Europe plans to make its power grid cleaner, bigger, faster, more reliable

By Eric Marx | 12/04/2015 08:56 AM EST

Whether the European Union remains a leader in the transition to a low-carbon economy may very well depend on the drive and ambition of European Commission Vice President Maros Sefcovic. A Slovak, he is in charge of laying the groundwork for a raft of legislative proposals aimed at fundamentally altering the union’s electricity market design.

Whether the European Union remains a leader in the transition to a low-carbon economy may very well depend on the drive and ambition of European Commission Vice President Maros Sefcovic. A Slovak, he is in charge of laying the groundwork for a raft of legislative proposals aimed at fundamentally altering the union’s electricity market design.

Key to the effort is the European Energy Union project, formulated in February, to use the power of cross-border collaboration to further integrate energy markets. The idea is to enable a free flow of electricity and natural gas across the union’s 28-member bloc countries — thereby integrating a surge in renewables generation from countries such as Germany, while also bolstering the energy security of peripheral border states that find themselves dependent on fossil fuel imports.

The results could be revolutionary for a continent once confined mainly to national power grids. For example, wind energy when it is available from a big offshore producer such as Germany is abundant, cheap and clean, but can’t be stored. So it must have as broad a cross-country market as possible, otherwise some of it must be thrown away. Maximizing it means there must be more interconnections to let the juice flow, but there must also be dependable backup power sources so when the wind stops they can keep the grid properly balanced between supply and demand. If it isn’t, the result would be blackouts. At the moment, most countries don’t put Russia’s enormous supplies of natural gas in the "dependable" category.


Needless to say, these are hard, expensive problems for the European Union to resolve. Speaking in Brussels after returning from a yearlong tour across the continent, Sefcovic pointed to "real progress" but also warned against complacency.

The E.U. executive estimates the effort will require major investments in generation, networks and energy efficiency at roughly €200 billion ($219 billion) annually in the next decade. Of that sum, about €105 billion is required to upgrade Europe’s aging electricity infrastructure, with €35 billion needed for cross-border interconnections.

To critics, the Energy Union project lacks both adequate financing mechanisms and a coherent governance structure. E.U. countries still maintain the final say over their energy choice and mix, enabling countries like Poland and the Czech Republic to continue on with unabated coal power generation policies. Meanwhile, new gas pipelines and liquefied natural gas terminals are outpacing demand, portending a significant "lock-in" effect that could prevent Energy Union goals from being met.

In his first "State of the Energy Union" report delivered last week in Brussels, Sefcovic said he encountered significant resistance on his tour.

"National sentiment is very strong," he told those gathered at an event sponsored by the E.U. electricity association Eurelectric. "But we went in with the approach to show the advantages and pluses … and that’s why I’m rushing so much with our proposals for 2016, knowing the member states will engage in serious negotiations once they see the whole picture."

That picture includes a renegotiation in February of the gas supply directive and LNG strategy, followed by a presentation in the summer of member state greenhouse gas reduction targets, with a last final legislative push on a new electricity design arriving sometime in the fall.

Some are connected far better than others

Fewer than a third of all E.U. countries have a sufficiently coherent national energy and climate planning strategy, said Sefcovic. One of the main goals, then, is to synchronize those reporting obligations in order to provide transparency and monitoring capacities.

Beyond governance, the report also presented a second revised list of projects of common interest. There’s been a noticeable shift toward electricity, as well as a streamlining of the permitting and financing process that could possibly fast-track the build-out of urgently needed interconnectors, gas pipelines and smart grids.

Power lines
Power lines like these in Bavaria will get more room and agility for handling wind and solar energy. | Photo courtesy of Flickr.

By all accounts, interconnectors are one of the key measures for successfully carrying off the Energy Union project. This includes integrating grids across borders to enable energy to flow to where it is most needed, and also integrating infrastructures between sectors — so that electricity, heat, buildings, transport and digital are efficiently linked. Above all, said Manon Dufour of the E3G environmental consultancy, it means breaking down the silos between supply- and demand-side infrastructure.

