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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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ADB Finances Largest Private Gas Power Plant to Improve Access to Energy in Bangladesh

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The Asian Development Bank (ADB) has signed a $200 million financing package with Reliance Bangladesh LNG and Power Limited (RBLPL) to build and operate a 718-megawatt (MW) combined-cycle gas-fired power plant in Bangladesh. The project will ease ongoing energy shortages and drive further private sector investments in the country’s power sector.

The assistance comprises a $100 million loan from ADB and a further $100 million loan from the Leading Asia’s Private Infrastructure Fund (LEAP), which will be administered by ADB. The financing agreement was signed by the Director of Infrastructure Finance, South Asia, Central Asia, and West Asia at ADB’s Private Sector Operations Department Shantanu Chakraborty, and Chief Executive Officer of RBLPL, Ranjan Lohar. The project is cofinanced by the Japan Bank for International Cooperation as well as four commercial banks, with insurance for the commercial banks provided by Nippon Export and Investment Insurance.

“This highly energy efficient project will help address a widening gap between the demand and supply of electricity in Bangladesh, which is critical for continued industrial and economic growth,” said Mr. Chakraborty. “ADB has been instrumental in mobilizing crucial commercial financing, incorporating best practices in environmental and social standards, and establishing precedents for future financings of similar large scale projects in Bangladesh by boosting investor and lender confidence.”

“RBLPL is privileged to have the support of international development banks including ADB for this power plant project in Bangladesh,” said Mr. Lohar. “Through the project, RBLPL aims to contribute towards the country’s robust economic growth.”

Despite a significant increase in installed generation capacity in Bangladesh over the past decade, demand for electricity is not yet fully met through domestic supply. To help close the gap, the Government of Bangladesh continues to emphasize greater private sector investments in power generation. The plant will be located on the banks of the Meghna River, southeast of Dhaka. It will boost national generation capacity by about 4%, reducing the need for electricity imports and the use of environmentally harmful and expensive fuels like coal and oil. ADB has been involved in this project as a leading anchor lender since the early stages of its development.

LEAP was established in 2016 with a $1.5 billion capital commitment from the Japan International Cooperation Agency. It is focused on delivering high quality and sustainable private sector infrastructure projects that reduce carbon emissions, improve energy efficiency, and offer accessible and affordable health care, education, and communication services to ADB’s developing member countries.

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Electricity Trade to Unlock Affordable and Reliable Electricity in West Africa

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The World Bank Board of Directors approved today a total of $300 million in International Development Association (IDA)* credits and grants to support reforms that will help promote electricity trade in West Africa.  

The West Africa Regional Energy Trade Development Policy Financing Program (West Africa Energy DPF) seeks to remove barriers to electricity trade, which will lower electricity costs for consumers, support the competitiveness of firms and improve resilience and reliability of supply. Currently, only 50 percent of the population in West Africa have access to electricity, and those who do, pay among the highest prices in the world – more than double those of consumers in East Africa. In addition, due to operational deficiencies, electricity services are unreliable, with an average of 44 hours of outages per month. 

Over the past decade, member countries of the Economic Commission of West African States (ECOWAS) have been working — through the West Africa Power Pool (WAPP) — towards a fully integrated power market. Within a few years, they will have completed the primary interconnectors that will link them together. The West Africa Energy DPF supports a policy reform program being implemented by Burkina Faso, Côte d’Ivoire, Guinea, Liberia, Mali and Sierra Leone, to facilitate trade in cleaner low cost electricity generated from gas, hydropower and renewable energy across borders. This will replace the more expensive electricity generated from inefficient small-scale oil-fired and diesel generation and improve the reliability of electricity services.  

“West Africa has huge potential for clean and green energy generation, which countries can unlock and pool together to bring lower cost electricity to communities and help create jobs,” says Ousmane Diagana, the World Bank Vice-President for Western and Central Africa. “The West Africa Power Pool has done the fundamental work of interconnecting national grids, and it is now time to realize the full strength of the regional power market. Coordinated policies paired with effective institutions and regulatory frameworks will help improve trust in the electricity trade and usher in a new era of affordable and reliable energy in West Africa.”  

