The EU’s energy regulatory framework up to 2030 is still not fully defined, so the momentum from the recent North Sea Summit will need to be sustained to overcome policy challenges.
As part of the largest political coalition on energy in the North Sea, nine heads of state, their energy ministers, and the EU Commission’s President met in Ostend in April.
For achieving this ambition, leaders committed to developing cooperation projects to develop an offshore electricity grid in the North Sea by 2030, and at least 300 GW by 2050.
Policymakers are faced with the challenge that planned offshore wind capacity to meet carbon neutrality targets far exceeds current demand in the North Sea.
As a result, the concept of “energy islands” has gained traction – hubs for electricity generation connecting wind farms and interconnectors across borders.
Denmark and Belgium have commissioned feasibility studies for the first energy islands in the North Sea. However, construction won’t begin until the end of the decade.
Toward this vision, offshore wind, grids, and interconnectors need to be integrated and renewable energy converted into something else (e.g., renewable hydrogen for transportation, industrial use, or e-fuels).
The UK is taking the first steps in making the system fitter for purpose by introducing a Holistic Network Design to deliver its 2030 offshore wind deployment targets, which could result in consumers saving up to £5.5 billion by boosting network capacity and reducing constraint costs.
Despite this, it is unclear what the North Sea regulatory framework will be up to and beyond 2030.
This momentum will need to be sustained if the political ambitions for the North Sea are to be realized.
What are the policymakers’ key choices?
The first concern is infrastructure regulation and planning. To design an operational framework that balances the needs of TSOs and investors, regulatory issues must be addressed.
Grid operators must always reserve 70% of their available capacity for cross-border electricity trading transactions, according to the European energy regulator ACER.
For a potential wind farm in the North Sea, ACER’s rule would require the TSO to set aside 70% of the line for cross-border electricity trade.
Wind farm owners are uncertain whether they can transport their product to shore. This may result in curtailed wind output or countertrade.
Potential transmission projects face the challenge of seeking approval from multiple authorities for regulatory, licensing, and permitting approval across the North Sea due to the absence of a “one-stop shop.”
Second, it clarifies future market regulations for offshore wind farms in the North Sea.
Since the recent energy price shock, policymakers in both the EU and UK have sought to reform the electricity market. However, there are complexities to be worked out.
The first is setting the terms for how revenue will be shared between generators and transmission companies.
Hybrid interconnectors that connect offshore wind projects via offshore bidding zones are the future regulatory pathway proposed by the Commission.
In developing its Review of Electricity Market Arrangements (REMA), the UK must consider how to participate in the EU’s offshore bidding process.
The third concerns the EU-UK framework. In order to maximize the North Sea’s potential, cooperation and integration across the European neighbourhood will be required, which impacts the UK directly, including the prospects for future deepening EU-UK energy policy collaboration.
As part of the North Seas Energy Cooperation, the UK signed a memorandum of understanding with its maritime neighbors last December.
The agreement establishes the framework for greater cooperation with North Sea neighbours – including the development of offshore renewable energy and grid infrastructure.
The future electricity trading system between the UK and EU, including plans to establish multi-region loose volume coupling linking the UK and Ireland to EU markets, remains uncertain.
The North Sea will require coordination in several areas, including planning, market design, and the future UK-EU relationship.
The current political will must be sustained in technical regulatory discussions 18 months before potential elections in the UK and Europe.
The extent to which the North Sea can achieve the goal of becoming “the world’s biggest power plant” will depend on this.
Source: EURACTIV
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