NEWS

Legislative proposals in the frame of the “Fit for 55” package bring significant changes in the field of emissions trading, accelerating the use of renewables, efficient use of energy, low-carbon transport, heating and cooling and thus represent crucial regulatory framework for further development of the European energy sector. They represent opportunities and bring forward many challenges for gradual, cost-efficient, and just transition to climate neutral society, to which HSE Group as part of the energy sector, is bound to. In the frame of public consultation process, we put forward to the Commission the following proposals:

1. SIGNIFICANT INCREASE OF THE MODERNISATION FUND REPRESENTS AN OPPORTUNITY FOR SLOVENIA TO BE INCLUDED AMONG THE BENEFICIARIES, AS STEMS FROM THE NECP

When presenting the Sustainable finance strategy, the European Commission assessed that roughly 350 billion EUR of new investments per year are needed by 2030 to achieve the objective of 55% GHG emissions reduction by 2030 compared to 1990 levels. HSE Group sees the Modernisation fund as one of the possible financial resources to enable energy transition. Slovenia is currently not a beneficiary of the Fund since the only eligibility criteria was the % of EU average GDP per capita. With proposed reforms under the Fit for 55 package, the Modernisation fund is significantly strengthened and increased, as well as broadened to include additional two beneficiaries.

We therefore urge the Commission to consider the revision of the eligibility criteria for the use of the Modernisation fund, so that they would include specific national circumstances.

These circumstances entail:

1. Characteristics of national electricity system:

a. Slovenia differs significantly in the level of connectivity with neighbouring countries, especially given the small size of the electricity system – the ratio between the possibility of imports and peak consumption is significantly higher than 2 times the EU average, which represents a high probability of transmission of disruptions in the electricity market.

b. Slovenia also differs significantly from other EU Member States in terms of the size of individual generation units in relation to all production units in the country – 1) two power plants, each with one production unit, produce more than 60% of electricity annually produced in Slovenia (EU average ranges below 5% per individual power plant on an annual basis); 2) entire electricity produced from domestic coal is produced in one single production unit, which represents almost 30% of the total electricity produced in Slovenia – termination of use of domestic coal in the electricity system brings along significant consequences – a one-time high-share production loss, which needs to be entirely replaced by low-carbon and renewable sources; 3) the production of additional 30% of electricity is provided by a nuclear power plant, the decommissioning of which is planned for 2043, which means that Slovenia will have to replace more than 60% of domestic production in the next 15-20 years (without taking into account additional needs due to end-use electrification).

2. Other circumstances that include limitations in spatial planning of RES projects (such as 38% share of Natura 2000 sites), high share of CO2 emissions from transport, not achieving national RES targets.

Due to all the above-mentioned facts, a cost-effective transition to climate neutral society in Slovenia is exposed to higher risks and the need for additional financial resources. Slovenia stands before historical challenges concerning the change of its national energy mix, since it is in the process of determining coal phase-out and restructuring measures, which include replacing an energy source that currently provides 30% of the total electricity supply in Slovenia. One of the key purposes of the Modernisation fund is to help Member States to finance projects for modernisation of their energy sector to enhance their efficiency, productivity and consequently to decrease the amount of CO2 emissions. The intention to assess the possibility to include Slovenia among beneficiaries of the Fund derives from Slovenia’s National Energy and Climate Plan.

2. HSE GROUP’s PROJECTS WILL BE CRUCIAL FOR ACHIEVING MORE AMBITIOUS RENEWABLE ENERGY TARGETS – WE THEREFORE EXPECT EFFECTIVE MEASURES TO BE IMPLEMENTED TO ACCELERATE PERMITTING OF RENEWABLE ENERGY PROJECTS

HSE Group supports more ambitious goals in the field of renewables and welcomes the fact that the provision remains binding only at the EU level, but left to Member States to determine their national contributions based on their national specifics, available natural resources, and environmental limitations with a view to ensure consistency between different policies and measures. Slovenia will have to significantly increase the share of RES from currently set 27% by 2030, which will be especially challenging considering the 38% share of NATURA 2000 sites – the largest share of all EU Member States, which makes developing and spatial planning of RES projects very difficult.

