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QM-02-13-166-EN-C ; QM-02-13-166-EN-N ; Energy regulation and policy currently belong to the most important and developing areas in the European Union. THINK, the Florence School of Regulation's think tank was running from June 2010 to May 2013. THINK advised the European Commission (DG Energy) on Energy Policy and presented policy options each semester. This booklet gives an overview of the THINK output published in the second half of the project and focuses on 6 topics: How to Refurbish All Buildings by 2050; Electricity Storage: How to Facilitate its Deployment and Operation in the EU; A new EU Energy Technology Policy towards 2050: Which Way to Go?; Cost Benefit Analysis in the Context of the Energy Infrastructure Package ; Shift, Not Drift: Towards Active Demand Response and Beyond; From Distribution Networks to Smart Distribution Systems: Rethinking the Regulation of European Electricity DSOs. ; The THINK project (2010-2013) was funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute

THINK is a Think Tank advising the European Commission on mid- and long-term energy policy. QM-32-12-022-EN-C (print) QM-32-12-022-EN-N (digital) ; Energy regulation and policy currently belong to the most important and developing areas in the European Union. THINK, the Florence School of Regulation's (EUI) think tank advises the European Commission (DG Energy) on Energy Policy and presents policy options each semester. This booklet gives an overview of all the THINK results for the first 18 months of the project focusing on 6 topics: 1. Public Support for the Financing of RD&D Activities in New Clean Energy Technologies 2. Smart Cities Initiative: Fostering a Quick Transition Towards Local Sustainable Energy Systems 3. Transition Towards a Low Carbon Energy System by 2050: What Role for the EU? 4. The Impact of Climate and Energy Policies on the Public Budget of EU Member States 5. Off-Shore Grids: Towards a Least Regret EU Policy 6. EU Involvement in Electricity and Natural Gas Transmission Grid Tarification. ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute. ; Foreword 1 Preface 2 Introduction to the THINK Project 4 The Role of the Expert Hearings in the THINK Report Production Process 6 The Role of the Scientific Council in the THINK Report Production Process 8 THINK Report Policy briefs 11 a. Topic 1: Public Support for the Financing of RD&D Activities in New Clean Energy Technologies 13 b. Topic 2: Smart Cities Initiative: How to Foster a Quick Transition Towards Local Sustainable Energy Systems 21 c. Topic 3: Transition Towards a Low Carbon Energy System by 2050: What Role for the EU? 27 d. Topic 4: The Impact of Climate and Energy Policies on the Public Budget of EU Member States 35 e. Topic 5: Offshore Grids: Towards a Least Regret EU Policy 43 f . Topic 6: EU Involvement In Electricity and Natural Gas Transmission Grid Tarification 53 People 61 Scientific Council 63 Florence-based Research Team 70

With the European Strategic Energy Technology Plan (SET Plan) expiring in 2020, the EU needs to revisit its energy technology policy for the post-2020 horizon and to establish a policy framework that fosters the achievement of ambitious EU commitments for decarbonization by 2050. We discuss options for a post-2020 EU energy technology policy, taking account of uncertain technology developments and uncertain carbon prices. We propose a revised SET Plan that enables policy makers to be pro-active in pushing innovation in promising technologies, no matter what policy context will be realized in the future. In particular, we find that a revised SET Plan is needed to support EU market actors who face market failures with respect to financing innovation within a highly competitive global market for energy technologies. An extension of the current SET Plan and corresponding technology push policies is insufficient, as this does not allow policymakers to provide adequate support, especially in a policy context with low or zero carbon prices.

