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29/04/2006 Energy research and competitiveness in Europe

Article by the advisor to the special secretary for competitiveness in the Greek edition of the Economist (published with Kathimerini on Saturday 29 April 2006)

Energy research and competitiveness in Europe

A few days ago, the German Chancellor Angela Merkel met with representatives of her country’s power companies. The outcome of the meeting was a commitment to invest €70 billion in the energy sector by 2012, €40 billion of which will be for the generation of electricity from renewable energy sources (RES).

A Eurobarometer survey carried out in October and November 2005 found that Europe’s citizens view the development of RES and increased research and technology in the sector as the chief means of reducing energy dependence at a national level. The study also found that the role of energy is seen as particularly crucial with regard to the competitiveness of Europe’s economy.

According to a recent report from the Organisation for Economic Cooperation and Development (OECD), “Although the energy sector accounts for a small share of GDP, the pervasive use of energy throughout modern economies makes uninterrupted supplies and stable prices critical to sustaining growth.”

For this reason, protecting the environment and gradually reducing dependence on conventional fossil energy resources are basic priorities both of the Lisbon Strategy for development and employment, and of the Sustainable Development Strategy, two of the European Union’s strongest policy texts.

Similarly, Directive 2001/77/EC set a target for 22.1% of electricity production in the EU to come from RES by 2010, while Greece has made a commitment that RES will account for 20.1% of production by the same date.

The importance of energy security in Europe and the emphasis placed on it by the European Commission became clearer in the January 2006 Annual Progress Report on the Lisbon Strategy, entitled “Time to move up a gear”, which included a secure energy supply among its four basic priorities for the years ahead. This is indicative of the intentions of the Commission, and of how critical the situation in the energy sector is.

In its report, the Commission calls on Europe’s leaders to take additional measures in four priority action areas:

  1. Investing in education and research.
  2. Freeing up SMEs and unlocking business potential.
  3. Getting people into work.
  4. Efficient, secure and sustainable energy.

On the energy sector, the Commission’s report thus states: “A secure and affordable energy supply [for Europe] is a crucial springboard for [the continent’s] growth.” It stresses the need for a common European energy policy that will exploit the potential of RES and invest in the more efficient use of energy, in order to increase the competitiveness of Europe’s economy

Combining the first and fourth of the report’s four priorities, it becomes clear that a reinforcing loop is needed in terms of demand for and use of renewable energy sources, both at a national and European level. This reinforcing loop will be created with the investment of significant capital in energy research, the development of which will lead to a reduction both in the cost of developing RES, and in the cost of producing electricity from RES.

Energy challenges and the Green Paper

In the new international energy environment, the challenges that Europe must deal with include:

  • Constantly increasing energy demand, which given the current situation, will have to be served by a single, largely outdated network (it is calculated that approximately one trillion euros will have to be invested in improving the network over the next twenty years).
  • The growing dependence of Europe on energy imports. According to reliable estimates, in twenty years’ time – or thirty years at most – 70% of the EU’s energy requirements will be met by imported energy. It is equally worrying that the number of third countries providing energy to the EU is quite limited, a fact that certainly increases the risk of energy insufficiency and price instability. The problems created at the start of the year regarding the unhindered supply of European states with natural gas from Russia are indicative of this unstable situation.
  • Increases in oil and natural gas prices, which have almost doubled in the last two years and are forecast to rise still further.
  • The increase in the average temperature of the planet. The experts estimate that if steps are not taken, there will be an increase of between 1.4 and 5.8 degrees Celsius by the end of the century.

This was the unfavourable context in which the European Commission published its Green Paper on 8 March: “A European Strategy for sustainable, competitive and secure energy”, which attempts to lay the foundations for a common European energy policy.

According to Commission President José Manuel Barroso: “The energy challenges of the 21st century require a common EU response. […] A common approach, articulated with a common voice, will enable Europe to lead the search for energy solutions.” At the same time, Energy Commissioner Andris Piebalgs stated: “The completion of the internal market, the fight against climate change, and security of supply, are common energy challenges that call for common solutions.”

The Green Paper focuses on six priority areas, based around three core objectives: security of supply, competitiveness and sustainable development.

  • To complete the internal energy market in such a way as to ensure a level playing field.
  • Security of supply, with the establishment of a European Energy Supply Observatory and a revision of the existing Community legislation on oil and gas stocks.
  • A sustainable, efficient and diverse energy mix in the EU.
  • To address the challenges of global warming, through an action plan to save 20% of the energy that the EU would consume, according to current forecasts, by 2020.
  • To draw up a strategic energy technology plan to ensure that European industries are world leaders in the sector, and
  • The need for a common energy policy in order for Europe to react to the challenges of growing demand, high and volatile energy prices, and increasing import dependency.