HSE Group as the largest producer of renewable electricity in Slovenia will endeavour to contribute to achieving Slovenia’s national share of RES with our planned hydro, solar and wind projects. We expect these projects to be recognised as projects of common economic interest and therefore eligible for fast-track permitting procedures and spatial planning, since only timely and coherent measures can ensure achieving climate and energy targets.

HSE Group therefore proposes to include provisions in the renewable energy directive revision (RED II), which would oblige Member States to implement fast-track permitting procedures for projects included in NECPs and national coal phase-out strategies.

3. CROSS-BORDER OPENING OF SUPPORT SCHEMES FOR RENEWABLES AND COOPERATION IN JOINT PROJECTS MUST REMAIN VLUNTARY FOR THE MEMBER STATES

HSE Group welcomes that cooperation in cross-border support schemes as well as cross-border opening of support schemes remain voluntary for Member States. Cross-border cooperation among EU members States can, however, be beneficial, when energy, economic and/or environmental benefits are identified. But we do not support the proposed obligation for the establishment of at least one common project between one or more Members States since such obligation can lead to inefficient projects and suboptimal solutions for the deployment of renewables.

We are convinced that every Member State should be allowed to tap their own RES potential to the maximum in the most cost-effective and environmentally acceptable manner as well as to choose the option how to fill the gap in case of not achieving national RES targets. It is definitively a priority for Slovenia to focus on implementing national renewable energy projects by exploiting the remaining hydro, solar and wind potential.

4. IT IS NECESSARY TO PRESERVE THE DEDICATED USE OF REVENUES FROM THE AUCTIONING OF EMISSION ALLOWANCES

HSE Group supports specifically dedicated use of these revenues, which must be available in full to Member States to carry out the challenging measures towards the transition to a climate-neutral economy in the most cost-effective manner. However, the European Commission’s proposal would significantly reduce the share of these revenues available to Member States. The HSE Group strongly opposes such provisions, as for Slovenia in particular this means a significant reduction of the National Climate Change Fund and the possibility of using these financial resources for dedicated and justified purposes.

We oppose the European Commission’s intention to transfer a share of the revenues from the auctioning of emission allowances to the EU’s integrated budget as own sources.

In the HSE Group, we are responsibly facing the challenges of the two coal regions in transition, and we call upon the EU to have more understanding and allocate more resources for the restructuring of coal regions into a sustainable economy in these areas. Effective transformation will require more national and EU financial resources to be channelled for ecological rehabilitation, economic transformation, and social inclusion.

5. ENERGY TAXATION MUST ENCOURAGE ECONOMIC AND SOCIALLY ACCEPTABLE IMPLEMENTATION OF COAL-EXIT POLICIES BASED ON JUST TRANSITION PRINCIPLES

European Commission proposes that measures to achieve final energy savings in fossil fuel combustion do not count as measures towards achieving national energy efficiency targets.

HSE Group believes that in spite of accelerated phase-out of fossil fuels, significant potential for energy savings in final energy use exists in the regions, which are currently faced with the challenges of gradual coal-phase out. We therefore propose that these regions, included in the Territorial just transition plans, approved by the Commission, are exempt form provisions regarding energy savings in final energy use for fossil fuel combustion from 2024 onwards.

In addition, we propose a transitional phase up to 10 years, so these regions can apply lower energy taxation rates than prescribed in the energy taxation directive (0,15 EUR/GJ – for electricity).  

