March 16, 2022 European Commission unveils latest plan regarding fast tracking of renewables, hydrogen and biomethane to replace gas imports from Russia to the EU Executive summary On 8 March 2022, the European Commission (the Commission) proposed RePowerEU, an emergency action to increase the resilience of the European Union (EU)-wide energy system in view of the Russian invasion of Ukraine. Presently Russia provides more than 40% of the EU’s total gas consumption and accounts for 27% of oil imports and 46% of coal imports. The proposed measures address the following:
Detailed discussion RePowerEU: Joint European action for more affordable, secure and sustainable energy Measures to mitigate high retail prices of energy and support heavily exposed companies The first set of measures outlined in the communication aims to address the skyrocketing energy prices, exacerbated by the uncertainty of supply caused by the Russian invasion, which are likely to increase poverty, affect business competitiveness and lead to higher prices for other commodities, notably food. First, the Commission confirms that, according to Article 5 of the Electricity Directive, in the current exceptional circumstances, Member States can set regulated prices for vulnerable consumers, households and micro-enterprises in order to help protect consumers and the economy as a whole. Annex 1 of the Communication provides guidelines on the application of this article, recalling that it allows for exceptional, time-limited implementation of regulated prices in specific circumstances. The Commission also confirms that Member States can consider temporary tax measures on windfall profits and redistribute part of the returns from high energy sector profits and emissions trading to consumers (transfer mechanism). Such measures need to fulfil certain criteria to ensure that they are proportionate, limited in time and that they avoid undue market distortions. Annex 2 sets out the conditions that those instruments should meet. The Commission also makes reference to the so called “general escape clause” of the Stability and Growth Pact (SGP), which allows the Member States to apply fiscal flexibility during severe economic shocks. In addition to the above, the Commission encourages the continuation of the measures introduced by the “Energy Prices Toolbox” from last October, i.e., options to provide short-term support to companies affected by high energy prices through application of the EU State aid rules or possible establishment of a new State Aid Temporary Crisis Framework to grant aid to companies affected by the crisis (Annex 3). Assessment of options to improve the electricity market design and introduction of alternative pricing mechanisms are also urgent actions outlined in the Communication aimed at control of the prices. Winter preparedness The second set of measures refers to how to achieve higher filling of gas storage levels to be well-prepared for next winter. According to the Communication, gas supplies are sufficient until the end of this winter even in the case of full discontinuation of supplies from Russia. However, in order to be well-prepared for next winter, filling of gas storage across the EU should start now. The Commission will make a legislative proposal to require that existing storage infrastructures in the EU territory are filled up to at least 90% of their capacity by 1 October each year and will also propose to give full tariff rebates at storage points. The Commission will support coordinated gas refilling operations, for example through joint procurement, collecting orders and matching supplies. Considering that not all Member States have storage capacities available in their territory, the Commission will set out a mechanism to ensure a fair allocation of security of supply costs. The new interconnectors, which are essential to ensure the uninterrupted energy flow within the whole EU, should be hydrogen compatible. Measures to eliminate the EU’s dependency on Russian gas The last set of measures refers to elimination of Europe’s dependence on Russian gas well before 2030 and is based, first, on diversification of energy supplies by increasing of LNG imports and pipeline imports from non-Russian suppliers. Another step in diversifying energy sources is doubling of the production of biomethane per year by 2030, in particular from agricultural waste and residues. Further replacement of Russian gas will be accelerated by the development of the regulatory framework to promote the European market for hydrogen, support of the development of an integrated gas and hydrogen infrastructure, storage facilities and ports under the Hydrogen Accelerator initiative. Development of the value chain for solar and wind energy and for heat pumps will further reduce EU’s dependence on fossil fuels. Another measure to accelerate the roll out of renewable energy projects will be speeding up and simplifying the permitting for renewables. The Commission will also provide guidance on when and how regulatory sandboxes are needed to enable testing of innovative technologies, products or services that aim to advance the coexistence of renewable deployment and environmental protection. Decarbonization of the industry to accelerate the switch to electrification and renewable hydrogen will further enhance our low-carbon manufacturing capabilities. Next steps The Commission will present a legislative proposal by April 2022 to establish a 90% gas filling target by 1 October each year, designate gas storage as critical infrastructure, and allow incentives for refilling. In May, the Commission will publish a recommendation on fast permitting for renewable energy projects and will support the use of all flexibilities already granted by the EU legislation. In June, the Commission will present a communication on solar energy with the aim of helping unlock solar energy’s potential as a major renewable energy source in the EU. Additionally, the Commission together with the European Investment Bank Group will conclude in 2022 an agreement on the financing mechanisms that would be best suited to promote the development of power purchase agreements in Europe, which is already possible under InvestEU. Finally, according to the Communication, the Commission aims to develop RePowerEU plan in cooperation with Member States by the summer. Implications Measures announced in RePowerEU follow in large extent from the EU Green Deal – a flagship initiative whose main goal is to make Europe’s climate neutral by mid-century. An important novelty is the accelerated time horizon, which gives the previously adopted legislative proposals under the Fit for 55 or December’21 package a new sense of urgency. While businesses are still grappling to understand the implications of these new policies on their operations, they now need to consider a new dimension that arose under RePowerEU. _________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young Law Talasiewicz Zakrzewska i Wspolnicy sp.k. (Poland), Warsaw
Ernst & Young LLP (United Kingdom), London
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