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An EU Strategy for Energy System Integration: Explainer

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What is energy system integration?

Energy system integration refers to the planning and operating of the energy system “as a whole”, across multiple energy carriers, infrastructures, and consumption sectors. It creates stronger links between them with the objective of delivering low-carbon, reliable and resource-efficient energy services, at the least possible cost for society. Energy system integration is the pathway towards an effective, affordable and deep decarbonisation of the European economy.

The current energy system is still built on parallel and vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency.

The Energy System Integration Strategy sets out a vision on how to accelerate the transition towards a more integrated energy system, in support of clean energy and a climate neutral economy while strengthening energy security, protecting health and the environment, and promoting growth and global industrial leadership.

The Strategy sets out 38 actions to implement the necessary reforms. These include the revision of existing energy legislation, financial support or research and deployment of new technologies and digital tools, guidance to Member States on fiscal measures and phasing out of fossil fuel subsidies, market governance reform and holistic infrastructure planning, and improved information to consumers.

What are the main elements of the strategy?

The strategy is built on three complementary and mutually reinforcing elements:

  • First, a more circular energy system, where no energy is wasted and where energy efficiency is the first consideration. An example is to facilitate the reuse of waste heat from industrial sites and data centres.
  • Secondly, the use of cleaner electricity produced from renewable sources. As renewables become cheaper, electricity will become cleaner. We need to extend the use of that clean electricity into more areas such as buildings, industry, and transport, which traditionally relied on fossil fuels.
  • Thirdly, the promotion of renewable and low-carbon fuels, including hydrogen, for sectors that are hard to decarbonise, such as heavy transport and industry. This will be done by: unlocking the potential of sustainable biomass and biofuels, renewable hydrogen, and synthetic fuels; enabling carbon capture, storage and use; clarifying the definition of different renewable and low-carbon fuels and supporting their development; and promoting innovative projects.

Finally, the strategy will be pro-consumer, providing clear and easily accessible information on the cleanest solutions and climate-friendly choices in the market, enabling and encouraging smarter and more sustainable energy use. It will rely on an increased use of digitalisation to connect consumers, producers and energy system operators with each other. This will also contribute to the fight against energy poverty.

The strategy lays down concrete policy proposals that the Commission will present over the coming months and years to deliver on these objectives.

Does this strategy help to reach the goals of the European Green Deal?

Yes. Energy production and consumption account for 75% of our greenhouse gas emissions. The energy system is therefore crucial to delivering on the European Green Deal’s objective of reaching climate neutrality by 2050. The energy system also underpins our economy and our daily lives. It provides jobs and livelihoods and strengthens European competitiveness and innovation.

Energy sector integration enables to combine decarbonised and renewable energy supply with efficient demand side technologies such as electric motors, heat pumps and fuel cells. Deep greenhouse gas emission reductions can only be reached through a combination of energy efficiency and very high shares of renewable energy. And both energy efficiency and renewables penetration can be facilitated by a more integrated energy system.

A new inter-connected system will be more efficient and “circular”, capturing and re-using waste energy. It will be cleaner, with increased use of heat and electricity produced from renewable sources applied in efficient demand side applications in industry, transport and heating. And for those sectors where electrification is difficult, the strategy proposes steps to promote cleaner fuels, including sustainable biofuels and biogas, and renewable hydrogen.

All this will contribute to combatting climate change and reach the goals of the European Green Deal while keeping the costs of the energy transition under control, thus contributing to a fair and just transition.

Will the strategy help Europe’s economic recovery from the Covid-19 crisis?

Yes. The strategy will be another building block of the economic recovery in the aftermath of the COVID-19 crisis. The transition to a more integrated energy system is of crucial importance for Europe, now more than ever. The Commission’s Next Generation EU recovery plan presented on 27 May 2020 highlights the need to better integrate the energy system, as part of its efforts to unlock investment in key clean technologies and value chains. By relying on greater use of clean and innovative processes and tools, the path towards system integration will also trigger new investments, jobs and growth, and strengthen EU industrial leadership at a global level, contributing to the economic recovery.