Following the European Commission’s findings and proposals in the Green Paper and “given the urgency of the challenges to be faced” in the energy sector, the European Council at its recent meeting in Brussels on 23 and 24 March invited the Commission to take the following measures:

  • Submitting an Action Plan on Energy Efficiency by mid-2006,
  • Implementation of the Biomass Action Plan
  • Developing a priority market Interconnection Plan and facilitating the realisation of infrastructure projects contributing to diversification of supply and integration of regional markets into the EU internal market,
  • Making the EU-Russia dialogue more effective,
  • Developing a strategy for exporting the internal energy market approach to neighbouring countries,
  • Secure adequate priority for energy in the 7th Framework Programme for Research and Technological Development,
  • Improving the transparency of the energy market, in particular data on gas storage capacities and on oil stocks.

Emphasising energy research

The Green Paper makes it abundantly clear that research has an important role to play in the energy sector in the years ahead, particularly in the sectors of renewable and alternative forms of energy. At the same time, some analysts suggest that the current gloomy circumstances in the sector, in combination with the strongly upward price trend for fossil fuels, could be the spark for greater importance to be attached to the concept of energy efficiency and innovation in the energy sector.

The emphasis placed by the EU on energy research is being combined with a concerted effort both at a European level and at the level of Member States with regard to research and technology. The effort involves:

  • The proposal of the Commission to the European Council to set up a European Institute of Technology (EIT) to operate as a new flagship for excellence in higher education, research and innovation, with an emphasis on energy research.
  • Planning the 7th Framework Programme for Research and Technological Development, which will have a larger budget than the 6th. For the energy sector in particular, approximately €3 billion is to be made available.
  • Planning the Competitiveness and Innovation Programme (CIP). Its purpose is to promote services that support innovation in the transfer and exploitation of technology in the sectors of Information and Communication Technologies (ICT), Energy and Environmental Protection. The CIP aims to gather together existing EU programmes under a single framework in three key areas: the “Entrepreneurship and Innovation Programme”, the “ICT Policy Support Programme” and the “Intelligent Energy-Europe Programme”.

In the framework of the 6th Framework Programme for Research and Technological Development, the European Union has already financed RES research projects, specifically in the sectors of biofuels and biomass (with a total budget of €68 million), solar energy (with a total budget of €95 million), hydrogen and fuel cells (with a total budget of €115 million)

One of the main biofuels programmes currently being developed in Europe is RENEW, which focuses on research and development of second-generation biofuels for use in modern internal combustion engines.

At the same time, the NOE-bioenergy network, in co-operation with industry, analyses barriers to the development and extended use of all forms of bioenergy. It takes into account the whole biomass utilisation chain, competing uses of biomass, its complex properties, as well as technical and economic problems and socio-economic challenges arising from its use.

In the field of photovoltaic energy, the FLEXCELLENCE programme aims to develop flexible (glass-free) solar panels. In the same field, the Full Spectrum programme aims to develop photovoltaic systems with increased efficiency of up to 86%, against today’s figure of 40%.

Finally, hydrogen and fuel cells are considered ideal for an economy’s period of transition from the use of fossil energy resources to cleaner forms of energy. This is because fuel cells are relatively efficient and clean, both when supplied with hydrogen and when supplied with conventional fuels.

Here, the HyWAYS programme, involving government bodies, research centres and industry, is developing a “European Road Map for Hydrogen”.

Finally, two programmes are being financed to reduce CO2 emissions and improve the use and distribution of energy produced from renewable sources, with a total budget of €115 million.

By exploiting its strategic position (new roads for transporting gas from the Caspian Sea to Europe) and its wealth of natural “stocks” in some renewable energy sources (sun, wind), Greece can only benefit from the new energy strategy being planned by the European Union.

In recent months a suitable energy environment has begun to be created in this country. Moves such as the political agreement with Russia and Bulgaria to build the Burgas-Alexandroupoli oil pipeline, the building of the Greek-Turkish gas pipeline (which is expected to be complete by the end of 2006), the agreement with Italy to build the Greek-Italian gas pipeline, the signing of the South East Europe Energy Community Treaty, and the recently published new framework for the development of RES, place Greece at the centre of developments and turn our country from an observer into a leading player in developments in the sector throughout South East Europe and the Middle East.

Konstantinos Angelopoulos
Mechanical Engineer, University of Thessaloniki
MSc in Operational Research, LSE

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