Future Shocks 2023: Securing energy supply in Europe

The security of energy supply has come to the top of EU agenda, following Russia’s aggression against Ukraine and the ensuing energy crisis.

© European Union, 2023, EPRS

Written by Agnieszka Widuto.

This paper is one of 10 policy responses set out in a new EPRS study which looks first at 15 risks facing the European Union, in the changed context of a world coming out of the coronavirus crisis, but one in which a war is raging just beyond the Union’s borders. The study then looks in greater detail at 10 policy responses available to the EU to address the risks outlined and to strengthen the Union’s resilience to them. It continues a series launched in spring 2020, which sought to identify means to strengthen the European Union’s long-term resilience in the context of recovery from the coronavirus crisis. Read the full study here.

The issue(s) in short: The challenge and the existing gaps

The security of energy supply has come to the top of EU agenda, following Russia’s aggression against Ukraine and the ensuing energy crisis. The EU has a relatively high dependency on energy imports (57.5 % in 2020) and all EU Member States are net energy importers. In 2021, Russia was the EU’s largest energy supplier, accounting for 45 % of its coal, 36 % of its gas and 25 % of its oil imports. Over the course of 2022, the situation changed dramatically, with several rounds of sanctions on Russian energy products, EU policy initiatives to wean itself off Russian energy (such as REPowerEU) and the limits on gas transmission imposed by Russia. The latest available data show that, in the fourth quarter of 2022, the EU imported no coal, and only 18 % of its gas and 15 % of its oil, from Russia.

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However, despite these reductions in Russian energy imports, energy security remains a long-term challenge for the EU given its overall high energy dependency. Diversifying imports away from Russia and towards other third-country suppliers can bring new risks relating to geopolitical considerations, competition in the global economy and developing dependencies on undemocratic regimes. Energy security is also inextricably linked to energy affordability, which the energy crisis made blatantly clear. Energy prices have risen in light of supply problems and were the main driver of overall inflation that impacted the budgets of households and companies. Furthermore, as fossil fuels remain the main contributor to greenhouse gas emissions (GHG), energy security is intertwined with climate policies. This may sometimes lead to short-term trade-offs (as seen in temporarily increased production of coal in 2022) but also to opportunities, as the energy crisis is at the same time accelerating long-term investments (such as the roll-out of renewables) and thus increasing domestic energy production, thereby also contributing to energy security.

The impact of the conflict on the EU energy situation was the most severe in terms of gas. In 2022, the EU managed to cope without supply disruptions and avoid gas shortages during the winter period. Nevertheless, a recent International Energy Agency (IEA) report warns of potential gas shortages in the winter of 2023 in case of a further drop in Russian supplies, LNG demand rebound in China and prolonged cold weather conditions in Europe. The EU is thus faced with a challenge to intensify its efforts, as it moves from short-term crisis management to tackling the challenge of ensuring long-term energy security and strengthening its strategic autonomy in the energy field.

Position of the European Parliament

The March 2022 resolution on Russia’s aggression against Ukraine calls for reducing the EU’s energy dependence, in particular on Russian gas, oil and coal, by diversifying energy sources, expanding LNG terminals and supply routes, unbundling gas storage, increasing energy efficiency and speeding up the clean energy transition.

In a resolution of April 2022 on the ‘Conclusions of the European Council meeting of 24-25 March 2022: including the latest developments in the war against Ukraine and the EU sanctions against Russia and their implementation’, the European Parliament called for the establishment of common strategic energy reserves and energy purchasing mechanisms at EU level to increase energy security and reduce external energy dependency and price volatility. It also called for a full embargo on Russian energy imports.

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In its May 2022 resolution on ‘The social and economic consequences for the EU of the Russian war in Ukraine – reinforcing the EU’s capacity to act’, Parliament stressed the importance of ensuring energy sovereignty and independence from Russian supplies and more strategic autonomy and energy security, by upgrading and ensuring major investment in the EU’s energy infrastructure, including interconnections and cross-border infrastructure for renewable energy production, and energy efficiency.

In its resolution of October 2022 on ‘The EU’s response to the increase in energy prices in Europe’, Parliament highlighted the role of investments in renewable energy, energy efficiency and the necessary infrastructure – including targeted, well-defined cross-border projects with investments through NextGenerationEU and REPowerEU – in helping the EU achieve energy sovereignty, open strategic autonomy and energy security.

