Klaus-Dieter Borchardt: “We need regional and cross-sectorial co-operation to make the EU’s internal energy system work”

Klaus-Dieter Borchardt: “We need regional and cross-sectorial co-operation to make the EU’s internal energy system work”

Central Europe Energy Partners organised, just before the summer break, its 4th energy summit ‘29+1’ , where the Director of the Internal Energy Market Directorate from DG Energy, Mr Klaus-Dieter Borchardt, shared his views about what should be the ingredients of a functional European internal energy market. During the recent ‘29+1’ conference in Warsaw, you said that regional and cross-sectorial co-operation is essential if we want to achieve energy policy goals. Why do we need these two elements?

Let’s focus on the regional approach first. Whichever aspect of the energy system you analyse – whether that is the functioning of the market, infrastructure, or security of supply – there is no room for simple national solutions: all of them have a European dimension. On the other hand, to go straight into a europeanised and entirely harmonised solution, is not the way forward either. We have 28 Member States with very different energy systems. Very often there is no ‘one-fits-all’ solution. Therefore, we need regional solutions as intermediate steps, which will ultimately lead us into a fully-integrated market.

How can regional co-operation enhance the EU’s security of supply?

We all know that security of supply is not a national issue. Last year, we discussed possible disruption in the transit of Russian gas through Ukraine. At that time, we made stress tests for the gas sector, the outcome of which was truly enlightening. They showed that only a co-ordinated and co-operative approach among Member States, in regions, would give our markets the resilience they need. National solutions, on the contrary, do not guarantee the security of supply. Therefore, we now have to rethink our approach. We are currently working on a revision of regulations in gas and in electricity, where regional focus is all-important. This also applies to the co-operation of TSOs. It is not only essential that Member States’ industries should work together. It is also necessary for the transmission systems’ operators to come together and manage any crisis situation as a team.

Markets demand more cross-border approaches, too. However, Member States have been introducing unco-ordinated measures, for instance, national capacity mechanisms. What is your opinion on that?

Poorly designed capacity mechanisms will cause problems for the internal energy market. They will simply distort competition. Therefore, we need to be very cautious when introducing such measures. I truly believe that properly functioning energy markets can solve a number of problems. However, we do not have these functioning markets yet: neither in gas, nor in electricity. I think it will take us another 10 years before we get to that stage. So, in this context, capacity mechanisms might become reality but demand some conditions. Primarily, we need to know whether a capacity market mechanism is really necessary. For that, generation adequacy tests – on regional levels – are required. Only when you look at regions, and not single nations, you can see if the necessity for capacity is there. The second principle is that the mechanism has to be open for cross-border participation. The third one is that the demand side and generation have to be treated equally. These are fundamentals on which we are working.

How about market mechanisms for renewables, whose share is increasing?

I agree with those who say that the best energy market would be the one without any subsidies. That is also true for renewables. Yet, if support schemes are in place, we have to make sure that they are regionalised, europeanised, and based on principles that do not distort the market. We have new targets for 2030, for renewables a plus of 27% at the European level. If we reach that target, about 50% of electricity will come from renewables. This sets a number of challenges for the system’s operation, but also for the functioning of the market. If renewables – at least mature renewables, such as wind and solar – are to be integrated in the market, then privileges are not justified anymore. What we need is more co-operation between transmission and distribution systems. As 80% of the renewables go directly into the distribution system, a strong co-ordination between these two areas is required.

Infrastructure also needs to be developed on a cross-border level. Are we on the right path in this field?

We enacted a huge reform of our infrastructure system, and it pays off with PCIs or the Connecting Europe facility. Still, a lot remains to be done. The North–South Corridor, which is supposed to connect national energy markets, is a good example here. Again, we have to adopt a regional approach. It worked perfectly with the Baltic Energy Market Interconnection Plan (BEMIP), where we managed to make huge progress in connecting the Baltics in terms of gas and electricity. This is now being developed within Poland, too, which is a breakthrough. As the BEMIP framework has paid off, we have just reformed it, and put a new action plan together that will be worked through. We will do the same now for the Central Eastern and South Eastern region. It is a CESEC Group, which was formally established on July the 10th in Dubrovnik. This could also be done for the North-South Corridor. We are analysing regulatory obstacles and looking for cross-border political support for key infrastructure projects. Without this support, no project can be carried out. We are also aiming at the facilitation of the financial side of projects.

Where is the space for cross-sectorial approach in this framework?

We need to realise that the energy infrastructure that we are currently building needs to be smart. Here, it comes to the cross-sectorial dimension. We need to combine energy infrastructure with science, industry, innovation, and digital solutions. There is absolutely no reliable, smart European energy network without an innovative and reliable digital network. Therefore, it is key that we have not only a regional approach, but also a smart cross-sectorial approach, which connects energy with technology and digital solutions. Only then can we make our entire energy system safe, secure, and competitive.

Jan Jujeczka, CEEP Media Spokesperson