Does the strategy continue to support fossil fuels such as gas and coal?

On the contrary, the strategy is a roadmap to accelerate the phasing out of fossil fuels through 3 levels:

  • Energy efficiency and circularity, and the use of local renewable resources;
  • Electrification wherever possible, to replace the uses of gas, coal and oil by the direct use of electricity produced from renewables;
  • Renewables and new fuels based on renewables to replace fossil fuels in processes that cannot be converted to electricity;

As regards to gas, the strategy proposes a pathway to replace natural gas with sustainable renewable gas and new synthetic gases based on renewable sources such as hydrogen and synthetic methane.

Does the strategy contribute to the goal of a just transition?

The objective of the strategy is to reach our climate objectives at the lowest possible cost for consumers and public budgets. The strategy also proposes to reinforce the role of consumers in driving the transition to a decarbonised, decentralised energy system. Providing clear and easily accessible information will enable citizens to make climate-friendly choices, change energy consumption patterns and be informed about the best technology options available to them.

The strategy also takes advantage of the rapidly decreasing costs of renewable energy across the EU, which results in lower prices for the consumers, increased energy security, and a more inclusive energy system. In addition, this strategy aims at strengthening the competitiveness of the European economy by promoting growth and technological innovation across the whole EU.

Does the strategy respect the ‘energy-efficiency-first’ principle?

Yes. The energy-efficiency-first principle is at the core of energy system integration. Energy efficiency reduces the overall investment needs and costs associated with energy production, infrastructure and use. It also reduces the related land and materials use, and the associated pollution and biodiversity losses.

Energy system integration can help the EU achieve greater energy efficiency through a more circular use of available resources and by switching to more efficient energy technologies. For example, electric vehicles are much more energy efficient than combustion engines. Applying this energy-efficiency-first principle consistently across the whole energy system will be done by giving priority to demand-side solutions whenever they are more cost effective than investments in energy supply infrastructure in meeting policy objectives.

Other measures will ensure that customers’ decisions to save, switch or share energy properly reflect the life cycle energy use and footprint of the different energy carriers, including extraction, production and reuse or recycling of raw materials, conversion, transformation, transportation and storage of energy, and the growing share of renewables in electricity supply.

How does the strategy support EU leadership in clean energy technology?

The strategy aims to ensure that the EU fully exploits its head-start and expertise in renewable and smart energy technologies. Specific sectors and value chains that are expected to have a central importance and where the EU is well positioned for global leadership include:

  • district heating
  • smart grids and appliances
  • digital tools to support the integration of electric vehicles
  • hydrogen supply and demand side equipment.

How does the strategy affect the EU’s security of energy supply?

The EU is currently importing 58% of its energy needs, mostly in the form of oil and gas. With the clean energy transition, the EU will decrease its dependence on fossil fuels and fossil fuel imports. The Energy system integration strategy will facilitate this process. The EU will consume less energy overall, increasingly rely on domestic renewable resources and gradually diversify its energy imports towards cleaner energy carriers, such as renewable hydrogen. These energy savings, diversification and domestic production will help to build a more resilient European economy.

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Seven Countries Account for Two-Thirds of Global Gas Flaring

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In an unprecedented year for the oil and gas industry, oil production declined by 8% in 2020, while global gas flaring reduced by 5%, according to satellite data compiled by the World Bank’s Global Gas Flaring Reduction Partnership (GGFR). Oil production dropped from 82 million barrels per day (b/d) in 2019 to 76 million b/d in 2020, as global gas flaring reduced from 150 billion cubic meters (bcm) in 2019 to 142 bcm in 2020. Nonetheless, the world still flared enough gas to power sub-Saharan Africa. The United States accounted for 70% of the global decline, with gas flaring falling by 32% from 2019 to 2020, due to an 8% drop in oil production, combined with new infrastructure to use gas that would otherwise be flared.

