Interview – Klaus-Dieter Borchardt, Director at DG Energy

"The Commission is doing its job, but other parties have to follow"

Even though Professor Klaus-Dieter Borchardt has been Director of the Internal Energy Market at DG Energy for only ten months now, he has already had to face some demanding challenges. A breach of the Third Energy Package was announced, caused by bilateral agreements on South Stream. Secondly, the Commission has been quite active in promoting the Slovak-Ukrainian interconnector. And last but not least, the Commission recently presented the EU’s new 2030 Climate and Energy Package. Plenty to talk about for European Energy Review’s Jozef Badida and Professor Borchardt.

Klaus-Dieter Borchardt
The European Commission considers the intergovernmental agreements (IGAs) between Russia and South Stream transit countries a breach of EU law. Your objections deal with ownership unbundling, non-discriminatory third party access and the tariff structure. Could you elaborate on these concerns?

All IGAs confer rights to the operator of South Stream which could, if at all, only be acceptable under the third EU Energy Package through an exemption decision (prepared by the National Regulators concerned and approved by the Commission). The IGAs therefore should have made the conferral of those rights conditional on such an exemption decision, which is not the case in any of the IGAs.

Initially the Commission asked for the re-negotiation or denouncement of these intergovernmental agreements. Now a working group has been set up which, according to the Russian EU Ambassador, should bring the obligations of concerned countries into accord with EU law. Does it mean that these agreements will stay untouched and the Commission and respective EU Member States have to adapt themselves?

The Working Group will only focus on the operational rules for South Stream. If this Group comes to a result which is compatible with the third EU Energy Package, this result will be incorporated in the IGAs which then will be automatically aligned with the third EU energy Package.

The European Commission has anticipated that 200 billion euro need to be invested in energy transmission networks until 2020 in order to meet energy policy objectives and climate goals. Don´t you think that the third Energy Package might be seen as a hurdle, not encouraging huge infrastructure investments?

Definitely not. On the contrary. The third EU Energy Package provides the predictable and stable framework, which long term infrastructure investments require.

Memorandum of understanding over a reverse flow of gas from Slovakia to Ukraine was negotiated last November with active participation of Commissioner Oettinger and his Service. Isn´t it untypical to see the Commission to be so closely engaged in one particular energy project? Why is additional SK-UA interconnector so important for your institution?

There is more than one good reason for the reverse flow SK-UA. For the EU gas companies the underground storage capacities are of interest,

For the EU gas companies the underground storage capacities are of interest, provided that besides the reverse flow SK-UA, stable conditions for storage and offtake from storage are in place in Ukraine
provided that besides the reverse flow SK-UA, stable conditions for storage and offtake from storage are in place in Ukraine. Reverse flow also contributes to the diversification of Ukrainian gas supply and to the stabilisation of the Ukrainian gas sector. Ukraine is a member of the European Energy Community and can therefore count on the assistance of the Commission. And it is not so particular that the Commission is involved in concrete energy projects. Other examples where the Commission tries to facilitate energy projects are the Baltic regional LNG, the integration of the Baltic electricity system into the EU system and its desynchronisation from the Russian system.

The Slovak TSO (Eustream) can realise a virtual delivery of gas even today and the capacity of its pipelines is sufficient. It is the Ukrainian counterpart (Ukrtransgaz) which is not able to receive potential deliveries. Therefore, would not it be wise to let Ukraine solve the issue in its transmission system rather than build another pipeline?

Eustream cannot realise virtual reverse flow today because of the lack of the necessary data flow and for the physical reverse flow there is no need to build a new pipeline; there is a possibility to use existing equipment which also limits the costs for this project.

The Commission recently published its 2030 climate and energy package suggesting a 40 percent target on emission reduction and a 27 percent goal on renewables, but lacking a binding target on efficiency. Is it ambitious enough in order to manage the transition to a low-carbon economy?

Yes, definitely. The 40 percent emission reduction target is very ambitious and sends the clear signal that the EU unilaterally continues its way towards a low emission and decarbonised energy system. The 27 percent renewable target at EU level is a minimum target which is sufficient to contribute effectively to the achievement of the 40 percent emission reduction target. Furthermore, one should not leave out the high ambition on energy efficiency and demand side management. Although no binding targets have been set as yet, the Commission is still working on a review of the Energy Efficiency Directive. Once this review has been carried out, the Commission will consider whether it is necessary to propose amendments to the Directive.

The accompanying paper on energy prices says that competition and liberalisation are responsible for a fall in wholesale electricity prices. Unfortunately, it hasn’t been passed onto final consumers. That is a pity because citizens represent an electorate deciding on the direction of the EU very soon. What can be done to the benefit of the internal energy market?

I agree that this situation is very unsatisfactory. This challenge must be addressed through the tripartite efforts of the EU, Member States and European households and industry. With a functioning Internal Energy Market, flexible energy systems, responsive consumers, competitive markets and cost effective government instruments Europe will be better equipped to contain price rises, pay for investments and minimise cost increases. The Commission is certainly doing its share to live up to the challenge; the other parties have to follow.

During your presentation at the seventh European Gas Conference, held in Vienna in January 2014, you emphasised the necessity to support a free market. However, does the Commission really believe in this approach, if it doesn’t want to accept the current carbon price generated by the market and propose changes to the EU emissions trading system (ETS)? Moreover, do we need the ETS and a binding target on renewables at the same time?

Yes, we truly believe in an open and competitive market as the best way to achieve our policy objectives, which are to provide consumers with secure, sustainable and affordable energy. This does not mean that next to the free market we don't need other policy instruments to accompany our policy towards a low carbon economy.

Yes, we truly believe in an open and competitive market as the best way to achieve our policy objectives, which are to provide consumers with secure, sustainable and affordable energy
ETS is one of these instruments which is necessary for a smooth transition to the new energy system in the EU. The low carbon price was not only a result of the market but also due to the fact that too many allowances have been available on the market during the time of the economic crises with decreasing energy consumption. The proposed ETS reform repairs this by introducing a market stability reserve which aims at balancing offer and demand of allowances. ETS therefore remains a market based instrument. The renewable targets at EU level are complementary and underline the fundamental role of renewables in the transition towards a more competitive, secure and sustainable energy system. For this we need a significant higher share of renewable energy. Only then can we tap the potential of renewables and drive growth in innovative technologies, create jobs in emerging sectors and reduce pollution.

Klaus-Dieter Borchardt is Director of the Internal Energy Market at DG Energy. Mr. Borchardt joined the European Institutions in 1987 where he has held numerous positions including Director at DG Agriculture and Head of Cabinet for Commissioner Boel. Mr. Borchardt is an Honorary Professor at the University of Würzburg, where he has taught European law since 2001.