The issue of climate change is currently at the top of the agenda across Europe and the newly-appointed European Commission President, Ursula von der Leyen, has promised to issue new legislation for a carbon neutral EU in 2050 within her first 100 days. The role of the energy system in achieving such ambitions is crucial; indeed, such a target would never be reached without decarbonising the energy system. But this is no small task. Today, variable renewables make up just 18% of electricity while renewable gas covers around 5% of gas consumption in the EU. Nevertheless, the decarbonisation of these two vectors will be the key to delivering our common climate targets.
In Brussels, the European Commission has recognised the need to utilise all the existing mechanisms that we have to achieve a carbon neutral EU. The Commission is working on a package of legislation which will address the gas system, having identified the need for gas to go through a transformation from being largely natural gas based today to being renewable and hydrogen gas based by 2050. This is a major transformation as the percentage of renewable gas in Europe is today 5%, and predicted to grow to around 40% in 2050, alongside hydrogen at around 35%, according to their 1.5 TECH scenario for delivering a carbon neutral 2050 released in November 2018.
The European Commission forecasts in the same scenario study that there will be around 260 MTOE (Million Tonnes of Oil Equivalent) in gaseous fuels in 2050 - compared to around 350 MTOE today - which is still a very large volume, especially when you consider the effects of energy efficiency which reduce energy demand year on year. This gas must still be delivered from suppliers to consumers through the gas infrastructure network.
The role of the gas infrastructure in delivering this transition will be vital. Today, there are 2.2 million kilometres of distribution grids in Europe, connecting homes, schools, hospitals and buildings of all descriptions to affordable gas. This infrastructure is capable of carrying the gas of today and the types of gas that are needed to meet the objective of a carbon neutral economy in 2050. Investing in the gas grid is as essential as ever, if not even more important than ever.
This is why the recent draft decree in Spain caught the attention of Eurogas. It proposes to reduce investment in the gas grid by up to some 50% as of 2021, according to projections from Sedigas. This questions the viability of the gas system in Spain in the very near future. Numerous studies this year, from Navigant to Frontier Economics, have shown that utilising the gas grid to deliver climate objectives saves the European consumer hundreds of billions of euros over the next 30 years.
Thus, placing in question the future of one of Spain’s key routes to decarbonise the economy is a dangerous act to take. The implications of the draft decree are precisely the opposite of what is needed now, when we should be investing in our gas distribution grids more than ever to ensure that they can deliver the renewable and hydrogen gases of the new system. Investing in the gas distribution grids will support a quicker renewablisation and decarbonisation of the energy system, as it will provide not only the assets to create such gases, but also the upgrades that are needed to valves and compressors in the grid to deliver this gas to consumers.
The role of consumers is important here. Across Europe consumers are keen to support measures to address climate change, while at the same time they do not want to face too much disruption to their daily lives. Gas can almost invisibly support consumers to play their role in addressing climate change. Changing home heating systems implies major renovations and cost, whereas using the same equipment but with different fuel requires no renovation and no impact on the daily lives of millions of European consumers.
Therefore, the draft decree in Spain endangers the possibility of using one of the paths of least resistance to delivering on climate change abatement. It also does not take into account the relative affordability of gas. The European Commission’s Eurostat service has statistics which show how inexpensive gas is for consumers. This applies to Spain, too, particularly when you look at the cost of taxes and levies in the gas prices paid by consumers. Spain has one of the four lowest rates of taxation and levies in Europe, which means that the system is being run very efficiently by the distribution system operators.
Cutting their income when it is already one of Europe’s lowest makes little sense. For industrial consumers, taxes and levies make up just 2% of the gas bill. For households, it is 20% well below the EU average of 28%. This ultimately reflects in the pricing of gas, as it remains considerably cheaper than electricity in Spain, where industrial users for example pay €3 per 100 kwh for gas and €11 per 100 kwh for electricity. And that is not all. Spain has experienced one of the lowest rates of gas price increases between 2017 and 2018, amounting to around just 1%.
The gas distribution system operators have been doing a great job of delivering affordable energy to consumers across Spain in a highly efficient way. Their performance does not warrant a reduction in income and investment opportunities, quite the opposite. Their performance should give the regulator confidence in their ability to deliver an affordable energy transition for the Spanish consumer at affordable prices. Now is the time for the regulator to support the gas distribution operators and enhance investment in the infrastructure to deliver on our climate ambitions. Therefore, I hope that they will reconsider the draft decree and reduce the levels of cuts that are foreseen to the funding of the gas infrastructure in Spain.
In Spain, as in Europe, gas will be crucial for the delivery of the energy transition.
- _James Watson is the Secretary General of Eurogas_
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