1. BACKGROUND ON ENERGY IN EUROPE Information prepared for the European Council, 4 February 2011

2. Background Information for the European Council, 4 February 2011 1 Contents 1. Key facts about energy and the EU 2. EU energy goals and priorities 3. An integrated energy market 4. Energy efficiency 5. Renewable energy 6. Technological challenge 7. External dimension

3. Background Information for the European Council, 4 February 2011 2 Key facts about energy and the EU

4. Background Information for the European Council, 4 February 2011 3 World energy demand is on the rise EU energy consumption is expected to level out in future but world energy consumption will continue to grow due to global population growth and economic catching up. Overall, world energy demand may grow by 45 % between 2006 and 2030. In China and India, demand will nearly double. Source: IEA, World Energy Outlook 2010 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 1990199520002005201020152020202520302035 Mtoe Rest of world China Rest of OECD European Union

5. Background Information for the European Council, 4 February 2011 4 The EU energy mix is slowly changing Fossil fuels represent up to 80% of our energy mix today. In a business as usual scenario, the share may still be 70% by 2030, but renewable sources are expected to account for an increasing proportion. Source: Eurostat 2010, PRIMES 2009 EU Gross inland consumption 2008 EU Gross inland consumption 2030 in % (1799 Mtoe; 2008)in % (1807 Mtoe; 2030 « business as usual »)

6. Background Information for the European Council, 4 February 2011 5 Energy powers our society and economy Source: Eurostat 2010 EU-27 Total Final Energy Consumption (2008) Total = 1168.63 Mtoe Transport and industry consume more than half of the total energy in the EU, while a quarter of energy is consumed by households.

7. Background Information for the European Council, 4 February 2011 6 A key sector for the economy In 2008, the European electricity market was worth around 620 billion Euros. This figure represents 5% of EU GDP. In 2007, the total number of employees in the energy sector was 1.6 million, representing 1.3% of the EU economy. This represents highly qualified jobs (average personnel costs per employee in the energy sector were 40% above the average). Energy costs represent 1% to 10 % of industrial production costs (excluding personnel costs). Source: Eurostat 2011

8. Background Information for the European Council, 4 February 2011 7 Energy 79% Agriculture 10% Industry Processes 8% Other 0% Waste 3% A major source of emissions Source: EEA 2010 Share of greenhouse gas emissions in 2008 The use of energy is responsible for the majority of greenhouse gas emissions, with the energy sector representing 31%, transport 19%, industry 13%, households 9% and others 7%.

9. Background Information for the European Council, 4 February 2011 8 Massive modernisation investment is needed Total investment needs in the electricity and gas sector between 2010-20: over 1 trillion Power generation: ~ 500 bn Transmission and distribution: ~ 600 bn Distribution: ~ 400 bn Transmission: ~ 200 bn Source: Commission calculations Renewables: ~ 310-370 bn Investments of over 1 trillion will be needed by 2020 to replace obsolete power plants, to modernise and adapt infrastructure to the latest technologies and to cater for demand for low carbon energy.

10. Background Information for the European Council, 4 February 2011 9 Dependence on imports is likely to grow Today, Europe imports more than half of the energy it uses. If nothing changes, our dependence on fossil fuel imports will rise by 2030. Source: European Commission « Business as usual » scenario based on 2009 figures GASOIL 20052008202020302005200820202030 in % 82 % 84 % 93 % 94 % 58 % 62 % 76 % 83 % 100 80 60 40 20

11. Background Information for the European Council, 4 February 2011 10 The EU depends on a few suppliers Source: Eurostat 2010 EU imports of natural gas Russia 40% Norway 30% Algeria 15% Nigeria 4% Others 11% EU imports of crude oil OPEC Countries 36% Russia 32% Norway 15% Kazahkhstan 5% Azerbaijan 3% Mexico 2% Others 7% Today, the EU is very reliant on a few partners for its oil and gas supplies. Diversification of routes and sources is a strategic priority for the EU. in % (2008, total = 561,46 Mt) in % (2008, total = 12,958,133 TJ)

12. Background Information for the European Council, 4 February 2011 11 Evolution of the EU gas and oil import bill Source: European Commission, Gas Strategies (2010) The increase between 2007 and 2008 of the import bill due to high crude oil prices had a cost equivalent to 0.5% of the 2008 EU GDP. bn 0 bn 50 bn 100 bn 150 bn 200 bn 250 bn 300 20052006200720082009 Crude Oil Natural Gas

13. Background Information for the European Council, 4 February 2011 12 Oil and gas price evolution 2007-2010 Source: Platts 2011 Energy prices have a huge impact on the EU economy. However, they are very unstable. Monthly Average Spot price in /bbl or /MWh (January 2007=100) 41/bbl 14/MWh 0% 50% 100% 150% 200% 250% 2007 / 12007 / 22007 / 32007 / 42007 / 52007 / 62007 / 72007 / 82007 / 9 2007 / 102007 / 112007 / 12 2008 / 12008 / 2 2008 / 3 2008 / 42008 / 52008 / 62008 / 72008 / 82008 / 9 2008 / 102008 / 112008 / 12 2009 / 12009 / 22009 / 32009 / 42009 / 52009 / 62009 / 72009 / 82009 / 9 2009 / 102009 / 11 2009 / 12 2010 / 12010 / 22010 / 32010 / 42010 / 52010 / 6 2010 / 7 2010 / 82010 / 9 2010 / 102010 / 112010 / 12 Dated Brent UK NBP DA

