Klaus-Dieter Borchardt, Deputy Director-General, Energy: „It is not for the Commission to decide anything“

Mr Borchardt, taking into consideration that the next list of Projects of Common Interest (PCI) will be published under the current TEN-E regulation, will Green and bio-gas projects — as well as those linked with blue hydrogen — qualify for selection on the 5° PCI-list? Or is this not possible under the current regulation?

Under the current regulation, we will have a problem with hydrogen projects, because hydrogen is not covered. But that does not mean that we cannot shift our priorities as we set up the fifth PCI list under the currently-applicable rules. There have always been three main criteria on the basis of which we are establishing and selecting the PCI list: sustainability, security of supply and the integration of the energy markets. In the run-up to the fifth PCI-list, we will change the priorities a bit. When we created the European Energy Union, our main focus at the time was to create security of supply. We had a dependency on big suppliers — notably Russia — and we also had the gas crisis during that time. For us, it was a paramount objective to diversify our gas system so that we would not be dependent on one supplier and on specific routes.

The gas projects that are, or will be, on the PCI list in the future are projects that are already there or under construction. Most of the gas projects under construction which are co-financed by us will be finished by 2022. But of course, we have to see how to deal with this. Is it necessary to keep all the projects that are still under development on the list, yes or no?

For the fifth list, we cannot leave out the security of supply aspect and the market integration aspect, but we can prioritise sustainability. That’s why we are currently working on a new definition of how we should assess the sustainability criteria, and for this, we look at the Green Deal and the decarbonisation transition.

Will there be any natural gas projects on the next PCI list? And in these new, updated criteria, will you also include the new green taxonomy criteria which are under discussion now?

We have to analyse whether we have any projects that are already on the list which are co-financed by the Connecting Europe Facility, for which PCI-status could be withdrawn before these projects are commissioned. Does that have a negative impact on the finalisation of this project? If so, we have a legal problem. We are currently analysing this. What we cannot do so easily is just remove them because we have changed our policy — there are legal constraints.

Coming back to gas projects, the trilogue will start soon on the Just Transition Fund. The Parliament recently voted and included the possibility of adding natural gas projects in some cases. The Commission, as well as the Council, already made clear that it was against this. What is your opinion on this? And now that the Parliament has voted, might the Commission change its approach? 

I cannot tell you today what this decision will be, since it has not yet been decided.

Having said that, in my view there is only one single case in which I could see the need for discussing it, and that is the coal regions in transition. They are in a particular situation — not all, but take the regions in Poland or Germany as an example. These regions are completely built on lignite and hard coal. If you want a fast phase-out, you will not be able to install all the renewable facilities that would be needed to match the electricity production of these areas. But this is a big ‚if‘: if we can accelerate the phase-out of coal, we would go for natural gas/blue hydrogen for a transitional period, and green hydrogen at the end. However, it cannot be that they say, ‚Okay, we will make the transition, but first we will go into natural gas.‘ That would not be good enough — that would be a kind of greenwashing. I have seen a project in Eastern Germany where a lignite-fired, coal-fired power plant is now trying to convert into gas turbines that can run on natural gas, but later also on 100% clean hydrogen. If these clusters deliver on an acceleration of a coal phase-out, and also have a clear road map that shows when natural gas would be replaced by green hydrogen, it is a good case. Don’t take this as a Commission position.

You mentioned that gas is excluded from the green taxonomy. We have understood that there is a strong lobby pushing to include natural gas and nuclear in the green taxonomy. Will this be an option, or will you continue to exclude it?

I have no crystal ball, I don’t know what will be negotiated. I can only comment on our position. Our taxonomy has a very clear objective: we want future investments to be channeled into Green and new technologies. It is not a vehicle for transition — it is something that we want to bundle: the investments and the future technologies. We really want to put the money where we see the future. For me — and I think, also the Commission — there is no room for labelling something sustainable if it stems from natural gas. If they want to build gas-fired power plants that are not compatible with our taxonomy, they can do it, but without putting the ’sustainable‘ label on it. They have to look for investors who are ready to finance it, and they have to report it as ‘dirty money’ as compared to ‚green money‘. I know that it will be difficult for them, but it is not our objective here to manage the transition, it is our objective to get to the 2050 goal and that is climate neutrality, for which we need the money.

