How can renewables and energy efficiency improve gas security in selected Member States? - Background Report on Towards2030-dialogue Issue Paper #1

In this paper the results of a coordinated modelling assessment are presented, where gas market impacts of European energy efficiency and renewable policies integrated with two possible gas market development sce- narios are evaluated. The two energy efficiency and renewable scenarios were developed by Fraunhofer ISI and TU Vienna, while the gas market modelling was carried out by REKK. A detailed statistical coverage on the gas supply security situation of 12 selected Member States (12 MS), those most vulnerable to Russian gas supplies, was also provided by ECN.

In this assessment two gas demand levels are analysed (Limited and Full cooperation scenarios) according to the stringency of renewable (RES) and energy efficiency (EE) policies bringing different level of gas demand reduction. These demand cases are investigated under a re-negotiation and a breaking-up gas market scenario. The re-negotiation scenario assumes that long term contract based imports are reduced in proportion to over- all gas demand reduction due to the implementation of EE and RES policies. The breaking-up scenario assumes that Russian long term contracts are completely resolved and then Russian gas is purchased solely on a spot market basis.

Our main objective was to quantify the impacts these policies could bring jointly to improve the security of supply situation in Europe concerning its natural gas dependency from Russia. The detailed bottom up gas market model calculated the impacts of the policies on the ‘gas bills’ countries have to pay to satisfy the gas demand of their consumers. This assessment should be seen as a first approximation to assess the gas security of the European countries, further assessment and wider use of additional indicators could be elaborated in the near future.

The main findings of this assessment can be summarised as follows:

• In the reference case we can observe a price convergence of the European gas markets due to im- proved interconnections, mostly in Central Eastern Europe. The volume of Russian gas imports and Russian gas dependency increases towards 2030.

• A strong deployment of renewables as anticipated in the alternative policy scenarios (of limited / full RES cooperation) leads to increases in system costs and support expenditures at EU-28 level but for the assessed 12 Member States this may even lead to savings in support expenditures for renewables in range of € 2.0-2.1 billion per year in the period post 2020, which is mainly due to improved frame- work conditions (i.e. removal of non-economic barriers).

• The increase in renewables and energy efficiency comes along with benefits related to Europe’s trade balance due to a (significantly) decreased demand for fossil fuels and related imports from abroad. Thus, natural gas demand can be reduced by more than 20% in the assessed countries, if a 30% target for renewables and energy efficiency by 2030 is aimed for.

• When the re-negotiation scenario is applied in combination with enhanced energy efficiency and re- newable energy policies, this results in a massive 148-155 TWh gas demand reduction on the EU level by 2020 compared to the reference scenario. Dependence on Russian gas under long term contracts reduces by 355 TWh in the re-negotiation scenarios by 2030. In both the limited and the full coopera- tion cases there is a price decrease in Europe, also reflected in a reduction of gas purchase cost to an aggregated savings at 12 MS level of € 2.8 billion by 2020 and € 4.9 billion by 2030 in the re- negotiation scenarios.

• The same RE+EE scenario combined with a breaking up policy would, on a 2020 horizon lead to an in- crease in gas purchase related expenditures in 12 MS by € 318 million, which is the cost of eliminating all Russian contracts in 2020. By 2030 the breaking up policy would also bring benefits on the 12 MS and on the EU-28 levels compared to our base case scenario.

• It seems feasible to reduce Russian dependency on natural gas supply to a very low level without caus- ing skyrocketing natural gas prices in any of the EU member countries. In the full cooperation scenario, assuming that Russian long-term contracts and the related take-or-pay obligations are cancelled, and Russian gas is purchased on a short term base competing with other sources, it is possible to reduce Russian gas imports down to 79 TWh/year, which is 6,5% of the present level. This could be achieved on a market basis, through better interconnectivity and energy efficiency and renewable energy driven gas demand reduction.

__________________12 MS includes: Bulgaria, Croatia, Czech Republic, Estonia, Finland, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia, Slovenia