Gas flaring satellite data from 2020 reveals that Russia, Iraq, Iran, the United States, Algeria, Venezuela and Nigeria remain the top seven gas flaring countries for nine years running, since the first satellite was launched in 2012. These seven countries produce 40% of the world’s oil each year, but account for roughly two-thirds (65%) of global gas flaring. This trend is indicative of ongoing, though differing, challenges facing these countries. For example, the United States has thousands of individual flare sites, difficult to connect to a market, while a few high flaring oil fields in East Siberia in the Russian Federation are extremely remote, lacking the infrastructure to capture and transport the associated gas.

Gas flaring, the burning of natural gas associated with oil extraction, takes place due to a range of issues, from market and economic constraints, to a lack of appropriate regulation and political will. The practice results in a range of pollutants released into the atmosphere, including carbon dioxide, methane and black carbon (soot). The methane emissions from gas flaring contribute significantly to global warming in the short to medium term, because methane is over 80 times more powerful than carbon dioxide on a 20-year basis.

“In the wake of the COVID-19 pandemic, oil-dependent developing countries are feeling the pinch, with constrained revenues and budgets. But with gas flaring still releasing over 400 million tons of carbon dioxide equivalent emissions each year, now is the time for action. We must forge ahead with plans to dramatically reduce the direct emissions of the oil and gas sector, including from gas flaring,” said Demetrios Papathanasiou, Global Director for the Energy and Extractives Global Practice at the World Bank.

The World Bank’s GGFR is a trust fund and partnership of governments, oil companies, and multilateral organizations working to end routine gas flaring at oil production sites around the world. GGFR, in partnership with the U.S. National Oceanic and Atmospheric Administration (NOAA) and the Colorado School of Mines, has developed global gas flaring estimates based upon observations from two satellites, launched in 2012 and 2017. The advanced sensors of these satellites detect the heat emitted by gas flares as infrared emissions at global upstream oil and gas facilities.

“Awareness of gas flaring as a critical climate and resource management issue is greater than ever before. Almost 80 governments and oil companies have committed to Zero Routine Flaring within the next decade and some are also joining our global partnership, which is a very positive development. Gas flaring reduction projects require significant investment and take several years to produce results. In the lead-up to the next UN Climate Change conference in Glasgow, we continue to call upon oil-producing country governments and companies to place gas flaring reduction at the center of their climate action plans. To save the world from millions of tons of emissions a year, this 160-year-old industry practice must now come to an end.” said Zubin Bamji, Program Manager of the World Bank’s GGFR Partnership Trust Fund.

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IEA supports Indonesia’s plans for deploying renewable energy

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The IEA is carrying out a large work programme on power system enhancement with the Government of Indonesia to help it modernise the country’s electricity sector, including support for overcoming challenges inherent in integrating variable renewables like wind and solar PV.

As part of the work programme, the IEA hosted a series of webinars in early 2021 where Indonesia’s Ministry of Energy and Mineral Resources and national power utility PLN could learn from other countries’ experiences of integrating and setting targets for variable renewable energy.

An introductory session on the principles of integrating renewable energy was held ahead of the country specific sessions. In this session, the IEA presented its framework for renewable integration phases to the Ministry and PLN, highlighting the different challenges often faced during renewable integration as well as what flexibility options can be deployed to tackle these challenges.

In the first country session, IEA presented the main findings of the Thailand flexibility study that the Agency carried out in cooperation with EGAT, the Thai electricity utility. The study shows that Thailand has the technical capability to integrate larger shares of variable renewables, but that the lack of commercial flexibility is a major barrier for operating the power system in a more flexible way and thus is the main obstacle for integrating large amounts of renewables.

In the second country session, the Danish Energy Agency presented its work programme with the Government of Viet Nam. The sessions focused on important aspects for integration of renewables, such as the assessing the needs and implications of reserves and forecasting. The session also included a discussion on the main learning points from the boom in rooftop solar that Viet Nam has experienced in 2020. 

