FAQ on European Strategic Energy Technology Plan
October 8, 2009 // Published as a news service by IHS
In light of the Oct. 7 proposal by the European Commission (EC) for the European Union (EU) to invest €50 billion in research to develop low-carbon energy technologies to help implement the European Strategic Energy Technology Plan (SET Plan), the EC issued a frequently asked questions (FAQ) document on the SET Plan.
What is the SET Plan?
The SET Plan is the technology pillar of the EU's energy and climate policy. It is a blueprint for Europe to develop a world-class portfolio of affordable, clean, efficient and low-emission energy technologies through coordinated research.
It was proposed by the EC in 2007 and endorsed by EU member states and the European Parliament as the appropriate way to lay out the EU's strategy to accelerate the development of these technologies and bring them more quickly to the market.
The SET Plan describes concrete actions to build a coherent energy research landscape in Europe. The idea is to better organize research efforts across Europe, selecting technologies with the greatest potential and planning together how money should be invested.
How is the coordination between different sectors organized?
The implementation of the SET Plan is coordinated by the EC. EU member states are in the driver's seat and are represented in the Steering Group on Strategic Energy Technologies.
On the research side, the SET Plan brings together the research capacities of the major European institutes and universities that joined on Oct. 28, 2008, in the European Energy Research Alliance (EERA).
Industry is also involved in the building up of six technological European Industrial Initiatives in the following areas:
A new initiative is being proposed in the EU communication, the "Smart Cities" initiative, which focuses on energy efficiency in European cities.
How were the six energy sectors selected for the Industrial Initiatives?
The six technology avenues included in the SET Plan for European Industrial Initiatives have been identified by the EC and the industry as those for which working at the European Community level will add the most value - technologies for which the barriers, the scale of the investment and the risk involved can be better tackled collectively.
Furthermore, for the six sectors the actors expressed their willingness to join forces and work together. The choice was based on an extensive consultation process involving the information system of the SET Plan (SETIS), which provided data and analysis on the current state of the art of the technologies and their anticipated technological development and market potential.
However, the communication also included estimates on existing initiatives on fuel cells and hydrogen, energy efficiency and basic research.
What are low-carbon energy technologies?
Low-carbon energy technologies refer to technologies that have fewer carbon dioxide (CO2) emissions than the energy technologies that rely on traditional fossil fuels (oil, coal and gas). They are based on renewable resources (like wind, sun and biomass) or enable the sustainable use of fossil fuels (like carbon capture and storage).
Examples of low-carbon energy technologies are ones created through wind power, solar energy (including photovoltaics and concentrating solar power), bioenergy, new electricity grids, CCS, nuclear fission and nuclear fusion energy, fuel cells and hydrogen, and energy efficiency in buildings or transport.
Why does Europe need to move to a low-carbon economy?
There are several reasons why Europe should move to a low-carbon economy:
- To fight against climate change - Fossil fuels are the chief culprits in the production of greenhouse gases. According to the International Energy Agency (IEA), limiting the temperature increase to 2ºC will require that CO2 emissions be reduced globally by at least 50% by 2050. The IEA estimates that this reduction in the energy sector will have to be achieved with increased energy efficiency, renewable energy, nuclear power and CCS.
- To ensure our energy security - In the EU today, the primary energy supply is 80% dependent on fossil fuels and most of them are imported from outside the EU. Moreover, supplies from fossil fuels are becoming scarcer, more expensive and less secure. On the contrary, the majority of low-carbon energy sources - like wind power, solar energy and energy efficiency - are locally produced and far less dependent on sources from abroad.
- To create growth and jobs - The development of low-carbon technologies can reduce EU's foreign energy bill and put Europe at the forefront of the fast-growing economic sector of clean and efficient technologies. Such technologies will create many new jobs. For example, a recent study of the EC concluded that the 20% EU's objective on renewable energy sources is likely to create more than 600,000 additional jobs in the EU, and the renewables sector will employ 2.8 million people by 2020.
What are the obstacles to the development of low-carbon technologies?
The problem lies in the fact that the abundant availability of fossil fuel resources has held back EU member states and industry from investing in energy research. Indeed, public and private energy research budgets have decreased since 1980s. It is urgent that the EU act now to increase the level of investment in research to develop low-carbon technologies.
The EC noted that markets and energy companies acting on their own are unlikely to be able to deliver the needed technological breakthroughs within a sufficiently short time span. Locked-in investments and vested interests, as well as the high risks and need for significant investments in less profitable alternatives, mean that change will be slow, without a major push. Therefore, the EC said that public policy and public investment partnering with the private sector is the only credible route to meet the EU's goals, established for the public good.
How much additional investment is needed?
With today's level of knowledge, the EC believes that investment in the EU has to increase from the current €3 billion per year to around €8 billion per year to effectively move forward the SET Plan actions. This would represent an additional investment, public and private, of €50 billion over the next 10 years.