14. Background Information for the European Council, 4 February 2011 13 EU energy goals and priorities

15. Background Information for the European Council, 4 February 2011 14 EU energy goals Security of Supply Competitiveness Sustainability Energy policy has been a cornerstone of European integration since its very beginning through the European Coal and Steel Community. In its daily activities, the EU contributes to delivering competitive, secure and sustainable energy for Europe. For detailed information, see: http://ec.europa.eu/energy/strategies/2010/2020_en.htm http://ec.europa.eu/energy/strategies/2010/2020_en.htm

16. Background Information for the European Council, 4 February 2011 15 Meeting our 20-20-20 by 2020 goals Reduce greenhouse gas levels by 20% Increase share of renewables to 20% 100% Reduce energy consumption by 20% -10% Current trend to 2020 -20% 20% Current trend to 2020

17. Background Information for the European Council, 4 February 2011 16 An integrated energy market

18. Background Information for the European Council, 4 February 2011 17 After 1 Year After 5 Years After 10 Years -0,8% -0,6% -0,4% -0,2% 0,0% 0,2% 0,4% 0,6% 0,8% 1,0% Completion of the internal energy market will bring benefits Source: European Commission Achieving a fully functioning and competitive European electricity and gas market can add an extra 0.6% - 0.8% to EU GDP by 2020, create employment and curtail inflation. Estimated effects of opening gas & electricity markets (ranges) Effect on GDP Effect on Employment Effect on Inflation

19. Background Information for the European Council, 4 February 2011 18 Recent gas crises are illustrative The January 2009 gas crisis showed the lack of physical interconnections and the poor functioning of the EU internal market, with several Member States facing severe energy shortages for several days. Source: European Commission > 75 % 50 - 75 % 25 – 50 % < 25% 0% % of missing gas supply from 6 to 20 January 2009 (- 300 million m 3 /day for 14 days)

20. Background Information for the European Council, 4 February 2011 19 The Commission has identified priority infrastructures of European interest to be delivered by 2020. See: http://ec.europa.eu/energy/infrastructure/strategy/2020_en.htm http://ec.europa.eu/energy/infrastructure/strategy/2020_en.htm Baltic Energy Market Interconnection Plan Electricity & Gas North-South Gas Corridor in Western Europe North-South Gas Interconnections & Oil Supply South Western Electricity Interconnections Central / South Eastern Electricity Connections Southern Gas Corridor North Seas Offshore Grid Gas Electricity Electricity and Gas Oil and Gas Smart Grids for Electricity in the EU Infrastructure priorities by 2020

21. Background Information for the European Council, 4 February 2011 20 Energy efficiency

22. Background Information for the European Council, 4 February 2011 21 The EU is not on track to meet its target In spite of progress, significant additional efforts are needed to achieve the - 20% energy consumption target. Most recent projections show that with current policies we will only achieve a 10% cut. Source: European Commission * Gross inland consumption minus non-energy uses - 20% by 2020 objective - 368 Mtoe Most recent projection - 166 Mtoe Business as usual 2007 projection Primary energy consumption*, Mtoe Projections from 2007 Projections from 2009 20% energy saving objective

23. Background Information for the European Council, 4 February 2011 22 Target value: 368,0 National intentions will not suffice Source: European Commission As part of the Europe 2020 strategy for smart, sustainable and inclusive growth, Member States are committed to setting national targets for energy efficiency. First indications show that the degree of precision and levels of ambition are insufficient. Estimated absolute contribution to EU target by targets defined by 20 Member States so far Mtoe 0,0 50,0 100,0 150,0 200,0 250,0 300,0 350,0 400,0 Slovak Republic Sweden Romania Poland Malta Latvia Lithuania Italy Ireland Hungary France Finland Spain Greece Estonia Denmark Germany Cyprus Bulgaria Austria

24. Background Information for the European Council, 4 February 2011 23 Energy efficiency has multiple benefits Source: European Commission COMPETITIVENESS cut Europes energy bill by about 200 billion / year in 2020 lower households bills by about 1000 per household / year create up to 2 million jobs by 2020 boost R&D and create markets where EU can become a global leader SECURITY OF SUPPLY decrease our energy dependence help balance our trade alleviate the need for gas pipelines and grid investments SUSTAINABILITY help fight climate change: - 740 Mt CO2 / year in 2020 limit environmental degradation