The third and last country session was on India. The IEA presented both national as well as state-level modelling in order to show some of the contextual differences between national models and models that focus on specific geographical regions. In India, the spot market accounts for only 10% of electricity generation, which shows that India, like Thailand, has some issues with commercial flexibility. The discussion also covered India’s level of dependency on physical power purchase agreements and its impacts on the flexibility of the power system.

All sessions were held behind closed doors to allow for an open discussion between the participating organisations on the issues of renewable integration and possible ways of addressing barriers. The IEA will continue the work with the Indonesian Ministry and PLN on this topic in order to facilitate a path towards a clean, affordable, secure and modern power sector in Indonesia.

This work in Indonesia is undertaken within the Clean Energy Transitions in Emerging Economies programme.

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Bangladesh Solar Home Systems Provide Clean Energy for 20 million People

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Bangladesh has the largest off-grid solar power program in the worldwhich offers experiences and lessons for other countries to expand access to clean and affordable electricity. By harnessing solar power, the program enabled 20 million Bangladeshis to access electricity.

The book, “Living in the Light- The Bangladesh Solar Home System Story”, launched today, documents how off-grid solar electrification was mainstreamed to a large segment of the population living in rural areas. Starting in 2003 as a 50,000 household pilot, the program at its peak, provided electricity to approximately 16 percent of the rural population.

“Bangladesh is known for its innovative development approaches. In remote and hard to reach areas, the government successfully introduced affordable off-grid renewable energy solutions through a public-private partnership. Clean electricity meant better health and living conditions for families and more study time for children,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan. “Our partnership with the government for this program spans nearly two decades, and now our support has expanded to include other renewable energy options.”

Successive financing through the Rural Electrification and Renewable Energy Development (RERED) Project, the World Bank supported the Infrastructure Development Company Ltd (IDCOL) to implement the program. IDCOL combined its expertise in infrastructure financing with Bangladesh’s pioneering work in micro-financing and private sector solar electrification initiatives to build a scalable off-grid electrification business model.  

“Our government is committed to driving up renewable energy and has a host of incentives such as tax breaks on offer to drive net-metered solar rooftop installation. As a business model Net Metering System is going to be popular day by day,” said Nasrul Hamid, Honorable State Minister, Ministry of Power, Energy and Mineral Resources, who attended the launching ceremony as the chief guest. He added, “Solar home systems (SHS) program has been critically important in achieving the ‘electricity for all’ vision. Under the leadership of  Hon’ble Prime Minister Sheikh Hasina, electrification of Grid area has already been completed and the whole country will be electrified within the ‘Mujib-year’.”

Between 2003 to 2018, the project reduced greenhouse gas (GHG) emissions by approximately 9.6 million tonnes of CO2 equivalent. The program helped reduce indoor air pollution by avoiding the consumption of 4.4 billion liters of kerosene.

“The RERED I and II projects promoted a sustainable market-driven approach where clean energy solutions were provided by local entrepreneurs with financing from IDCOL. 58 non-government organizations supplied and installed the solar home systems made affordable with micro-loans,” said Amit Jain, Senior Energy Specialist, World Bank and a co-author of the report. “The SHS Program demonstrated that millions of dollars mobilized at the international level can flow efficiently to the remotest corners of the country to offer loans in amounts as low as one hundred dollars, which enables a rural household to purchase a solar home system.”

Building on the success of the program, the World Bank extended support to scale up other clean renewable energy options including solar irrigation, solar mini-grids, roof-top solar, and solar farms. The World Bank financing in two consecutive RERED projects stands at $726 million.

The book analyzes the SHS Program’s organizational effectiveness, how partners were mobilized, how quality was enforced, how risks were mitigated, and how financial resources were raised and deployed as Bangladesh scaled up renewable energy use. It shares experiences and lessons that would be useful for other countries as they scale up solar off-grid electrification programs. 

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