Pyramid of instruments at the disposal of the EU and its Member States
Figure 39 – Pyramid of instruments at the disposal of the EU and its Member States

EU policy responses (Commission and Council responses so far)

Over the course of 2022 and 2023, the EU undertook a number of actions to reduce its dependency on Russian energy, for instance by diversifying its energy supplies, filling up gas storage facilities, promoting joint gas purchases, reducing energy demand and promoting energy savings, increasing energy efficiency and boosting the deployment of renewables. Many of these measures also help boost overall energy security in the long term by reducing Europe’s dependency on fossil fuel imports from third countries.

In May 2022, the European Commission put forward the REPowerEU plan to reduce energy imports from Russia and accelerate the green transition. The plan included two legislative proposals: one on REPowerEU chapters in the Recovery and Resilience Plans (Regulation (EU) 2023/435, adopted in February 2023) and a proposal amending three energy directives to boost renewable energy use and increase energy efficiency (procedure ongoing). The REPowerEU plan also included several strategies, e.g. to boost energy savings and diversify energy imports.

Renewable energy accounted for 21.8 % of EU energy consumption in 2021; a revision of the Renewable Energy Directive (RED) under the European Commission’s Fit for 55 package (July 2021) aimed to raise the EU’s 2030 target from 32.5 % to 40 % by 2030. The REPowerEU plan proposed to raise this target further to 45 %. In a March 2023 compromise agreement between the Parliament and the Council, this target was set at 42.5 %, with the possibility of an additional indicative top-up of 2.5 %. Additional sub-targets have been adopted for transport, industry, buildings, heating and cooling. The REPowerEU plan also proposed amendments to the Energy Performance of Buildings Directive, introducing an obligation to provide solar energy installations on buildings. Moreover, the REPowerEU plan included a solar energy strategy with a target of over 320 GW (gigawatts) of newly installed solar photovoltaic capacity by 2025, and almost 600 GW by 2030. These initiatives were followed by Council Regulation (EU) 2022/2577, adopted in December 2022 and laying down a framework to accelerate deployment of renewable energy. This regulation aimed to simplify permitting procedures for renewable energy projects, in particular solar installations, heat pumps, and projects involving the repowering of renewable energy plants.

The EU also took measures to curb energy consumption in the short, medium and long term. The REPowerEU legislative proposal included amendments to the Energy Efficiency Directive that increased the 2030 target for energy efficiency to 13 % (compared with a 2020 reference scenario). This came on top of the revision already proposed in the context of the European Green Deal and the Fit for 55 package, which aimed to increase the target by 9 %. A compromise agreement reached by the co-legislators in March 2023 set the EU energy efficiency target of 11.7 % for 2030. Another initiative under REPowerEU was the EU ‘Save Energy‘ plan, which proposed a number of energy-saving measures. Council Regulation (EU) 2022/1369 of August 2022 on coordinated demand reduction measures for gas set a voluntary 15 % target for reducing Member States’ gas consumption between 1 August 2022 and 31 March 2023 (the target would become mandatory in emergencies); the regulation was prolonged until 31 March 2024. Council Regulation (EU) 2022/1854 of October 2022 on an emergency intervention to address high energy prices committed Member States to a binding 5 % reduction in peak electricity consumption, and a voluntary 10 % reduction in overall electricity consumption between 1 December 2022 and 31 March 2023. Additional aspects of this regulation included measures aiming to compensate consumers for high energy prices through a cap on excess revenues of some electricity generators and a solidarity contribution from fossil fuel producers, as well as allowing Member States to regulate electricity prices in some cases. Separately, Regulation (EU) 2022/2578 establishing a market correction mechanism to protect citizens and the economy against excessively high prices set a temporary gas price cap at €180/MWh, aiming to limit extreme gas price spikes. This mechanism is valid for a year from 1 February 2023 and can be suspended if it jeopardises the security of gas supply, intra-EU gas flows, financial stability and demand reduction efforts.