25. Background Information for the European Council, 4 February 2011 24 Energy savings potential can be tapped Source: European Commission Transport and households, in particular buildings, are two sectors with great potential for energy efficiency gains. Measures to save energy in transport and accelerate the renovation rate of buildings are crucial. Final energy in 2020 (in Mtoe) 17% 24% 21% 13% 0 50 100 150 200 250 300 350 400 IndustryTransportHouseholdsTertiary Savings potential Energy consumption

26. Background Information for the European Council, 4 February 2011 25 This can be done in a cost-effective manner While technologies are available for substantial energy savings, some may be too costly. Existing energy saving commitments can be achieved with cost- effective policies. The business as usual (BAU) scenario will not deliver. Source: European Commission 0 5 10 15 20 25 30 HouseholdsTransportIndustryTertiaryAll sectors BAUWith cost-effective policiesTechnical potentials Potential of consumption reduction by sector by 2020 (%)

27. Background Information for the European Council, 4 February 2011 26 What improving energy efficiency means for a single family house built in the 70s (150 m²) Annual CO 2 emissions in tonnes Consumption of heating oil per year Renovation to low energy house standard ÷ 2,5÷ 2 No renovation Renovation to new build standard 4500 litre1800 litre900 litre

28. Background Information for the European Council, 4 February 2011 27 Renewable energy

29. Background Information for the European Council, 4 February 2011 28 What the EU renewable target means Share of renewable energy in total energy mix (in %) 0% 10% 20% 30% 40% 50% Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom EU 27 60% EU 2020 EU 2005 2005 levels Additional step to meet the 2020 target Each Member State has a binding target - set as a combination of renewable potential and GDP - to increase its share of renewable energy by 2020.

30. Background Information for the European Council, 4 February 2011 29 Renewable energy is taking off in the EU The EU has made progress and seems to be on track to meet its target of 20% renewable energy in its energy mix by 2020. The contribution of renewable sources will vary significantly from one sector to the other. Source: European Commission Sectoral and overall growth of renewable energy in the EU Electricity share Transport share Heating share Overall RES share (2009, 2010 linear estimates)

31. Background Information for the European Council, 4 February 2011 30 Solar, wind and biomass are the technologies progressing most rapidly. Solar and wind develop for electricity generation while biomass remains dominant for the heating sector. Growth and share of various types of renewable technologies Source: European Commission 0 50000 100000 150000 200000 250000 20102011201220132014201520162017201820192020 Heat pumps Biomass Wind Tide, wave, ocean Solar Geothermal Hydro ktoe

32. Background Information for the European Council, 4 February 2011 31 Significant global investments in renewables In 2009, investment in renewable energy fell in the EU by 10% in the context of the economic crisis, while it increased by more than 50% in China. Source: International Energy Agency Investments in renewable energy at global level Europe China United States Brazil Other America Other Asia and Oceania India Middle East and Africa Billion Dollars

33. Background Information for the European Council, 4 February 2011 32 Global renewable energy demand 2008-2035 Source: IEA, World Energy Outlook 2010 0100200300400 European Union United States China Brazil India Africa OECD Pacific Mtoe 2008 2035 Demand for renewable energy is expected to triple, creating new market opportunities. The EU, the US and China will be the largest global markets. New markets are expanding at home and abroad

34. Background Information for the European Council, 4 February 2011 33 The renewable energy industry offers good job prospects Source: European Commission Achieving the 2020 renewable energy target will deliver 2.8 million jobs in total.

35. Background Information for the European Council, 4 February 2011 34 Technological challenge

36. Background Information for the European Council, 4 February 2011 35 Industry 55% Member States 35% EU 10% Investment in energy R&D in the EU Source: European Commission Investment in energy R&D is mostly driven by the private sector, with public authorities at national and EU level also contributing significantly. 3,3 bn Share of energy investments in 2007 Private sector Public sector

37. Background Information for the European Council, 4 February 2011 36 83% 75% 55% 70% 32% Source: European Commission Europe risks losing its technological edge R&D expenditure in energy in 2007 ( per inhabitant) 0 20 40 60 80 100 120 140 160 180 JapanS-KoreaEUUSRussia private public 83% 75% 55% 70% 32% Europe spends on average 20 on energy R&D per inhabitant, with the private sector contributing for a half (55%).

38. Background Information for the European Council, 4 February 2011 37 External dimension

39. Background Information for the European Council, 4 February 2011 38 EU Energy Community Parties Energy Community Observers Other Neighbourhood Policy Countries The EU is projecting its energy market model as well as political and economic stability in neighbouring countries including through the Energy Community Treaty. See: http://www.energy-community.orghttp://www.energy-community.org Source: European Commission Extension of the EU energy market to the neighbourhood

40. Background Information for the European Council, 4 February 2011 39 OPEC LNG* * LNG: Liquefied natural gas (Qatar, Algeria, Nigeria, etc.) RUSSIA NORWAY AL. CASPIAN IRAQ EAST MED. Traditional strategic suppliers Emerging strategic suppliers Presentation of J.M. Barroso to the European Council, 4 February 2011 Traditional and emerging hydrocarbon suppliers

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