The new operation supports a regional energy reform program set out in three pillars. The first aims to increase confidence in the enforcement of commercial arrangements by supporting payments and enforcement mechanisms relating to energy trade. The second supports the implementation of least cost investment decisions that consider regional options and that promote competition. The third supports transparency, by addressing creditworthiness of national power utilities and keeping the market informed on key investment decisions that impact demand and supply.  

“This is a landmark program for achieving our goal of having a regional energy market and I want to thank the World Bank support,” says Jean-Claude Kassi Brou, President of the ECOWAS Commission. “The West Africa Power Pool will continue to make strides and with this support, it can help member countries work together on the key coordinated policy reforms needed to deliver regional electricity trade – and therefore access more affordable and reliable electricity. By better using energy resources in the region, we expect the resulting efficient and resilient power systems to make our economies much more productive and inclusive. ECOWAS will continue to be a strong partner in realizing this goal.”

The West Africa Regional Energy Trade Development Policy Financing Program is the first World Bank operation to use the IDA Regional Window for a DPF program. It allows the World Bank to support reforms in order to reach a common objective across several countries in a coordinated manner. It represents a watershed on the regional integration agenda in West Africa by supporting the operationalization of the ECOWAS Directive on the Securitization of Cross-Border Power Trade, which was adopted in December 2018 and aimed at creating a regional power market. Across the ECOWAS region, the economic benefits of the regional power market are evaluated at $665 million per year with a reduction of one third in the average cost of electricity generation in the region.  

* The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 76 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.6 billion people who live in IDA countries. Since 1960, IDA has supported development work in 113 countries. Annual commitments have averaged about $21 billion over the last three years, with about 61 percent going to Africa.

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Global Gas Flaring Jumps to Levels Last Seen in 2009

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Estimates from satellite data show global gas flaring increased to levels not seen in more than a decade, to 150 billion cubic meters (bcm), equivalent to the total annual gas consumption of Sub-Saharan Africa.

The 3% rise, from 145 billion cubic meters (bcm) in 2018 to 150 bcm in 2019, was mainly due to increases in three countries: the United States (up by 23%), Venezuela (up by 16%), and Russia (up by 9%). Gas flaring in fragile or conflict-affected countries increased from 2018 to 2019: in Syria by 35% and in Venezuela by 16%, despite oil production flattening in Syria and declining by 40% in Venezuela.

Gas flaring, the burning of natural gas associated with oil extraction, takes place because of technical, regulatory, and/or economic constraints. It results in more than 400 million tons of CO2 equivalent emissions every year and wastes a valuable resource, with harmful impacts to the environment from un-combusted methane and black carbon emissions.

“Our data suggests that gas flaring continues to be a persistent problem, with solutions remaining difficult or uneconomic in certain countries,” said Christopher Sheldon, Practice Manager in the Energy & Extractives Global Practice, World Bank. “The current COVID-19 pandemic and crisis brings additional challenges, with sustainability and climate concerns potentially sidelined. We must reverse this worrying trend and end routine gas flaring once and for all.”

The top four gas flaring countries (Russia, Iraq, the United States, and Iran) continue to account for almost half (45%) of all global gas flaring, for three years running (2017-2019). When looking at all oil-producing countries, excluding the top four, gas flaring declined by 9 bcm (or 10%) from 2012 to 2019. In the first quarter of 2020, global gas flaring fell by 10%, with declines across most of the top 30 gas flaring countries.

The World Bank and GGFR are committed to working with governments and industry to end this ‘sticky’ problem. We are working in many of the highest gas flaring countries in the world, helping them develop policies, regulations and practices to end routine flaring. At the same time, we are garnering more commitments from governments and companies to end routine flaring through the Zero Routine Flaring by 2030 initiative. Now over 80 governments and companies, accounting for over half of the world’s routine flaring, have pledged to end this 160-year-old practice,” said Zubin Bamji, Program Manager of the World Bank-managed GGFR Trust Fund.

The data was released by the World Bank-managed Global Gas Flaring Reduction Partnership (GGFR), which is composed of governments, oil companies, and international institutions 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 a satellite launched in 2012. The advanced sensors of this satellite detect the heat emitted by gas flares as infrared emissions at global upstream oil and gas facilities. A new and improved web-based application will map global gas flaring data in a reliable, standardized way, and will be publicly available in 2022, with the support of the Oil and Gas Climate Initiative (OGCI).

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