in the kind of how batteries are manufactured, but the outlook is not very positive in Europe at the moment. So that's something we'll look at with competition are. So I do expect it to play a bigger role in the transition than previously. It's a tricky one though,'cause what you're trying to do is always balance internal EU competition distortions versus kind of intra EU competition distortions. And I had a lot of experience myself when I worked for aluminum sector. It was, okay, how do we manage the Germany versus Romania distortion given the different kind of pockets of member states? But then at the same time, we have to manage the European aluminum produced distortion against the Chinese subsidized aluminum distortion. So it's a hard one to balance, but I think going forward we're going to be more open to creating these European champions as you said,

Richard Sverrisson - Editor-in-Chief, Montel: 11:47

in effect, that will mean easing of some of the state aid rules then

Cillian O’Donoghue – Policy Director, Eurelectric: 11:50

in certain sectors. I would expect that. Yes.

Richard Sverrisson - Editor-in-Chief, Montel: 11:52

Let's turn to market design. Obviously that's gonna be very important going forward. It's been a huge discussion point over the previous years, certainly when we're in the middle of the energy crisis. Has the issue of marginal price setting been parked in the wholesale market or could that also return, I know, Southern, some southern European countries were very against this or wanted a reform of that system, the way electricity was priced in wholesale markets. What's what's your view here?

Cillian O’Donoghue – Policy Director, Eurelectric: 12:18

I think, yeah, I think there's two separate things here and it's quite technical. I think marginal pricing itself and the drag report has been very unequivocal. He's come out and say, marginal pricing is a very good system for the efficient dispatch, and that's a clear, it's in page 35, the reporters, first thing I did was control f that I think that's a very kind of a very clear statement. At the same time, there's a growing recognition that we need to bring the benefits of. Cheap renewables, particularly to industrial consumers. I think what we're saying is we keep marginal pricing'cause it's a very efficient system, but we need to build better tools to incentivize kinda more long-term contracts so industrials can benefit from cheaper renewables. I think that's where discussion is going.

Richard Sverrisson - Editor-in-Chief, Montel: 12:59

So in terms of incentivizing more power purchase agreements, contracts of difference, these kind of getting those getting that the ball rolling there, you mean?

Cillian O’Donoghue – Policy Director, Eurelectric: 13:07

A hundred percent. So if you take, industrials, you usually have, you buy someone spot someone forward, somewhat long-term contracts. I think we need to have more liquid forward contracts. I think that's clear and we need to incentivize more power purchasing agreements for industrials and link to that. I think one big win from both the. Electricity industry side of things and the electro intensive side of things is flexibility. I think that's gonna be key going forward.'cause we have, we're gonna have very variable prices going forward. I think those industries which can be flexible and not all, are not all have the same level of flexibility. Of course, I know that from my experience, but those which can be flexible will benefit a lot from this new system, which is coming into place.

Richard Sverrisson - Editor-in-Chief, Montel: 13:47

And what do you think we can expect to see? In the new clean deal that Von der Leyen is essentially wants to present to the next three months. What are gonna be the main elements there in your view?

Cillian O’Donoghue – Policy Director, Eurelectric: 13:57

Yeah, so that's something which is very vague from looking through the mission letters. What I hope to see is what Draghi has recommended in his report. And in his report he says there's three things we should do to increase industry competitiveness. The first is speed up deployment of clean infrastructure, so that's electric electricity, particularly electricity grids, but it's also hydrogen and CCS. That is a huge amount of money. And the missing money and the 750 billion, 800 billion, we come to that after. But that's the first thing you could do. The second thing is something we're not discussing enough is taxation. Taxation and levies. Let's not forget, with electricity prices, the energy component is only one third. There's also one third taxes and one third networks. We should probably look at how much we tax. And the third thing is, as I mentioned, how we bring the benefits to industrial consumers. And that will be via PPAs and CFDs. I think that's gonna be a big part of this clean industry deal. But for now, it's still very vague. And even from speaking to the commission, it's, they're looking for ideas in terms of what they can do. If I can say one last thing, there is a bit of a challenge is, a lot of industry is very. Base load. They're used to dealing with base load power and the kind of firming cost. Taking more variable supply and matching it with their profile will be a challenge going forward. And hopefully it's something we can find solutions, in places like Norway where you're, where you're located because you've hydro power, the firming cost is not very expensive and it's very reliable. Other parts of Europe will have to find ways to try and match those two different vary profiles.

Richard Sverrisson - Editor-in-Chief, Montel: 15:28

The taxation issues is interesting there, Cillian, I think, because, obviously that's not something that can be done at EU level. That's up to the member states as well, isn't it? And also I think when you see, green levies and green tariffs, is that part of the taxation here? It's a way of paying for a lot of the policies that, that, that are being introduced.