6. LESS ADMINISTRATIVE COMPLEXITY FOR IMPORTERS OF ELECTRICITY IN THE FRAME OF CARBON BORDER ADJUSTMENT MECHANISM

HSE Group finds that free allocation of emission allowances distorts competition, so we welcome the proposal to introduce the Carbon Border Adjustment Mechanism, which should ensure that the price of imported products in the EU more accurately reflects their carbon content, and should gradually, by 2036, replace the free allocation measure in sectors facing a risk of carbon leakage outside the EU. The mechanism will also apply to imports of electricity from third countries, which could lead to a level playing field for electricity generation outside the EU, currently not burdened by the price of emission allowances.

However, we draw attention to the administrative complexity of the mechanism for entities/importers of goods that will be included in the mechanism – this includes entities who have been allocated transmission capacity through explicit capacity allocation and who nominate this capacity for electricity imports; the proposed provisions burden those entities with a number of administrative, substantive and later on financial commitments, some already during the transitional period until the end of 2025.

7. FAIRER DISTRIBUTION OF BURDEN SHARING AMONG SECTORS

The biggest challenges for the HSE Group certainly stem from the proposed changes to the EU Emissions Trading System. On one hand we welcome the extension of the EU ETS to new sectors, such as maritime, and that a special ETS system will be introduced for the buildings and road transport sectors, thus bearing a more proportionate burden of achieving greenhouse gas emissions reductions, as currently the financial burden of emission allowances primarily lays on the energy sector.

On the other hand, we note that, unfortunately, the proposal lacks fairer distribution of burden sharing among sectors. The non-ETS sectors are responsible for almost 60% of the total emissions in the EU, but the target for reducing emissions in these sectors by 2030 at EU level will increase from 30% to only 40% compared to 2005, while additional requirements for the ETS sector are significantly higher – increase in the emission reduction target from 40% to 61% by 2030 compared to 2005.

In Slovenia, 52% of non-ETS emissions are transport emissions, which means that transport in Slovenia is responsible for 32 % of the total greenhouse gas emissions. In the period 2005-2018, emissions from transport increased by 31.9%, while in the same period, emissions from electricity and heat production, which is responsible for 26% of the total emissions, decreased by 26.8%. It is therefore clear that almost 100% increase in the target – from 15% to 27% for the non-ETS sectors in Slovenia will have to be reflected in ambitious commitments and measures to reduce emissions in transport.

DESPITE REFORMS AND NEW OBLIGATIONS REGARDING EMISSIONS REDUCTION, SECURITY OF SUPPLY PRINCIPLE AND THE RIGHT OF EACH MEMBER STATE TO DECIDE UPON ITS’ NATIONAL ENERGY MIX SHOULD BE CONSIDERED

It is evident that the EU ETS reform brings additional pressure on prices of emission allowances, which already now significantly exceed price movement forecasts and projections that were used for the preparation of the National energy and climate plan by 2030. Nevertheless, we are convinced that the need for security of supply and a crucial role of national self-sufficiency in electricity supply shall prevail and thus accelerate the development and spatial planning of necessary low-carbon and carbon-free energy technologies, not to forget that the national energy mix remains under exclusive national competence of each Member State. This fact was recognised by the European Council on December 11, 2020, when the new 2030 climate objective was agreed. The right of a Member State to decide upon its’ energy sources in their national energy mix and to choose most appropriate technologies to achieve the 2030 climate target should therefore be respected. With more ambitious climate and energy policy the EU will certainly have a significant impact on national decisions regarding investments in renewables; it is therefore crucial to encourage the development of projects that will ensure sustainable electricity production.

HSE Group, as an incremental player in ensuring security of supply in Slovenia, will adopt all the necessary measures to continue to play its role in achieving more ambitious energy and climate targets by 2030.

HSE Group welcomes current efforts put forward by the European Commission and fully supports the objectives of the European Green Deal. The power sector is committed to the clean energy transition and we can expect additional emission reductions to be driven by the implementation of the climate and energy policy and intentions of the European power sector to invest in renewables and efficient low carbon sources.

However, the discussion about possibly revising the currently agreed 2030 climate targets should be guided by carefully examining in a broad and encompassing manner all the potential consequences, including those specifically relevant for individual member states and their energy mix.