There is a common agreement that the current system, in which the Entsos — specifically Entsog — provide energy and gas demand scenarios to the Commission, while also advising the Commission on which future infrastructure investments are needed, which lack transparency and which would benefit greatly from the inclusion of neutral and independent expert bodies. How will the Commission solve this conflict of interest?

There is one instance where the Entsos play a very strong role and that is when it comes to the cost-benefit analyses and the planning of the projects. Here, I think it is fair to say that the Entsos should have a role to play, but not like it is today. With the revision of the TEN-E, we have made a large stakeholder consultation with many different stakeholders saying that the position of the Entsos is too strong because they are bundling their membership interests, and this does not necessarily reflect the European interest. This is therefore the first point where we would seek advice from independent parties when it comes to the methodologies. We will ask for advice from third parties, and ACER [Agency for the cooperation of Energy Regulators] needs to play a stronger role when it comes to the methodologies. 

Can you explain why, up to this point, the Commission has relied mainly on the Ten-Year Network Development Plan (TYNDP) and did not include other scenarios, including in-house scenarios or Paris Agreement-compatible scenarios?

As I said, today it is not for the Commission to decide anything, because this is in the hands of the Entsos. So when we saw the list of what they did, and that they also modelled something outside of the decarbonisation pathway, we asked, ‚What is the sense of this?‘ We are not following this path, it is really useless to do this — we are interested to see what is needed within our decarbonisation pathway. I do not want to have discussions about this again, so I think the procedure — on how to decide which scenarios are modelled — will have to be changed.  

Will the direct link between the TYNDP and the PCI list — which is written into the regulation — be broken? Will it change, and if so, how?

I really believe that the TYNDP, if it is correctly established, has huge value. For us, it is the only platform from which we can see what is really needed in terms of infrastructure projects. But this can only work when the definition of the scenarios is compatible with the policies that we are pursuing. If you deviate from the policy, you get results that may not fit into our policy and then these projects should not be on the PCI list. So it is interlinked: you need a robust TYNDP, and to get such a TYNDP, it is important that you get the scenarios right. The Entsos cannot do this on their own — that is the lesson we have learned and now we have to change the process so we bring others into it, and maybe also have a bigger stakeholder involvement. In the future, the TYNDP cannot only look at the production side, but also has to take into account the demand side. We are talking about the integrated energy system. Then we can see where the production centres are, where the consumption centres are, and whether we have the electricity grids and the gas grids that can move electrons and molecules (green ones, possibly) from one to the other. That is what we need, not industry-driven wishes. But the link between the TYNDP and the PCI is essential, because you cannot just pick projects on the basis of whatever sustainability definitions you use — you really need to also see the geographical and demographic landscapes, and the production and demand patterns in order to get the full picture.

This past January’s Artelys study concludes that most projects on the fourth PCI list are unnecessary from a security of supply point of view. How do you see this, and can you confirm that these projects represent a potential over-investment of 29 billion Euros and might risk becoming stranded assets?

Being on the PCI list does not mean that you get any financing. I disagree with the analysis of Artelys about the security of supply side with regard to those projects that we have introduced during the implementation of the Energy Union Strategy. Security of supply, sources diversification was a very central part of it. Diversification meant more interconnection, and this is what we have promoted, not only within the gas sector, but also interconnectors in electricity.

There is some truth in the assessment with regard to the political nature of some projects. We follow a bottom-up approach in the PCI process, which means that the project will be proposed by a number of member-states and then it goes to evaluation by different regional groups. Certain projects are only developed because some countries think it is nice to have them, so they are not necessarily linked with security of supply or to decarbonisation aspects. In this respect, I have very often regretted, during the final selection of projects, when we sit with the Directors General of the Energy ministries of member states, that our power to pull out some projects was very limited. It was always a very fierce fight to say, ‚No, this project should not be on the list, for several reasons.‘ The last two lists were especially very difficult.

