New EU Budget: Delayed Infrastructure for Green Energy
Over a week ago EU leaders agreed on historical cuts on the Union’s 2014-2020 budget, which is now waiting to be approved by the parliament. The climate commissioner Connie Hedegaard praised the new budget for securing 20% of the budget’s €960 billion for climate measures. However, the reduced budget may delay decarbonisation for some of the key sectors such as transport and energy.
Connecting Europe Facility
In particular, these sectors are to be affected due to the changes in financial support for the Connecting Europe Facility (CFE), a policy initiative aimed at promoting development of more sustainable modes of transport and cleaner energy supply systems through targeted infrastructure investment at the European level. The initiative is the Union’s response to an urgent need to address the aging EU’s energy infrastructure in order to prepare it for increasing amounts of electricity generated from variable sources, including renewable sources.
Yet, the European Commission’s initial proposal for the CFE fund of €50 billion was cut to €29 billion. Sectors that have been affected include transport (slashed from €26.9 billion to €23.2 billion) and energy infrastructure projects (slashed from €7.1 billion to €5.1 billion).
The fund was intended to attract private sector investment for vital grid transmission projects through a number of financial risk-sharing instruments, including special lending, project bonds, guarantees and equity investments. Following the cuts, several EU energy officials expressed concerns about the signal that the new budget sends out to investors about the EU’s seriousness in tackling grid deficiencies.
Importance of energy infrastructure
At the European level, time scale of establishing a grid connection is recognized as a severe barrier for the spread of technological innovation and renewable technologies.
The European Wind Energy Association (EWEA) estimates that the EU average for grid connection lead time (namely, the total time taken to get the building consent and grid connection permits) is 25.8 months for onshore projects and 14 months for offshore. Moreover, almost as much as 60 per cent of un-finalized onshore wind projects in the EU are stopped for insufficient grid capacity.
The lack of compatibility with the existing network of technologies and infrastructure is found to be particular significant for technologies that are close to overcoming economic barriers and reaching cost competitiveness While new technologies may successfully go through the learning process, mature and get ready for wider deployment, their further development is hindered at later stages as they encounter the challenge of integrating increasing levels of production into existing energy infrastructures.
This may explain why even with the price incentives (such as feed-in tariffs) in place, renewables are struggling to increase their share in energy generation and fail to realize its full potential. This also illustrates how non-economic barriers and system integration issues can undermine effectiveness of economic incentives.
Increasing attention therefore has to be paid to problems such as regulatory and policy uncertainty, institutional arrangements and energy infrastructure designed with fossil fuels in mind. The recent cuts in EU funding might be unfortunately a step backwards.
About the author
Inga Sileryte holds an undergraduate degree in Political Science from the University of Nottingham and more recently, an MSc in Environment and Development from the London School of Economics. She has previously worked as a trainee in a Brussels based consultancy specialising in energy policies and in the Joint Research Centre of the European Commission. Inga has a broad interest in environmental, energy and R&D policies, its effectiveness and impact on the targeted industries, as well as the role of large business in achieving environmentally sound operations.
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