These estimates and required actions have been defined by industry, the research community, the EC and EU member states. Together, they have drawn up technology roadmaps for the development of low-carbon energy technologies that show the way up to 2020.
Each roadmap presents the technology objectives that are critical for making each low-carbon technology fully cost-competitive, more efficient and proven at the right scale for market roll-out.
Investment should cover basic and applied research, pilot projects (small-scale trials), demonstration programs (actual large-scale trials) and market replication measures (successful transfer into fully viable, profitable low-carbon technologies available for public use). Costs of deployment are excluded in these estimates.
The assessment and monitoring of these technologies can be found on the EC's web site for the Strategic Energy Technologies Information System (SETIS).
What is the current level of research investment in low-carbon technologies?
Investments dedicated to R&D in non-nuclear SET Plan priority technologies amounted to €2.38 billion in 2007, with a division that is roughly balanced across individual technologies. If one adds research in nuclear SET plan priority technologies, the investment totals around €3.3 billion.
The R&D investments dedicated to CCS, smart grids, biofuels, wind energy and photovoltaics are in between €270 million and €380 million each. The share between public and private participation depends on the maturity level reached by these technologies, but the overall breakdown in 2007 was 70% private and 30% public sector. Some 80% of the public investment in R&D was at the national level.
The larger investments for hydrogen and fuel cells research (€616 million) may be explained by the diversity of technologies that are subsumed, thus attracting R&D investments from many large and small companies from a broad variety of sectors (such as car manufacturers, electric utilities, chemical companies and component suppliers).
At the same time, few countries and companies are active in research on concentrating solar power technologies, explaining the comparatively low R&D investments in this field (€86 million). This level of investment is not sufficient if the EU is to achieve its ambition to shift its current energy system into a low-carbon model.
What would these additional investments finance?
Investments should remove the bottlenecks in the development of low-carbon technologies. Together with industry, the EC identified the following six European Industrial Initiatives as priorities up to 2020. These public-private initiatives, bringing together researchers and industry, target sectors for which working together at the EU level will add the most value.
- Wind initiative, which has to accelerate the reduction of costs, increasingly move offshore and resolve the associated grid integration issues if it is to fulfill its huge potential. The objective is to produce up to 20% of EU electricity by wind energy technologies by 2020. The program is estimated at €6 billion over the next 10 years. More than 250,000 skilled jobs could be created.
- Solar initiative, which has to help photovoltaics and concentrating solar power technologies become more competitive and gain mass market appeal. The objective is to generate up to 15% of EU electricity by solar power in 2020. The program would cost an estimated €16 billion over the next 10 years. More than 200,000 skilled jobs could be created.
- Electricity grid initiative, which has to respond to three interrelated challenges: creating a real internal market, integrating a massive increase of intermittent energy sources and managing complex interactions between suppliers and customers. The objective is to have, by 2020, 50% of networks in Europe operating along "smart principles," effectively matching supply and demand. The program is estimated at €2 billion.
- Sustainable bio-energy initiative, which has to bring to commercial maturity the most promising technologies, in order to permit large-scale, sustainable production of advanced biofuels and highly efficient combined heat and power from biomass. The objective is have at least 14% of the EU energy mix be from cost-competitive, sustainable bio-energy by 2020. The initiative will need about €9 billion for its implementation. More than 200,000 local jobs could be created.
- CO2 capture, transport and storage initiative, which has to allow a wide commercialization of carbon capture and storage technologies. The pressing need is to demonstrate, at an industrial scale, the full CCS chain for a representative portfolio of different capture, transport and storage options. The objective is to reduce the costs of CCS by 2020. The total public and private investment needed in Europe over the next 10 years is estimated at €13 billion.
- Sustainable nuclear fission initiative, which has to move towards long-term sustainability with a new generation of reactor type that improves safety measures, optimizes the use of fuel and reduces the volume of radioactive waste: the Generation-IV reactor. Such reactors will be designed to maximize inherent safety, increase efficiency, produce less radioactive waste and minimize proliferation risks. Commercial deployment of these reactors is foreseen for 2040, but to achieve that target, work has to start now. The objective is to have the first Generation-IV prototypes in operation in 2020. The investment for the next 10 years will be about €7 billion.
The following additional initiatives have been launched by the EC and are included within the additional financing for their contribution to developing clean energy technologies:
- The Joint Technology Initiative (JTI) on Fuel Cells and Hydrogen was established for 2008-2013 with a budget of €470 million of European Community funding, to be at least matched by industry. The JTI has the minimum critical mass needed to develop and validate efficient and cost-competitive technologies for the various applications. However, meeting the market entry targets set by industry will require substantial additional effort. Additional funding is estimated at €5 billion in the next decade.
