Bringing Energy Innovation and Benefits of Energy Union to the CEE Region

The Energy Union is taking on many forms. Most popular is the idea that market integration will drive forward more energy security within the European Union. There also remains an elusive attempt to connect EU efforts at market integration with the citizens of Member States to demonstrate prices are dropping because of the common market. The Energy Union is now being used as a tool to collect efforts in innovation and new energy technologies to hoist under the joint Energy Union banner.

The release of the report, “Scaling up Innovation in the Energy Union to Meet New Climate, Competitiveness and Societal Goals,” does a good job of outlining this direction. The report is written by the consultants at Capgemini Consulting – and with a foreword by Pascal Lamy former Director of the World Trade Organization and Sir Philip Lowe, Former Director-General of the European Commission’s DG Energy and DG Competition. The focus in this report is on how to join up and ensure Europe innovates in the energy sector. The suggestions and insight are very good and it is worth a read.

I’m going to reframe the study in the context of Central Eastern Europe. And this is called for because the study holds a strong bias towards Western Europe and high achieving countries in the area of energy innovation. The bias of the study exists in the selection of the participants in the organized workshops (Appendix I), in the quantification of innovation (page 19) and in the case studies (Sweden, Denmark, USA) all meant to exemplify innovation in the EU’s energy sector. But since the Energy Union is meant to encompass all EU Member States, then this approach fails to appreciate the diversity and challenges to transition towards a more sustainable energy system.

In short, the study of innovation in the EU rests on prime examples from countries like Denmark, Germany and France. There is a failure to examine other Member States – particularly those in Eastern Europe, who not-so-coincidentally rank low on innovation scoreboards (below). Innovation is rooted in a countries institutional settings where private firms and public bodies (like education, energy and health care) interact to foster or prevent innovative technologies to be tried, revised and rolled-out. When ‘innovation’ is studied, it represents much deeper state relations and processes (one of the reasons I really like to study it).

(Source: European Commission. “Innovation Union Scoreboard 2015.” European Commission, 2015. http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards/files/ius-2015_en.pdf
(Source: European Commission. “Innovation Union Scoreboard 2015.” European Commission, 2015. http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards/files/ius-2015_en.pdf

In the report, there are four megatrends identified that are transforming the energy sector: A) Sustainability; B) Digital; C) Local Empowerment; and D) Integrated Services. The elements of these can be seen in the diagram below. Each of these areas represents transformation in the energy sector and even the democratization of power production, centralized systems – with centralized control, will no longer exists. Households will be ‘prosumers’ driving a radical systemic change within our energy system because of their technological choices and demands for different types of services and ‘smart’ homes able to interact in with the electrical grid. The internet will no longer be used only by humans. I don’t argue that this won’t occur in the CEE region, but I question both the pace of it and the affordability of the transformation.

Hegemonic trends that will drive change in the energy sector - Decentralization and rise of the Prosumer (Source: Reinaud, Julia, Nicolas Clinckx, Katia Ronzeau, and Paul Faraggi. “Scaling up Innovation in the Energy Union to Meet New Climate, Competitiveness and Societal Goals.” Capgemini Consulting, May 26, 2016.)
Hegemonic trends that will drive change in the energy sector – Decentralization and rise of the Prosumer (Source: Reinaud, Julia, Nicolas Clinckx, Katia Ronzeau, and Paul Faraggi. “Scaling up Innovation in the Energy Union to Meet New Climate, Competitiveness and Societal Goals.” Capgemini Consulting, May 26, 2016. http://i2-4c.eu/wp-content/uploads/2016/06/i24c_EURICS_final.pdf)

There are two regional trends (as opposed to mega-trends) in the CEE region that fall under the first category of ‘sustainability’. The transformation to a clean energy ‘hegemony’. In the CEE region, there is a lack of support to encourage the roll-out of small scale solar, or rather the development of a class of prosumers. Both Poland and Hungary view inhibiting renewables as good policy. Hungary has a tax on solar cells and Poland’s energy minister – says solar systems destabilize the system. Poland will also launch a new scheme where the electricity generated by small scale solar are divided between the system operator (or the state) and the homeowner – rather than the owner receiving all the credit or electricity for the production (I’ll ignore the proposed re-licensing procedure for wind-farms, which includes jail terms). While these policies don’t stop the deployment of solar, they certainly don’t encourage it. But consumers in these countries are buying solar even without government support. In my experience speaking with people in different countries, there is growth in this area. Poland holds sufficient healthy numbers that future projections are hard to compute because of the growth of solar. And in Hungary, business is unexpectedly high for sellers of solar systems.

The ‘C’ category of local empowerment is also important to consider. Both Hungary and Poland, perceive large scale deployment of renewables as disruptive for the political plans to renew their centralized systems. Hungary plans to expand Paks – and to such a scale that exporting electricity will be necessary, as production will exceed domestic demand for at least 10 years, while Paks I operates along side Paks II – with a near capacity of 4,000 MW. Renewables will further erode the cost assumptions of the Russian nuclear reactors. Poland, plans a wholesale renewal of its coal fired power plants. The efficiency of coal can be increased, according to the energy minister, by preventing renewables and their variable output, from entering the system. I’ll refrain from commenting on the state of democracy in Hungary – but decentralization is not an option for any topic – there is a only a trend towards centralization in the Prime Minister’s Office for everything.

According to this hiker Hungary's ruling party, Fidesz, does like to make money from cutting down trees. I took this picture in a very remote location in the Vertes hills. Only accessible by foot or on mountain bike. Unfortunately, a visit to this region, only indicates the low priority that environmental protection has in Hungary.
According to this hiker Hungary’s ruling party, Fidesz, does like to make money from cutting down trees. I took this picture in a very remote location in the Vertes hills. Only accessible by foot or on mountain bike. Unfortunately, a visit to this region, only indicates the low priority that environmental protection – or environmental sustainability – has in Hungary. Money appears to come before environmental protection – this is true in the case of bidding for gas and oil concessions in Hungary – where 140 points are awarded for financial royalties to the state, out of a total of 300. Previously, environmental protection held the most points. 

The final two areas that change is most apparent is in the area of (B) Digitalization and (D) Integrated services. When it comes to dominant utilities, both Poland’s and Hungary’s state owned utilities can play a large role in maintaining their dominance and allowing certain technologies that can enhance synergies between utilities, like gas and electricity. In these companies like Hungary’s and Poland’s electricity distribution companies, management in firms like ENKSZ, E.ON, RWE, have a strong awareness for the potential in smart metering technologies and a smarter grid. While the executives of these companies are fully aware the financial investment into these new technologies must be recouped from rate payers – that is permission from the energy regulators must be given. And from this stand point, we enter the political efforts to keep costs low. So while the technology can change, there has to be a political allowance to invest in new technologies to continue to reduce the cost of energy services. Permission at this stage is marginal.

The authors of the study are not wrong to look to Western Europe for examples of innovation. The problem comes when innovation for the Energy Union is defined along these developed systemic lines in only a handful of countries. Innovation in the energy sector is diverse and reliant on the individual selection and social and political arrangements within each country. This doesn’t mean that Poland rejects the prosumers, it is apparent the technology and those consumers wealthy enough are opting for solar systems. But more study needs to be done on how countries ranked low on these innovation indices can participate in the vision established by the Energy Union. How can the centralized and government controlled systems of Bulgaria, Hungary or Poland become more innovative? That is the question that still needs answering.