Smart electricity grids: A very slow deployment in the EU. Egmont Paper No. 74, February 2015

Summary. The European electricity sector will have to deal with a huge challenge in the decades to come. On the one hand, electrical power is increasingly substituted for other forms of energy. It has been forecast that electricity demand will increase in the future (notably because of new needs in transport and heat sectors), although it is currently stagnant, mainly because of the economic crisis. Unless a major alternative energy source is discovered, electricity will become the central energy pillar in the long term. On the other hand, electricity production remains uncertain and will depend on numerous factors: the growth of renewable energy and decentralized energy, the renewal of old power generation capacities, increased external dependency, CO2 charges, etc. This increases the demand for electricity networks that are more reliable, more efficient, and more flexible. Europe’s current electricity networks are ageing, and, as already indicated by the International Energy Agency, many of them will need to be modernized or replaced in the decades to come. Finally, the growing impact of energy trading also needs to be taken into account. These considerations explain the need to modernize the electric grid through various ICT means. This modernization alone may allow the grid to become more flexible and interactive, to provide real time feedback, more adaptation to a fluctuating demand, and finally to reduce the global electricity costs. The paper begins with a description of the EU definition of the term ‘smart grid’ (§ 1) and of the body in charge of advising the Commission (§ 2). The EU legal framework applicable to smart grids is also detailed (§ 3). It is a rather complex domain, connected to various regulations. The paper then examines three critical factors in the development of smart grids (and smart meters as a precondition). Standardization is quite complex, but absolutely essential (§ 4). Innovation is not easily put into action (§ 5). Finally, as digital insecurity has worsened dramatically in recent years, the security of electricity networks, and especially their multiplied electronic components, will become increasingly important (§ 6). Lastly, the paper provides a concise overview of the progress of smart grids in the EU in recent years (§ 7). In a nutshell, the conclusion is that progress is quite slow, many obstacles remain, and, given the appearance of many new regulatory problems, it would be useful to organize a review of the present EU strategy.

The steel industry in the European Union: Composition and drivers of energy prices and costs. CEPS Special Report No. 80, 17 December 2013

This report assesses the energy costs borne by the steel industry in the EU between 2010 and 2012, and compares the energy costs, including both the energy components and other regulatory costs, to production costs, turnover and margins of steel-makers. The estimates of energy costs are based on primary sources, i.e. is on information provided by steel-makers through a written questionnaire. This information was validated by the research team by checking annual energy bills, when available, and other public sources. In this respect, this exercise represents a unique fact-based investigation into the costs of energy for steel-makers in Europe, whereas most of the information currently available in the public domain is based on secondary or statistical information. In 2012, the median EU steel plant pays about €33/MWh for gas, up from €26/MWh in 2010. As for electricity, in 2012 the EU median plant pays €62/MWh, up from €59/MWh in 2010. The report also includes a comparison with the prices of energy carriers paid by producers based in the US.

System Costs of Variable Renewable Energy in the European Union. Bruges European Economic Policy (BEEP) Briefings 37/2015

To shift to a low-carbon economy, the EU has been encouraging the deployment of variable renewable energy sources (VRE). However, VRE lack of competitiveness and their technical specificities have substantially raised the cost of the transition. Economic evaluations show that VRE life-cycle costs of electricity generation are still today higher than those of conventional thermal power plants. Member States have consequently adopted dedicated policies to support them. In addition, Ueckerdt et al. (2013) show that when integrated to the power system, VRE induce supplementary not-accounted-for costs. This paper first exposes the rationale of EU renewables goals, the EU targets and current deployment. It then explains why the LCOE metric is not appropriate to compute VRE costs by describing integration costs, their magnitude and their implications. Finally, it analyses the consequences for the power system and policy options. The paper shows that the EU has greatly underestimated VRE direct and indirect costs and that policymakers have failed to take into account the burden caused by renewable energy and the return of State support policies. Indeed, induced market distortions have been shattering the whole power system and have undermined competition in the Internal Energy Market. EU policymakers can nonetheless take full account of this negative trend and reverse it by relying on competition rules, setting-up a framework to collect robust EU-wide data, redesigning the architecture of the electricity system and relying on EU regulators.