As current policy frameworks are expiring in 2020, the EU is revisiting its energy technology policy for the post-2020 horizon. The main long-run objective for energy technology policy is to foster the achievement of ambitious EU goals for decarbonisation by 2050. Given this objective, we discuss how European energy technology policy towards 2050 can be effective despite i) uncertain carbon prices, ii) uncertain technological change and iii) uncertain or alternating policy paradigms shifting its focus from decarbonisation to competition or security of supplies. Public support to innovation in energy technologies is needed to correct for market failures and imperfections, as well as to fully exploit trade opportunities of such technologies on the world market. Benefits from EU intervention can be expected from the coordination of national policies. Effective European technology push should put strong emphasis on pushing consumption-oriented and enabling technologies, as these offer a no-regret strategy vis-à-vis any future context.

QM-AI-11-001-EN-C (print)/QM-AI-11-001-EN-N (online) ; THINK Policy Briefs are abbreviated versions of THINK Reports. ; Substantial investments in RD&D in new low-carbon technologies are required to reach the EU climate objectives. Given existing market failures affecting clean innovation, developing a balanced portfolio of existing and new clean technologies will require both demand pull support measures – namely carbon pricing and the Renewables Directive, and direct public support to innovation. Innovation activities should comprise research, development and demonstration and be aimed at both (i) accelerating the decarbonization of energy systems to reach mid-term 2020 objectives by pushing especially more mature technologies and (ii) developing a diversified technology mix enabling the achievement of long-term 2050 objectives by supporting also still immature technologies. Cooperation and coordination among Member State and EU support policies have to be improved. The initiation of European Energy Research Alliances is a step into the right direction; their successful implementation should be fostered and progress monitored. The form of direct public support needs to be tailored to the features of each innovation project – depending on both the technology targeted and its level of maturity – and to the type of entity best placed to undertake the respective RD&D. Financing instruments need to be implemented in a way that encourages efficiency while not discouraging participation by the private sector. Competition for funds should be used and public funding should be output-driven whenever possible; the institutions set up to allocate funds should be flexible enough to avoid institutional inertia and lock-in. ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute

This highly unique book focuses on market design issues common to most EU gas markets, particularly in the context of closer integration. It explores in detail the characteristics and requirements of national gas markets in Europe, which are constructed as virtual hubs based on entry/exit schemes as a requirement of European law. The expert contributors analyse gas supply and demand patterns in the EU, showing that both have changed following the introduction of liquefied natural gas on the supply side and the growth of gas-fired power plants on the demand side. The repeated interactions between the transmission operators' activity and the gas commodity markets are addressed, as is the design of commercial networks in EU markets. The contributors also question whether the relationship between commercial and physical networks, in terms of the 'new' flexibility requirements of users, actually works. By way of conclusion, two proposals for the EU gas target model are presented, both of which tackle the fundamental issues raised in this book, as well as the organization of short-term transactions and the mechanisms for investment in vital new long-life infrastructure needed to integrate EU markets. This volume will be of great interest to practitioners, as well as academics, researchers and students in the fields of energy economics and industrial economics. Both European and non-European energy companies and regulatory authorities looking for an independent and analytical overview of European gas markets will also find this book to be a highly valuable resource.

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission. ; Topic 9 ; QM-31-12-303-EN-C ; QM-31-12-303-EN-N ; Challenges for policy makers are huge if the EU climate policy goal of reducing greenhouse gas emissions to 80-95% below 1990 levels by 2050 shall be reached. There is no doubt that a new energy technology policy design for the post-2020 period is needed, not only because the current policy framework is running out in 2020, but also because of increasing global competitive pressure in the low-carbon technology sectors. Moreover, as market actors are calling for new, transparent and lasting policy commitments now, the policy will likely be negotiated in times of financial crisis and institutional frictions in the EU, of which no one can predict its duration. To contribute to this debate and assist DG ENER in preparing a new Communication on 'Energy Technologies in a future European Energy Policy', this THINK report develops and discusses possible paths for a renewed EU energy technology policy towards 2050. We give recommendations for a renewed post-2020 SET Plan and European technology push taking into account that the policy context is uncertain and that not all possible futures are recognized in the EU Energy Roadmap 2050 yet. ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute.