HSE Group believes the following key elements need to be considered to achieve a balanced approach and should be strongly represented in the discussion on more ambitious 2030 targets.

While the power sector has a great potential for cutting emissions, it is also important to acknowledge that it has already contributed a lot – in Slovenia, for example, the emissions from the power sector dropped approx. 24% between 2005 and 2017, whereas no such drop is visible in any other sector, moreover, transport emissions actually rose for 25%. Over-burdening the power sector that is already on a steep path of lowering emissions would lead to potentially negative effects on security of supply and must be avoided.

As mentioned, the challenge in the transport sector, especially, is significant and the discussion on more ambitious 2030 climate targets must acknowledge that and foster further development of new technologies in this field. Given the strong commitment by the European power sector to become carbon-neutral till 2050, the electrification of heating and cooling, industry and especially transport is crucial for the decarbonisation of the European economy and offers opportunities for society at large through developing cost-effective and innovative solutions, keeping in mind the effects of accelerated electrification on the grid – thus, a coordinated umbrella approach between electrification, decarbonisation and energy infrastructure policy in necessary.

There is a significant difference between member states regarding the importance of coal in their energy mix, so no one-solution-fits-all is possible. Most member states are on the way to adopt or have already adopted their coal phase-out strategies and they will reflect carefully the most efficient and just phase-out route tailored to the needs and specificities of individual member states. Setting a significantly higher 2030 target in the middle of this process would fundamentally affect this thoroughly thought-out process, risking the development of sub-optimal outcomes, unnecessarily accelerating the phase-out dynamics, prematurely stranding otherwise useful assets, which are crucial for the security of supply in some member states, thus leading to a transition that would be far from just, inclusive, socially acceptable, economically feasible or security of supply ensuring.

HSE Group strongly believes that a successful transformation of coal regions is key to a successful decarbonisation of the EU. Thus, the discussion on more ambitious 2030 climate targets must acknowledge the effects of these augmented ambitions on coal phase-out processes and coal regions in several member states, including Slovenia.

Member States must take the lead in shaping their own emissions reductions policies and strategies, which are based on national specificities. We would propose that the discussion on more ambitious 2030 targets focuses on different starting points of EU member states, as different energy potentials, conditions and energy system specificities must be considered in such a debate.

At the same time, the burden of transition should be spread across the EU Member States according to their abilities. HSE Group is convinced that the Member States should be able to assess and choose the most suitable mechanisms under their specific conditions and circumstances to achieve the currently agreed climate targets.

In Slovenia, for example, the success of measures for reducing emissions in the transport sector is crucial, since transport emissions amount to more than 30% of all emissions and doubled in the period from 1990 till 2017, which is well over the EU average. However, Slovenia is a markedly transit country, making nationally adopted measures less efficient and successful reduction of transport emissions more difficult.

Another challenge in Slovenia is its 38% share of NATURA 2000 sites – the largest of all EU member states. It is extremely difficult to develop RES projects under the circumstances when spatial planning procedures in Slovenia are not dedicated to finding solutions, but are additionally complicated by overzealously following the most rigorous guidance, not taking into account the necessity of the RES projects for reaching national energy and climate targets, practically blocking all RES projects due to NATURA 2000, even though the Habitats Directive has very clear procedures for implementing projects in NATURA 2000 sites.

Slovenia has a significant additional unused hydropower potential that could contribute significantly to reaching the national 2030 targets, but its use has been put on hold due to inadequately estimated impact of hydropower plants on NATURA 2000 sites. The recently adopted National energy and climate plan that put a hold on hydropower projects in Slovenia will present a major challenge for the HSE Group in effectively carrying out our development goals in the area of renewable energy sources and will negatively impact the level of the country’s energy self-sufficiency, the achievement of the national RES and the competitiveness of companies that hold the concessions for the energy use of water resources. We thus call on the Commission to guide the discussion with member states regarding the NECPs evaluation in a way to encourage the member states to consider all the necessary RES potential to achieve the 2030 climate targets.

