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EU facing €1 trillion energy investment black hole – report

By John Parnell

The EU is facing a €1 trillion funding gap for energy infrastructure if it is to keep the lights on and hits its 2050 climate change targets, according to new report.

The House of Lords EU sub-committee for Agriculture, Fisheries, Environment and Energy calls on governments to look at how they can encourage the necessary investment.

The EU has pledged to reduce its emissions by 80% by 2050. With many nations scaling back their nuclear energy plans and the use of cheap coal on the increase, €1 trillion in infrastructure will be required to secure supply without toppling greenhouse gas targets.

“It is clear to us that investment is urgently required, notably in a low carbon, interconnected and innovative energy system, that makes us less reliant on imports of highly volatile and dirty fossil fuels,” said Lord Carter of Coles.

€1 trillion is required over the next decade to get EU energy infrastructure up to scratch, according to the report

“Such investment would help to deliver secure and low carbon energy, boost European economic growth, and stabilise household and industrial costs.

“The value of energy companies has slumped since 2008, the public purse is severely constrained, but more than enough money is around in the investment community,” he added.

Filling the gap

Phil Grant, partner, energy advisory service at Baringa Partners agrees that there are funds available. He says it’s a case of easing the concerns of nervy investors, wary about sinking money into new projects that carry all the associated risks.

“The issue is not a lack of capital, and nor is it a lack of credible projects – but in bridging the gap between the risk and return expectations of developers and investors in the early project development stages,” he told RTCC.

“Across the EU we are reliant on these new projects being developed in order to overcome security of supply concerns in the longer term,” he said.

“There is a valid question as to whether the member states’ fiscal policies or other institutional intervention can be used to mobilise the early stage development capital that is required, before lower cost private sector capital is deployed as projects become operational.”

The report also recommends regulation to encourage carbon capture and storage and the exploitation of shale gas in the EU.

Other recommendations from the Committee include:

• better use by Member States of fiscal policies to unlock investment

• the Commission and Member States working with large-scale investors, including pension funds, to highlight the investment opportunities within the energy sector

• assessments by the Commission of the impact of national energy policies on neighbouring Member States, based on obligatory annual reporting by Member States

• a regulatory approach to boosting carbon capture and storage

• development of a regulatory structure for the exploitation of shale gas in the EU

• a greenhouse gas reduction target of 40% compared to 1990 levels, in line with an 80% reduction by 2050

• the development of electricity interconnections between Member States

• better public engagement on the benefits of new energy infrastructure

• avoiding excessive reliance on capacity mechanisms, such as that proposed in the UK, to pay companies to guarantee a supply of energy;

• that the UK government also examine the potential for a regulatory framework to increase gas storage

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