- Energy efficiency is the simplest and cheapest alternative to reduce CO2 emissions and improve security of energy supply. In transport, buildings and industry, available technology opportunities must be turned into business opportunities. A new European initiative called "Smart Cities" has the objective of creating the conditions to trigger mass market take-up of energy-efficiency technologies. The program envisages 25 to 30 smart cities that will be the starting points from which small networks, a new generation of buildings and alternative transport means will develop into European-wide realities. Around €11 billion will be needed in the next 10 years.
- Additional investment should support the European Energy Research Alliance, which will launch and implement joint programs addressing the key challenges of the SET Plan with concrete technological objectives. The EERA could expand its activities to effectively manage an additional public investment, at both the EU and national level, of around €5 billion over 10 years.
- To lay the foundations of future competitiveness, a further investment of around €1 billion should be made in basic research in the area of energy-related programs.
What is the link between the SET Plan and the European Energy Program for Recovery (EEPR)?
The EEPR has as its primary objective to help in getting the EU economy going after the recent downturn. However, the intelligent investment decisions taken by the EU with this program go beyond recovery and put in place key building blocks for the CCS and the wind initiatives of the SET Plan. Some €1.6 billion have been allocated to get started with the first demonstration plants for CCS and to boost innovation in offshore wind. The first projects supported by this program will be signed before the end of 2009. This program confirms the commitment of the EU to low-carbon technologies.
Who will contribute to the additional investment needed?
The massive need for additional investment can't be supported by a sole actor, be it from the public or private sector. A European approach is essential for success. The bulk of the funds required will have to come from the private sector and from EU member states, with a contribution from the EU budget. In this way, the limited resources available from the EU budget can be used to leverage a step change in the investment provided for the research and demonstration of low-carbon technologies. The European Investment Bank (EIB) will also be involved.
The level of risk faced by low-carbon technologies at different stages of their development calls for a risk-sharing approach in which all relevant actors, public and private, take on the part of the risk corresponding to their own field of activity. In general terms, the higher the technological uncertainties, the more public support is needed. But the EC also wants industry to take greater technological and market risks, as well as banks and private investors.
Where will the extra public funding come from?
Times are difficult now and public spending and budget deficits are under pressure in the EU member states. This limitation should act as incentive to prioritize public investments. Investment in energy technology development has to increase substantially - starting immediately. Focused public finance on the development of low-carbon technologies is in line with achieving public policy goals.
For the time being, it has been agreed that the EU's Emissions Trading System (ETS) will help finance the SET Plan in two ways. First, the 300 million EU allowances set aside from the New Entrants Reserve of the ETS will be used to support CCS and innovative renewables. These allowances will be distributed by member states for demonstration projects, selected according to European Community criteria.
Second, from 2013, the auctioning revenues from the ETS can be reinvested at the national level in the development of more efficient and lower-cost clean technologies. The use of the revenues is determined by the member states. At least 50% should be used for climate-change-related activities, including in developing countries.
Is an intervention at the European Community level appropriate?
In the EU landscape of publicly funded research, the funding consists of a European "common pot" managed by the EC, the Research Framework Program and national programs managed independently by the EU member states.
In this way, each can capitalize on its own strengths and opportunities. Action at the EU level can take on high-risk, high-cost, long-term programs beyond the reach of individual nations. This will allow risk-sharing and generate a breadth of scope and economies of scale that could not be achieved otherwise.
Combining public resources effectively and creating flexible public-private partnerships with industry should be the future model for pan-European energy research cooperation.
What will be the contribution of the European Investment Bank?
The EIB increased its overall lending target in the field of energy to €9.5 billion in 2009 and €10.3 billion in 2010 (compared to €6.5 billion in 2008), including energy efficiency and renewable energy. This also includes the new equity fund (the 2020 Fund - Marguerite) dedicated to investments in members states' renewable energy.
What is the timeline for the implementation?
Overall, the SET Plan was originally designed to reach the 2020 targets of both reducing greenhouse gas emissions by 20% and increasing the share of renewable energy sources by 20%, plus to move forward towards the vision of a complete decarbonization of the energy system by 2050. However, the technology and financial roadmaps of this communication cover specifically the next 10 years, 2010-2020.
What's next?
The second European Energy Technology Summit will take place in Stockholm on Oct. 21-22. During the summit, the European Industrial Initiatives will meet in eight parallel sessions to discuss and review the technology roadmaps of the SET Plan. The participants will represent European actors in the innovation system for energy technology - the financial community, industry, researchers, customers and public policy makers, as well as representatives from European institutions and international partners. The initiatives will subsequently be launched in 2010.
Background
Today, 80% of EU energy supply comes from fossil fuels. These sources of energy are the chief source of greenhouse gases. To achieve the EU's environmental and energy goals, the EU has to focus on the development of low-carbon technologies using renewable resources (such as wind, sun and biomass), enabling the sustainable use of fossil fuels (like carbon capture and storage), and promoting energy efficiency. The SET Plan, adopted in November 2007, is designed to optimize and coordinate the EU's effort to develop these technologies.
Further Information
For more information, see:
Source: European Commission (EC).