Investments in the energy sector, needed to implement ambitious climate and energy targets, are long-term and possible only under proper market conditions based on a stable and reliable regulatory environment. Continuous reform of key EU legislation does not offer stability, necessary for investors in the power sector to carry out huge investments, needed for achieving the climate targets.

To implement a potentially revised 2030 target, amendments to the Emissions Trading System (ETS) Directive, a recast Effort Sharing Regulation, amendments to the Land Use, Land Use Change and Forestry Regulation, and reviews of the CO2 emission performance standards for cars and vans, the Energy Efficiency Directive, the Renewable Energy Directive, and the Energy Taxation Directive, to name a few, would be needed.

Parts of the mentioned legislation are not in force for a significant period of time; thus their impacts are difficult to assess – what is more, the new, revised EU ETS will only apply from 2021 onwards, but the power sector is already facing an overhaul of the system, probably through increase of the LRF. We thus call on the Commission to consider the effects the revised target will have on the investment potential of the power sector that needs regulatory stability to effectively plan and implement the necessary investments.

At the end of November 2016 the European Commission (EC) proposed an extensive package of measures which demand considerable changes in all fields of the energy legislation in the European Union (EU). The Clean Energy for All Europeans package (also known as the winter package) looks to enhance the functioning of the market and reach the climate and energy goals of the EU by introducing a new concept of the power market both in the retail and wholesale segments. The rules of operation in all segments of the power market are being changed significantly, which significantly affects the operations of the HSE Group, which is why the HSE Group is actively involved in the final drafting of the new legislation by putting forward amendments to the proposed measures, which are in our opinion necessary for an efficient functioning of the power market in the EU after 2020

In the opinion of the EC, such an extensive overhaul of the energy legislation is needed because of:

1. the inefficient functioning of the energy market,
2. the transition to a low-carbon society, which demands a new concept of the power market after 2020.

The Clean Energy for All Europeans package (also known as the winter package) thus looks to enhance the functioning of the market and reach the climate and energy goals of the EU by proposing a new concept of the power market both in the retail and wholesale segments.

The proposals from the winter package thus significantly change the rules of operation in all segments of the power market, and have a significant impact on the operations of the HSE Group, which is why the HSE Group is actively involved in the final drafting of the new legislation by putting forward amendments to the proposed measures, which are in our opinion necessary for an efficient functioning of the power market in the EU after 2020

An overhaul of the existing legislation is certainly needed, because the business environment in which energy companies operate has changed. Wholesale prices of electricity have dropped strongly, while prices for end users are increasing, in part because of ineffective support schemes for renewable energy. Renewable energy has also affected the (non)functioning of the European Union Emissions Trading Scheme (EU ETS). Due to a higher share of variable renewable energy, the energy market is facing the need for reliable resources which are always available, while the market does not provide adequate incentives for such resources.

Investments in the energy sector which are needed to attain the ambitious objectives until 2030 that have been proposed, will be implemented only under the assumption of market feasibility and while providing safe and reliable electricity supply. In order to ensure economic feasibility of projects, without which an investor will not decide to invest, the state may contribute to improving the investment conditions under which it would be easier to implement an investment by means of certain mechanisms: capacity mechanisms, effective support scheme, proportionate burden on market players, improving the efficiency of siting procedures. Ensuring a stable policy and regulatory framework, which is of key importance for investors, has a special importance in this respect.

• ensuring equal treatment and rules for all participants on the market;
• ensuring technological neutrality in all fields of operation of the power market;
• facilitated integration of renewable energy in the market after 2020;
• capacity mechanisms are a measure to ensure reliability of supply – capacities which are included in them should meet the same environmental and other conditions applied for other capacities on the market;
• the EU ETS system must become a key mechanism for attaining the objectives of the climate and energy policy of the EU;
• ensuring a stable and predictable framework for the participants on the market;
• the proposed measures must not be retroactive.