Another important response to the energy security challenge was a diversification of energy supplies. The EU external energy engagement strategy, presented as part of REPowerEU, proposed measures to build long-term energy partnerships around the globe. The largest increases in energy imports from outside the EU have come from Colombia and South Africa for coal, the United States for LNG, and Saudi Arabia and the US for oil. In addition to stronger energy trading relations with the US, the EU also scaled up its gas imports from Norway, Qatar, Algeria and Azerbaijan. Moreover, it has developed and/or accelerated the development of energy infrastructure, for instance new LNG terminals (e.g. Wilhelmshaven in Germany), the Baltic Pipe gas pipeline and the Gas Interconnector Greece-Bulgaria. The EU has also strengthened its energy relations with Ukraine, for instance through initiatives such as the Generators of Hope and increased electricity trading through the synchronisation of the EU and Ukrainian power systems.

In terms of boosting gas storage in response to limited supply, Regulation (EU) 2022/1032 of June 2022 on gas storage set a binding target of 80 % of EU storage capacity to be filled in by 1 November 2022, with a 90 % target set for subsequent years. The regulation was swiftly implemented and storage facilities reached a filling rate of 80 % as early as September and of 90 % as early as October 2022. The EU exited the winter season with record high storage levels of 57 % at the end of April 2023, while the current filling rate (May 2023) stands at 68 %, according to the latest data. Therefore, the EU appears well on track to achieve the 90 % filling rate by October 2023, barring unforeseen geopolitical and meteorological events. It is also important to note that the Security of Gas Supply Regulation 2017/1938 (last amended by the above Regulation (EU) 2022/1032 on gas storage) has provisions to ensure energy security by helping to prevent supply disruptions, respond to them when they occur, and ensure that vulnerable consumers are always supplied.

Council Regulation (EU) 2022/2576 of December 2022 enhancing solidarity through better coordination of gas purchases, reliable price benchmarks and exchanges of gas across borders (the ‘Solidarity Regulation’) included measures improving the security of gas supply and addressing gas price volatility. The EU Energy Platform was established to coordinate EU action and negotiations with external suppliers of natural gas and LNG through voluntary joint gas purchasing (see also ‘In focus’ box on AggregateEU).

In focus: AggregateEU
AggregateEU is a demand aggregation and joint purchasing service under the EU Energy Platform in accordance with Council Regulation (EU) 2022/2576 (the ‘Solidarity Regulation’). Its objective is to contribute to the security of supply in terms of both volume and affordability. It covers both pipeline gas and LNG, but excludes Russian supplies. The mechanism matches buyers and sellers via tenders on a bimonthly basis. On the demand side, companies established in the EU or Energy Community countries can participate, while sellers may also include non-EU companies. Gas purchasing through AggregateEU is not mandatory; however, Member States are obliged to participate in the demand aggregation process by submitting a certain volume for demand aggregation (equivalent to 15 % of their obligation under the gas storage regulation; demand aggregation on top of this is voluntary). The first call under the AggregateEU mechanism was launched in April 2023. By mid-May, 77 European companies had submitted requests for a total volume of approximately 11.6 bcm of gas.
Source: European Commission, Joint gas purchasing and AggregateEU – questions and answers.

Timeline of selected energy policy-related events
Figure 40 – Timeline of selected energy policy-related events

Obstacles to implementation of response

Energy security is a shared EU competence under Article 194 of the Treaty on the Functioning of the European Union (TFEU), which provides a legal basis for EU energy policy. There is thus no obvious legal obstacle to strengthening energy security at EU level. However, the same Treaty article also stipulates that Member States are responsible for their energy mix and the general structure of energy supply. The coordination of EU energy systems thus depends on political choices by individual Member States to a certain extent. Moreover, the Member States have a major role in financing and scaling up renewables, for instance through market incentives. They also make decisions on creating energy interconnectors with other countries. Permitting procedures for renewables, even if facilitated through EU-level legislation (for instance, under REPowerEU and the solar energy strategy), also require the participation of the national and local levels to bring about tangible outcomes.

Possible action

Securing energy supply in Europe - possible action

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  • Clearly, Securing energy supply in Europe is critical but these proposed policy decisions are based on a series of assumptions and beliefs that may or may not be accurate and relevant. This is because the Policy Responses (in the first diagram) do not identify the action steps that will comprise the responses. Because of this, what is missing is the reality that some (or many) of the action steps will exacerbate the risks as well as some of the other actions to be demonstrated to become the responses. By identifying the action steps, as well as the cause-and-effect relationships between them, it would enable policy decisions to be tested before decisions are implemented. This is a critical step to ensure that ‘what we do’ and ‘how we do it’ will not result in new and additional risks, some of which could be even worse than are currently seen.

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