And why is that so? Because before the Commission can adopt the final PCI list, the draft list is discussed in a high level meeting with representatives from the member states who need to endorse the draft list by unanimity. If only one MS votes against one project, the project is out, or if the Commission wants to take out one project, there could be the threat that the MS blocks the whole list. 

This is also something that in my view needs to be changed. As long as you have the political implication where member-states must endorse the draft PCI list by unanimity at the end of the process, it makes it very difficult for the Commission to remove projects form the list.

We need to change this. The Commission needs a stronger hand and also be able to say at the end, ‚For these reasons, you are not fulfilling all the criteria for our carbonisation pathway.‘ There is a truth in the report in the sense that there are still quite some projects on the list that are selected because of a political nature, and they should not remain on the list. There are projects that are already there for four or four years, and nothing has happened yet — there was no progress at all. If a project has not seen any development for three, four years, it should automatically be taken off the list. They are just there because the governments or the promoters want it.

What can the Commission do to change this?

The only possible step I see is to abolish the unanimity and introduce qualified majority for the endorsement of the list at the HLG. Another option would be to give the Commission a full scrutiny, but this would clearly undermine the whole bottom-up approach.

Are you talking about TAP, for instance?

No, Tap is 98 per cent constructed. TAP is part of the Southern gas corridor, and this corridor was the first diversification route — it was meant to bring competition with the Russian gas to the South-East of Europe. It has taken too long, so LNG has taken over this function, but the Southern gas corridor is part of our diversification strategy — it supports the security of supply. So TAP is not one of those projects.

East-Med is one of those projects. I can understand that there is lot of gas in the Mediterranean Sea, there are these gas fields, but it would make more sense to use the regional LNG facilities than to bring natural gas in a long pipeline to Greece and further into our markets. And we are trying also to move towards other sources of energies, like renewable gases and renewable electricity.

As there are still many gas projects on the current PCI list, and presumably on the next one as well, how does the Commission envision the expansion of natural gas pipelines while also aiming to meet the EU’s 2050 net zero emission target? 

The projects we needed for security of supply are on their way — they will be commissioned in the coming years. I don’t see any natural gas infrastructure that would be needed in terms of contributing to decarbonisation. If natural gas will be reduced and will decrease by 13 per cent in 2030, one could optimise the flows of natural gas in some dedicated pipelines, which would free up other pipelines, which can then be repurposed for the transport of renewable fuels. This makes much more sense, so that we can use those free pipelines for the transport of bio-methane, hydrogen, bio-gas. Making sensible use of the existing infrastructure will also bring down the cost of infrastructure for the new energy carriers in the larger gas sector. I do not rule out that some smaller projects for natural gas are necessary, but I don’t see that those projects will become PCI projects and funded by CEF.

The whole question on the future PCI and natural gas infrastructure and CEF seems to be very big, but in fact it is very tiny. If you apply the criteria, it will not be there. And when you refer to the existing list, you have to distinguish between the projects we have launched for security of supply reasons and others. That we have changed our policy and our focus does not mean that we should redo everything that under development — that is not possible.

Will investments in natural gas in some regions of Europe, like Central Eastern Europe, also become stranded assets soon?

I disagree when you say natural gas has no role — that investing will automatically lead to stranded asset. When you look at the future and at the new climate targets for 2030 (at least -55 per cent), whatever you do, you will never produce enough renewable electricity by 2030; you will not import enough renewable electricity; you will not electrify all the sectors, especially those that are hard to abate. You need to open up a second leg, which is gas in a broader sense, which is hydrogen, bio-gas, bio-methane and synthetic methane.

And this means, whether you like it or not, that there will be a period where we will continue with natural gas. I can’t tell you for how many years this will be, it depends on how fast we are capable of developing the other energy carriers such as the renewable ones. If it goes faster, the gas decrease will go faster. But if you want short term success in bringing down emissions, the decarbonisation of natural gas going to low carbon gas makes sense. But here comes the problem, and here I agree with you. You have to be very careful with your investment, because there you can end up with stranded assets. These investments are roughly done for 20-25 years, but do we believe that in 20-25 years our renewable energy world will look different than today? This is the big challenge. I don’t see the big challenge in the natural gas side today, because I would not invest in natural gas today. The real question is not on gas, but on the decarbonisation of natural gas; you cannot say you don’t want it, because it is needed. All analyses show that we will not have enough renewable gas and renewable energy to achieve our targets.

The Commission recently presented its Hydrogen Strategy. For the huge investments needed to produce 40 Gigawatts of Green hydrogen by 2030, you rely on the new platform, Clean Hydrogen Alliance, where basically all companies meet at CEO roundtables and decide what projects should be prioritised. What is the role of this Alliance? Don’t you think this will create the same problems of conflict of interest that we saw with gas governance? And do you find it strange that only DG Grow is dealing with this platform, and not people from DG Climate or Energy?

The Clean Hydrogen Alliance is under DG Grow, but believe me, the energy side, the climate side — also EVP Timmermans and Commissioner Simson — they are closely associated. You just have to attach it somewhere. And because it was initially a kind of industry alliance, then it makes sense to go to DG Grow. But maybe the title is a bit misleading. If you look at the membership, you have everybody there — you have banks, NGOs, associations, industries and other stakeholders. And the companies are coming from all over and it’s not only the producing companies or TSOs (operators), but also the industry — those who have to decarbonise. They can propose their projects. For instance, I have seen a cement company that wants to become CO2-neutral.

Will this limit be clearly underlined in the next TEN-E regulation?

The Alliance can not submit proposals for PCI lists. Certain projects will go in the TYNDP if it is purely infrastructure, but others are transformation projects or technology projects.

The Commission in its Hydrogen Strategy accepted an inclusive approach for Hydrogen. What is the role of Carbon Capture and Storage (CCS) and Blue Hydrogen in the coming years?

CCS can be used in two ways. The first is a way to decarbonise natural gas. This is important, especially for some industries that are hard to abate. If you want to decarbonise a steel company, you need an enormous amount of hydrogen. In the foreseeable future, we will never get that from renewable energy, because the renewable energy that is produced should first go into electrification and not into electrolysis. This is sometimes forgotten. It would not be cost-efficient to use all our renewable energy for electrolysis. We have to go to the maximum of electrification with renewable energy. And therefore, if you don’t want to wait for 10-20 years. then you have to do something else. Especially with the new targets (-55 % CO2 by 2030), we need to do something else. We need to decarbonise natural gas and CCS is one of the technologies we can use. But there is also pyrolysis, a different technology where you take the carbon in a solid form and it’s much easier to store and to transport it.

But CCS also has a second advantage which can be used in the long term. You can use the CCS technology to take CO2 out of the atmosphere and use this technology to increase and improve the carbon sink.

Should the Commission invest in the repurposing of international gas pipelines for hydrogen or would it be better to invest in regional hydrogen production?

That is still an open question. I don’t know what will be the future means of transport. There is no doubt that we need the second leg: gas in a broad sense. If we look at the electricity, we need to go  further and further with renewables, and we have to do the same with gas. It is a process. We need to accelerate it now, we cannot take as much time as with electricity. We have to be fast. In order to do this, we need infrastructure. I think the first business case for the operators is to think about how to transform the existing infrastructure. I don’t know whether it will be hydrogen coming from, for example, Morocco or Russia, or if it will be natural gas converted into hydrogen close to the consumption centre.

Do you see blue hydrogen as a fossil fuel?

In our definition, blue hydrogen will be ‘low-carbon’, but this is still fossil and this is still authorised. We need a definition of what low-carbon hydrogen is, and this will include a CO2 threshold, looking at the whole life cycle. All projects that fall under this threshold can be in, the ones above will be out. And the threshold could go down over time.We are developing this for the package that is coming out by the middle of next year.