QM-AI-12-001-EN-C (print)/QM-AI-12-001-EN-N (online). ; THINK Policy Briefs are abbreviated versions of THINK Reports. ; Current EU involvement in the regulation of TSO revenues and transmission grid tarification is rather limited and the existing heterogeneity among national regulatory practices and transmission tariff structures might be an obstacle for functioning competition and adequate investments in the grids. However, we see neither the need nor solid justification for an EU-wide harmonization of the regulation of TSO revenues. ACER should take the responsibility for benchmarking national regulatory practices. Transparency standards should be extended. Innovative solutions to trigger investments (e.g. competitive tendering or a European tariff component) need to be considered. The EU shall call for the removal of legal barriers that might impede grid investments; it is notably necessary that third parties can invest where incumbent TSOs do not show interest to realize identified priority projects. To increase transparency, the cost components included in electricity transmission tariffs should be harmonized; they should only include costs related to transmission grid infrastructure. Locational signals providing reliable ex-ante signals should be introduced. To avoid a distortion in competition, the EU should fix an average share of the G/L-components; thus, introduce a minimum G-component. The behavior of grid users in the competitive sector must not be distorted, i.e. transmission tariffs covering the long-term cost of infrastructure should not be calculated based on energy transported (i.e. in €/MWh). In the European natural gas sector, there are more than 30 entry-exit zones with mainly administratively determined borders. The EU should set principles for determining the ideal size of entry-exit zones, but let concerned NRAs and TSOs agree on the result. Once market areas are merged, there are good economic reasons to implement a system of common tarification. The role for the EU here should be limited to support sound agreements between the respective stakeholders. We recommend some harmonization in natural gas transmission tarification to ensure that the breakdown of costs among grid users and among entry- and exit points respects the principle of cost-reflectiveness as much as possible. Adequate discounts on short-haul transports should be encouraged. Asymmetric re-allocation of costs, such that 'captive' domestic consumers have to bear disproportionately high costs, shall be prohibited. ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission ; QM-31-11-489-EN-C (print) QM-31-11-489-EN-N (online) ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute

QM-AI-11-005-EN-C (print)/QM-AI-11-005-EN-N (online) ; THINK Policy Briefs are abbreviated versions of THINK Reports. ; In the current context, where public budgets are overstretched due to the economic crisis, there is a pressing need to understand the fiscal implications of climate policies. Policies intended to achieve decarbonization will impact both sides of a country's budget via changes in the tax levels and composition of taxes on the one hand, as well as transfer payments and direct investments on the other. Back-of-the-envelope calculations – comparing net public revenues in 2020 for a Baseline and an Enhanced Policy scenario – show that the additional revenues from carbon pricing and the reduction in revenues from excise taxes on fossil fuels clearly dominate other direct and indirect effects of policies on public budgets such as the additional expenditures dedicated to RD&D targeting low-carbon technologies. The aggregated net budget impact of all direct and indirect effects of new climate policies implemented in the Enhanced Policy Scenario on public budgets in 2020 for the EU-27 as a whole – given our simplyfying assumptions – amounts to additional net public revenues of about €12.6bn (0.09% in terms of the EU-27 GDP) under medium-level abatement costs. This makes a non-negligible impact which is nevertheless much lower than the impact on public accounts from changes in main macroeconomic variables over time. Differences among Member States mainly depend on the additional revenues they will obtain from carbon pricing, which are driven by three main factors: the carbon intensity of the economy, which is positively correlated with the absolute value of the net budget impact of new policies; the share of non-ETS GHG emissions, which is positively correlated with the net budget impact; and the reduction in GHG emissions resulting from new policies, which is negatively correlated with this impact. Countries most significantly affected, both positively and negatively, are among the "new" Member States in the EU-27. In contrast, the impact of new climate policies on large EU-15 economies would be generally positive and typically in line with average EU values. Therefore, authorities from the EU-15 may consider the option of sharing the economic burden of the transition to a low-carbon economy among EU countries, taking into account their economic strength. ; The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute