Simon Göss provides a written summary of our two panel discussions held in Brussels on Thursday December 8th 2022. Panel 1 was titled “The Availability and Affordability of Gas and Energy in CEE and EU”, Panel 2 “The War in Ukraine: Security of Critical Energy Infrastructure”. The issues covered include EU policy interventions for countering the Russian weaponisation of energy, cooperation with Ukraine, how far is Europe prepared, spill-over effects, will price caps do more harm than good, industry needs, energy infrastructure in Ukraine, how to protect energy infrastructures, and the security risk of nuclear power. Politicians at the EU and national level, experts and business leaders all contributed to this intense debate. To open proceeding, Kadri Simson, EU Commissioner of Energy, gave us her pre-recorded message which looked at the current crisis and the EU’s response through support and policies. And Volodymyr Kudrytskyi, CEO, Ukrenergo (Ukrainian electricity transmission system operator) joined us via live-link from Kyiv. This vitally important discussion, the questions raised and the solutions offered and enacted are an example of how solidarity within the EU and especially with Ukraine can be a counterforce to the Russian aggression. [Promoted by CEEP as part of their Central European Day of Energy]
The Central European Day of Energy held on 8th of December 2022 marked the 7th edition of this format. This year, all topics and discussions related to the crisis of the Russian war in Ukraine. As winter falls, Russian attacks are increasingly targeting the energy infrastructure of Ukraine causing widespread outages and further humanitarian crises: a clear weaponisation of energy. Against this backdrop the speakers and panellists addressed issues of energy security, solidarity, aid and resilience of energy systems, markets and infrastructures.
EU Commissioner for Energy
In her opening remarks, Kadri Simson, EU Commissioner of Energy, clearly stated the extraordinary context of the current disturbances of the energy market, as Russia is weaponising its energy supply. At the same time the EU Commission has replied with several proposals and packages to combat the crisis, including emergency measures, solidarity on energy supply between Member States, and joint purchase of energy carrier and price hike mitigation. The EU is currently aligning with other reliable energy suppliers while raising renewable deployment to move away from Russian supplies as fast as possible. Especially for the central and eastern European countries the crisis is hitting hard, and more than €2bn has already been given out as grants, while gas pipeline capacities have been increased between countries. More projects of common interests move the EU away from Russian energy supplies. Despite one of the most challenging years in recent history, the EU and its Member States have already made progress and will come out of this crisis stronger with a cleaner and more secure energy system.
Chairman of the Board of Central Europe Energy Partners (CEEP)
In his welcome speech to the audience and the panellists, the Chairman of the Board of Central Europe Energy Partners (CEEP), Leszek Jesień, made clear that one of the tools of Russia’s war is energy and three fundamental aspects must be considered: security of supply, prices and infrastructures. Therefore, this panel and its discussions are extremely important to share insights and ideas to move forward.
Member of the European Parliament and former EP President
Jerzy Buzek, MEP, and its former president, called upon the central and eastern European countries to hold together during this time. Showing solidarity among each other, but especially also with Ukraine to provide support and energy equipment during this war, is required. Importantly, joint procurement regulations will soon be adopted by the EU, said Buzek.
Deputy Minister for Industry and Trade, Czech Republic
Similarly, Edvard Kožušník, Deputy Minister for Industry and Trade of the Czech Republic, representing EU Presidency, mentioned that the central and eastern EU Member States already started their cooperation on energy many years back, and wisely so. During the current Czech presidency at the EU-level, already six meetings of the energy ministers took place to decide on topics such as coordinated demand reductions, emergency intervention on prices, infrastructure coordination and natural gas price caps as immediate reactions to the current situation.
- Paweł Stańczak – CEO, OGTSU (Ukrainian gas system operator)
- András Hujber – Deputy Head of Unit, DG ENER TF.2 “Relations with the Member States and the Neighbourhood”
- Tomas Pirkl – Head of Brussels Representative Office, CEZ
- Georg Zachmann – Senior Fellow, Bruegel
- Artur Świętanowski – Risk Management Office, PSE
CEO, OGTSU (Ukrainian gas system operator)
As a special guest, Paweł Stańczak started by giving an update about the energy and gas situation in Ukraine. Infrastructures are being attacked by Russians, but most of the compressor stations of the gas grid are still or again under Ukrainian control. Additional gas supply is needed to support Ukraine and with the largest gas connection capacity with Slovakia, gas could also flow into Ukraine. According to him, solidarity and donations are important to keep the system running in the short-term, but especially the continuation of business with the EU and its members such as selling non-used or stored gas in EU storage facilities to Ukraine is of vital importance. Also, other possibilities exist for deepening the cooperation on gas between Ukraine and the EU as Figure 1 shows.
How far was and is Europe prepared?
According to András Hujber “we are as ready as one can be in this situation”. With gas storages close to 91% or 13 percentage points above the reference period, the gas market is holding up. This is especially remarkable, as much less Russian flows came into Europe from spring and summer this year. However, the full gas storages come at very high costs and associated demand destruction in industry.
Senior Fellow, Bruegel
For Georg Zachmann, the EU has managed so far “because we let the market work”. Without the price signal or with distorted price signals such as price caps the huge volumes that formerly came from Russia would have been almost impossible to be replaced by LNG. Nobody would have expected the gas market to have coped so well, and many feared curtailments, which have not been necessary as of now. Therefore, Zachmann is very sceptical of price caps because those would ultimately mean a rationing of consumption when high prices do not lead to demand reduction in some sectors anymore: when there is a physical lack of gas, someone must reduce consumption.
Risk Management Office, PSE
Poland is not hit as hard as other central and eastern European countries, Artur Świętanowski explained. As electricity prices are least dependent on gas compared to all other European countries, prices did not rise substantially. However, “cheaper coal generation even made Poland a net exporter for electricity after many years” again. This led to coal shortages in Poland and thus also affected the country. In his view, if there are outside market manipulations or supply shortages, security of supply must be maintained somehow. And the closer such a price crisis is fixed at the source, the less spill-over can happen from the gas into the electricity and other energy markets and systems.
Head of Brussels Representative Office, CEZ
CEZ has a very wide portfolio and is active in many markets and even expanded its scope in the current market situation, Tomas Pirkl explained. CEZ booked one-third of the capacity of the LNG-terminal Eemshaven in the Netherlands, as well as the necessary pipeline capacities through Germany to get the gas delivered into landlocked Czech Republic. In that sense, the company was able to quickly react to the crisis situation because of the existence of working markets and accessible infrastructure across the EU. Still, the Czech Republic also regulated end customer prices for citizens and SMEs. In his view short-term measures and long-term market design questions must be separated very clearly. Extraordinary times require special and short-term interventions, but a whole rework of the market design is not necessary. Especially, as a “change of the internal market design will not change the outside circumstances”.
Price caps and discussions about limiting export of electricity across borders are very dangerous, as these measures could break the market and thus would only help Russia in trying to reduce and stop solidarity within the EU according to Georg Zachmann. Also, for Tomas Pirkl free markets and infrastructures are vital to supply most of the central and eastern European countries with LNG that is arriving in ever greater volumes in the countries with access to the sea.
An important differentiation must be made between price caps on imports and markets, and price caps to end customers. Interventions for end customer support schemes or price caps for end customers might be necessary, the panel agreed. Such interventions must at the same time make sure that incentives for energy savings still exist for end customers. For large industrial companies the price mechanism at the markets achieved their demand reduction of about 15%, Andras Hujber clarified. Additionally, all proposals for market price caps currently on the table are silent about what would happen if the price cap were hit. This could lead to actual curtailment of energy in the end.
To get rid of Russian supplies and replace them, large amounts of investments will be needed across the energy industry. Building up mechanisms that allow for these investments will be crucial in the coming years:
Artur Świętanowski of PSE “competitive investment mechanisms in the form of capacity mechanisms for electricity generation must be implemented”.
Tomas Pirkl of CEZ: “It will be investments into renewables and new supply chains that reduce the reliance on Russian energy supplies”
Positive aspects at the EU level have been the acceleration of permitting for renewables in his view. However, additional easing of permitting procedures, such as for lithium mines in Europe, would be very important to build up supply-chains and increase the EU’s internal production capacities”
- Volodymyr Kudrytskyi – CEO, Ukrenergo (Ukrainian electricity transmission system operator) – via live-link from Kyiv
- Lukas Trakimavičius – Subject Matter Expert, NATO Energy Security Centre of Excellence
- Ádám Balogh– Lead, Energy Community Ukraine Support Task Force
- Bogdan Simion – Data Analytics Advisor, Gas Infrastructure Europe
- Andrei Goicea – Policy Director, NuclearEurope
Moderated by Aura Sabadus, Journalist, ICIS
While the first panel mainly discussed energy markets, the second panel dealt with the physical energy infrastructures and related concerns about security and resilience.
CEO, Ukrenergo (Ukrainian electricity transmission system operator) – via live-link from Kyiv
Volodymyr Kudrytskyi from Ukrenergo started with an overview of the situation in Ukraine. The electricity system infrastructures have been under attack from Russia since the start of the war. From then onwards the Ukrainian electricity grid disconnected from the Russian grid and the synchronisation with the European continental network started. The energy infrastructure has been subject to increasing attacks since autumn 2022, with eight large-scale attacks. Still, the system is working, but the loss of power generation capacity and the destruction of important equipment such as transformers and control rooms is taking its toll. Rolling power cuts are needed to stabilise the system and more equipment to rebuild the grid is necessary.
Lead, Energy Community Ukraine Support Task Force
Critically important is the current support of the Energy Community Support Task Force lead by Ádám Balogh, which acts as focal point to gather donations, energy infrastructure equipment and parts to be delivered to Ukraine. Since early March 2022 this international organisation acts as coordinator for channelling energy-related equipment into Ukraine. They work closely with DG ECHO’s Emergency Response Coordination Centre to mobilise resources. More than 40 shipments of donated equipment from companies from EU Member States and other states have been delivered to Ukraine and a further 50 shipments are in preparation. Particularly, central and eastern European countries are of relevance here as they operate similar equipment to that needed in Ukraine.
The Ukrainian Energy Support Fund set up by the EU Commission helps to coordinate donations from different member states and companies. This support is much appreciated as Paweł Stańczak remarked in the first panel and is more targeted now than during the earlier months of the war. However, more equipment is required to keep the Ukrainian energy system running.
Subject Matter Expert, NATO Energy Security Centre of Excellence
From a security perspective, physical energy infrastructures pose several challenges, as Lukas Trakimavičius made clear: energy infrastructure is exposed, spread over large and difficult to track areas (underground or submarine), relatively easy to destroy, and sabotage can have widespread effects. It is almost impossible to protect all the physical energy infrastructures in the EU. For the current situation in Ukraine however, more and better air defence as well as more spare equipment and personnel can alleviate pressures. Attacks on energy infrastructures in the EU or NATO states would have great escalation potential in this conflict, he concluded.
Data Analytics Advisor, Gas Infrastructure Europe
Physical infrastructure is not everything, Bogdan Simion explained. Cyber security issues that could affect critical energy infrastructures have to be taken seriously and preparation is needed. The gas storage reporting platform AGSI for example has noticed consistently increased data traffic and since February 2022 more than 1,000 cyber attacks, most of them with IP-addresses from Russia and Belarus, have been blocked along with IP addresses from these countries. Up to now, all IT-platforms are running without problems, largely in part due to advanced IT-security management already in place before the current war. In his view, the updated NIS (network and information systems) Directive of the EU certainly goes in the right direction and puts cyber security issues as a top priority. During its implementation in the Member States, it will be crucial that the Member States cooperate more openly about those security issues and learn from each other’s experiences. Still, transparency needs to be upheld for the energy markets to function well.
In the future, it might well be that in a decentralised energy system with more renewables, physical infrastructures will be more resilient. On the other hand, digitalisation binding together the different parts of the energy system will be more prone to attacks. Preparation and increased cyber security measures are therefore necessary.
Policy Director, NuclearEurope
While much has been published on the dependency on Russian fossil fuel imports, less is known about the EU’s dependence on nuclear fuel from Russia, said Andrei Goicea. He explained why: about 15% of the EU’s total nuclear generation last year was based on Russian reactor designs. However, fuel supply is not impacted as of now because stocks for fuel in nuclear power plants is generally available in the facilities for two years into the future. In addition, it is also possible to replace Russian nuclear fuel by fuel from other providers, such as Westinghouse. Still, the European suppliers are looking at how to substitute enriched Uranium and fuel imports from Russia. Goicea also commented on the issue of small modular reactors (SMR). These designs will feature similar physical security to larger plants, but due to their lower capacity they can withstand longer times without external cooling, for example. In addition, the exclusion or evacuation zones around SMRs are smaller than for the current larger nuclear power plants and these new nuclear reactors could thus be located closer to industrial users of electricity or heat.
Suggestions, open questions and main take-aways
While large part of the panel discussions dealt with the market situation, Paweł Stańczak from the Ukrainian gas system operator asked the audience and the EU Commission to consider short-term measures that would overrule the current market or unbundling requirements. Such a short-term stop of unbundling requirements could help companies in Ukraine and other parts of Europe to stay operational during the time of crisis.
Paweł Stańczak, CEO, Ukrainian Gas TSO: “We need to consider short-term measures that would over-rule the current market or unbundling rules.”
In addition, the issue of insufficient supply of critical equipment surfaced in many parts of the discussion. Is it perhaps necessary for the EU to mandate the build-up of spare part storages for critical equipment? Especially in light of the fact that physical energy infrastructure is very difficult to protect when facing deliberate attacks. And what would such requirements look like and how can they be integrated into new EU regulations? The answers to these questions have not been given by the panel but left as food for through to all participants.
The war of Russia against Ukraine left a strong mark on the topics and discussions during the Central European Day of Energy 2022. The main take-aways: Solidarity in many forms within the EU and especially with Ukraine is a strong counterforce to the Russian aggression. Markets functioned and played an important role in delivering the necessary demand reduction. Tweaking the energy market design requires deep analysis and should not be done hastily, however short-term interventions are necessary. Security threats to physical and digital energy infrastructures exist across the EU, but good preparation and contingency plans could help in times of crisis.
Summary compiled by Simon Göss
Produced by Energy Post