Cillian O’Donoghue – Policy Director, Eurelectric: 15:48

Yeah. Taxation levies are one of the biggest price differential between Europe and other regions. The issue we have in Europe is the energy taxation directive is something which should be reformed. I think everyone agree that, but it's very unlikely to be reformed. It's decided via unanimity, so you need all 27 member states to, to sign up to it. So it's very hard to do, but we're in a perverse situation where we're taxing electricity more than gas. When we should be doing the exact opposite. So ideally we should change this. Whether it's going to happen, I'll be quite skeptical, but it's something we should at least try to do again.'cause it's quite important.

Richard Sverrisson - Editor-in-Chief, Montel: 16:22

Yeah, I think that's, bring that into focus. I think that's absolutely necessary. But, you mentioned the drag report. I'd like to round off the discussion here with Cillian and talking about that very sizable report. What was your electric's reaction to this?

Cillian O’Donoghue – Policy Director, Eurelectric: 16:35

Firstly, I think it's a very well drafted report and when you read through it, you say it's excellent if I break it down firstly, we're happy that it gives a very clear picture of the state of the European power infrastructure. A lot of our grids are aging and they need to be upgraded. We produce a report in May called Grids for Speed, and we put the investment cost about 67 billion a year, which we need to invest between now and 2050 to upgrade Europe's power infrastructure. And we're very happy that the Draghi report focuses a lot on that and identifies that as a key thing. And again, we talked earlier about energy prices and how to lower energy prices. This will go a long way. We're also pleased that regards kind of supply chains and need can of ideally reshore some of these jobs in medium term and have access to key raw materials. That's something we're very happy about with regards. Market design, something we touched upon earlier as well. We're very pleased that he says calls for kinda no radical changes to the current market design we have in place. Our position is we have done a market design reform recently, and now we need to focus on implementing that market design reform. We think we have the right tools in place, and as I discussed there, there's rolling out more, the CFDs rolling out more the PPAs, but let's not have a radical form of the market design. So I think they're certain things we're very happy to see. He identifies a lot of the key challenges there.

Richard Sverrisson - Editor-in-Chief, Montel: 17:57

He there's huge sums involved here. 800 billion needed annually for the green and digital transitions combined. But where's the money gonna come from?

Cillian O’Donoghue – Policy Director, Eurelectric: 18:05

Yeah, so that's very tricky. So 800 billion is 5% of European GDP. It's a huge amount of money. To put into context, so the Marshall plan, so the. Post World War II recovery, that was between one and 2% of GDP, so it's greater than the Marshall Plan, and what you need to do then is to come a connect. Common European depth instruments. But that is something which is extremely politically sensitive amongst member states. We did it once in the kind of post COVID recovery, whether we're prepared to do it again, which huge with such huge sums of money would have to see. But I would be skeptical about that, and that's a big weakness. I think it's a very good report. But finding the. The money which is needed. And let's not forget a lot of governments are in debt, will be quite a challenge.

Richard Sverrisson - Editor-in-Chief, Montel: 18:48

Exactly. The European economic picture is not that rosy. And trying to find this amount of money will be certainly extremely challenging, to put it mildly, but Draghi also criticizing excess of regulation holding back innovation. Would you agree that this is the case for the power sector?

Cillian O’Donoghue – Policy Director, Eurelectric: 19:03

Richard thanks. So you asked for kind of access regulation. It. It's hard to say. I think what we have in Europe correctly is we have a carbon price was the main driver, and we have a clear target for 2050 of climate neutrality. So I think the direction of travel is very clear and we have a lot of predictability and I think that's the important thing. I hear from my members, of course there's certain things, certain red tapes that could be improved and changed. But from our side, the most important thing is predictability. Okay, so we're very happy that you're very clear, kind, climate neutral tracker for 2050, and you have an ETS as the chief instrument, so that predictability is key. One thing we would be not very happy about is, in the mission letters, Vander Lane talks a bit about that. We need to have amendments to the E fuels. To ensure that, it's not just electric vehicles going forward. If you look back, the commission ban sales of the internal combustion engine cars post 2035, what we need as an industry. It's kind of predictability. We say, okay, we're going EVs. And I know Norway's done that path. I think even this week the sales of EVs passed internal combustion engine cars. And that predictability is very important. So a commission says one thing and then does reversals. That takes away from investor confidence. So that's something we would really ask for.

Richard Sverrisson - Editor-in-Chief, Montel: 20:19

Yeah. Fingers crossed. Cillian. Thanks ever so much for being a guest on the Montel Weekly podcasts. Listeners, I hoped you found that as fascinated discussion as I did. It's early days of the commission, but they've obviously got a lot of work to do over the next five years.