We take it for granted, but in some way, it is a remarkable feat of engineering that an email sent from Madrid to Warsaw is delivered without a hitch in a matter of split seconds. But what about a network disruption halfway in-between? Rest assured, the electronic communication will still get delivered. In today’s world, it is all but a certainty; and we owe this to the power of distributed networks. The myriad of interconnections is what makes the fiber network resilient. Even when bottlenecks form, there are alternatives and no market-player is able to exercise monopolistic power over transmission of the electronic communication. Same applies to energy.
Creation of a robust Energy Union is EU’s stated objective. And it will undoubtedly make energy more secure, affordable and sustainable for every member individually and the EU as a whole. The success of the Energy Union hinges a cross-border and cross-sector connectivity. While rationalizing and improving gas and oil transit infrastructure will go a long way, it is the interoperability across all sources of energy – from wind and solar to gas and hydro – that will help assure network resilience suited to XXI century needs.
While parallels can be drawn between the telecommunication an energy infrastructure, we must recognize one fundamental difference. Oversupply in the energy market may cause blackouts, and undersupply could lead to rationing of electricity, mile-long lines at gas stations, and freezing temperatures in people’s homes. There is a delicate balance to strike in meeting the exact needs of the customers at the exact time. This is where interconnectivity all across the European continent could help smooth out the volatility in supply and demand. Systemic integration at that scale will produce substantial energy savings creating conditions for the EU members to meet and exceed its Paris commitments.
Take the wind energy for instance. The technology is improving at an exponential rate and the costs are falling. Yet without an integrated infrastructure, the wind farm could become a liability rather than an asset if isolated from the interconnected electrical grid. The installed capacity in Denmark allowed the country to run entirely on wind power for a day. We must acknowledge that Europe’s leadership in renewables and this specific breakthrough are underwritten by the sophisticated and interconnected grid. Without it, wind would’ve remained a marginal contributor in the generation of electricity marred by concerns over variable power, demand management, and load shedding.
As reported by The Guardian, Europe is making major strides toward alternative energy sources: “Of the 24.5GW of new capacity built across the EU in 2016, 21.1GW – or 86 percent – was from wind, solar, biomass and hydro, eclipsing the previous high-water mark of 79 percent in 2014.” Yet the question of energy storage remains a major barrier for renewables. As the scientists and entrepreneurs alike work on better batteries, already today we could accelerate the transition to low-carbon future by strengthening interconnectedness and cross-border energy trade; and, thus, taking advantage of demand variations across time zones.
Ukraine recent experience demonstrates the power of connectivity (or lack of it) in almost every segment of energy generation. Ukraine’s energy system was built as part of the former USSR, but the promise of true independence and free-market advantages is with the connections to Europe. As Ander Aslund and I argued in a recent article, Ukraine has been going through a painful transformation over the last several years. Ultimately proving that a balanced energy system can’t rely on a single supplier. We’ve learned that without energy independence, true sovereignty is illusive and we’ve showed that the only way to deal with a monopolistic power in the energy supply market is to develop viable alternatives.
From the technology and standards standpoint, Ukrainian electricity system is more akin to Russia’s, Belarus’ and those of other post soviet states. Ukraine’s path to interoperability with EU lies through synchronization of the Ukrainian power system with the European continental power system (ENTSO-E) and disconnecting from former Soviet energy system called today UPS/IPS by disconnecting primarily from Russia and Belarus electricity grid.
During 2006-2014, Ukraine has repeatedly attempted to integrate into the ENTSO-E (the European Network of Transmission System Operators for Electricity) , but never succeeded. In 2016, a study of the conditions for the integration of power systems of Ukraine and Moldova with the ENTSO-E was completed. It concluded that the synchronous (parallel) work of two energy system and ENTSOEis possible, but requires a number of technical and organizational measures. Connecting to ENTSO-E will help reduce dependence on Russia, open alternative sources of supply, and thus assure stronger completion in the market and thus better commercial terms for consumers helping a new market model on electricity market to be fully introduced. The compatibility of the electric grid between EU and Ukraine will also enable an increase trade of electricity between EU and Ukraine due to more efficient use of available capacities and bring additional sustainability to European energy system in general.
When it comes to the gas transit system, interconnectedness simplifies and improves the management of gas reserves. The need for storage by each individual nation diminishes as the distributed network helps moderate volatility between supply and demand across the continent. Naftogaz started the past heating season with 14.7 bcm in reserves (the lowest level in recent history), and ended it with 8.1 bcm – the second highest level in 5 years. While it was a severe winter, the pressure on reserves was not the same, given the liability of multiple sources of gas supplies from Europe.
Clearly, connectivity in the system presents a major threat to a monopolistic power – Russia’s Gazprom. The potential for economic arbitrage decimates as dependency on a single source is reduced. Gazprom tried and failed to shut down the Slovakia-Austria interconnect and suffered losses of $5-6 billion (costs, fines, and lost revenues) trying to block NaftoGaz’s access to alternative suppliers. Recognizing the threat Nord Stream 2 is posing to European Energy security, Denmark passes law that could ban Russian pipeline from going through its waters.
It is highly unlikely that an average European consumer is familiar with the rules and regulations introduced in the Third Energy Package. Yet everyone benefits from it. The legislation demands the unbundling of production and distribution, greater transparency across the entire value chain, and, finally, it mandates consumer choice. In one word, the package pushes for fair competition, and when firms compete in the open market rather than monopolize it, consumers win.
Since DCFTA has entered into force on September 1st, the EU and Ukraine have an opportunity to grow stronger together. The visa-free regime ushered in the new era of connectivity among the people. The integration of mobile networks and phasing out of roaming fees allowed for more seamless exchange in telecommunication. Further integrating Europe’s electric grid and energy transit infrastructure will reinforce network resilience. And that will be a win-win for all.