The European Commission’s new energy proposals make the case for such a market design, yet the vision is a long way from implementation.

Denmark, a country with 40 percent wind power in its power system and 100 percent interconnecting capacity, can continue to power forward on its decarbonization efforts knowing it has Swedish nuclear and Norwegian hydro for backup generation on those days when the wind isn’t blowing.

With over 20 gigawatts of interconnector capacity, the German electricity market is also relatively well-connected. It has connectors to nine of its 11 neighbors but still suffers from a paucity of internal north-south connectors. The available capacity on the German-Denmark line is less than 50 percent, for example, owing to internal balancing issues. Meanwhile, Poland and the Czech Republic have had to cope with an enormous influx of German electricity, threatening the countries’ grid stability and the economics of their power plant fleets.

Austria is under similar pressures owing to large trade volumes from the southern German market. Imbalances like these have led to the unilateral introduction of capacity markets across Europe. Aimed at channelling investments into flexible baseload generation, the support schemes potentially lock those countries into high-carbon systems and run afoul of E.U. law, said Dufour.

The European Commission is examining the situation. It could bring legal action, though for now the betting money is for an acceptance of capacity payment mechanisms, so long as they are limited to a specified time and with the additional condition that they operate solely on a regional balancing platform.

Single power price? A distant vision

Integrated energy markets already span all major European economies, linking the Iberian Peninsula to Scandinavia via coupling mechanisms that grant market participants the necessary capacity on interconnectors when selling or buying spot volumes across borders. Available capacity is calculated through an algorithm — shared by exchanges and transmission system operators — and is now available for trading on the day-ahead markets across 22 member states.

The long-term goal is a single E.U. power price in which continuous cross-border intraday trading is available across all of mainland Europe.

Now, however, there’s considerable price divergence, even between countries that are reasonably well-linked. The trading suffers from bottlenecks and border congestion, with much of the blockage occurring between the bidding zones of Central and Western Europe.

Additional interconnectors could potentially unclog the system. The problem is it can take 10 years or more to build these links, due to regulatory hurdles as well as the public’s resistance to overhead power lines. Yet progress is being made, noted Sefcovic at an industry event hosted by the European Network of Transmission System Operators for Electricity (ENTSO-E).

By 2020, three German north-south links will have been sunk underground, thereby sidestepping political opposition. Recently, Spain and France inaugurated their first interconnector, while the first electricity interconnection between Lithuania and Poland, the so-called LitPol Link, will soon begin creating new trade possibilities.

"The reason we adopted the PCI [projects of common interest list] was to make the process easier and faster — to react more flexibly — to changing realities on the ground," said Sefcovic.

"New financing tools are already working," he added, referencing €315 billion in "Juncker Funds" to be made available over the next three years.

There’s also been progress on new E.U. electricity network codes. This past summer, the first E.U.-wide rules on electricity capacity allocation and congestion management completed the long approvals process. The rules cover how to calculate cross-border capacity, define and review bidding zones, and operate day-ahead and intraday markets, including market coupling.

In the near future, electricity flows will be worked out among five coordinated balancing zones, per a draft proposal put forward by the E.U. energy regulatory agency Acer Inc. The plan foresees grid harmonization within 15-minute intervals, something that is already in operation in eight E.U. countries, and which could go into effect across Europe by as early as July 1, 2019.

Sefcovic congratulated the transmission system operators for their "great work" but then asked those assembled to, in essence, try harder and redouble efforts.

After more than 18 months of debate around E.U. energy policy, the shortcomings are now well known by all stakeholders. A change in national cultures is coming, Sefcovic seemed to be saying. At least, he hopes so. "Until today, we have not managed to change the system to learn from the past, to effectively use new [institutional] bodies," he said.

"For the commission, 2016 is going to be a year of delivery," he pledged. "We still have a lot to do."