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Well-functioning electricity and gas markets will provide the right solutions to the energy transition

Following the energy crisis and the Russian aggression on Ukraine, there is a broad consensus among the gas industry that the EU energy infrastructure is now more resilient and Member States are (more or less) on track to meet their targets and reduce dependency on Russian gas. Especially in Central and Eastern Europe where several projects came into operation last year.

However, as reminded by EU Commissioner for Energy Kadri Simson at the opening speech of the Gas Infrastructure Europe (GIE) Annual Conference in Riga, “a gradual reduction in the use of natural gas doesn’t mean that the infrastructure is useless because we can repurpose it for renewable gases, biomethane and hydrogen.”

Torben Brabo, GIE President, recalls that when the (hydrogen and decarbonised) gas market package was designed, representatives of the power industry were not invited which turned into gas representatives not being taken into account for the ongoing electricity market design.

“In theory, well-functioning electricity and gas markets will provide the right solutions, but it is something very long-term, maybe in 2060-80,” Mr Brabo tells CEENERGYNEWS. “We cannot wait for the market to deliver the transition. There must be more integration, more flexibility and more talks about sector coupling.”

“We could include specific articles in the electricity market design to attract the services of the molecules sector; on the other hand, in the gas package, we can move our gas assets closer to the power sector, like storage services, for example, to balance and give flexibility to the electricity industry. I would like to see some bridges where some challenges are recognised by both sides but with different tools that can work for either of them.”

He points out that in the electricity sector, Transmission System Operators (TSOs) usually react in nanoseconds and minutes, which means that extreme peaks are reached and the services become more expensive. The gas sector, on the contrary, doesn’t think in seconds or even in hours or days, because the resilience of the gas industry manages all the small challenges automatically. And this is a perfect example, according to Mr Brabo, of how one challenge in one sector is solved (for free) by the other.

In the short term, the GIE President considers the targets for decarbonised and renewable gasses to be ambitious enough and well-communicated. However, they are not enforced by law. As also pointed out by James Watson, Secretary General of Eurogas, “We need more binding targets than aspirational targets. With the targets, the industry will deliver.”

Thus, it is important for the industry to maintain a proactive role, something that also Mr Brabo agrees on.

“We should continue to work,” he says. “From our models, we see that, for example, the industry, the hard-to-abate sectors need the molecules mid and long-term, so we should not wait for the politicians to make the targets, it should come from the industry. Starting investments and preparations.”

Indeed, as also reminded by other speakers, the mission of the gas industry is to deliver affordable and sustainable gas to end users, which means the involvement of not just the infrastructure, but also the institutions. Nonetheless, we still see countries, like Lithuania, where gas is not in the picture for the government when allocating funds, as pointed out by Jurgita Šilinskaite-Vensloviene, Head of LNG Commerce at Klaipėdos Nafta.

When looking at long-term challenges, Mr Brabo agrees that we started on the easy challenges of the transition, about the electricity sector and scaling up renewables. The most difficult part, how to decarbonise the industry and hard-to-abate sectors still has to come, especially if we consider that the electricity sector is mainly publicly owned, while the industry is commercially owned, so “we need to incentives commercial companies to take risks and this will become more and more challenging.”

Despite looking at the future with optimism, we cannot forget that we remain in a crisis situation and we need all the options we can have.

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