Funding gap overshadows EU's first energy summit

BRUSSELS Wed Feb 2, 2011 12:31pm EST

BRUSSELS (Reuters) - The European Union will fall behind in the green technology race unless it matches rhetoric with action to plug a 100 billion euros ($138 billion) funding gap for infrastructure, EU leaders will be told this week.

Modernizing Europe's power grids to absorb and distribute vast amounts of wind and solar power will cost about 200 billion euros over the next decade, but industry is only expected to construct half of that without government help.

That poses problems for European hopes green growth will pull it out of its current economic crisis and help it compete against rivals such as Japan, China and the United States.

"From what has been disclosed until now, it looks as if China will decisively out-invest Europe in renewable energy, electric cars, energy saving and grid technology over the next decade -- that is, if Europe continues business as usual," EU Climate Commissioner Connie Hedegaard told Reuters on Wednesday.

Hedegaard's colleague, Energy Commissioner Guenther Oettinger, has an ambitious plan to drive forward useful energy projects that companies have often ignored or blocked in their quest for profits.

He will present key elements at the EU's first energy summit on Friday.

One such problematic project is pipelines to bring northwards a Spanish glut in gas from north Africa -- infrastructure that would benefit consumers in eastern Europe, but holds little allure for the French utilities that would have to pump it across their territory.

"The French government is not willing to go ahead with these gas pipelines," said Luxembourg Green group politician Claude Turmes. "France is continuing its policy of monopoly."

FUNDING GAP

Building new infrastructure to distribute gas around Europe became a priority after a pricing dispute in January 2009 cut imports of Russian gas via Ukraine during three weeks of freezing weather.

That energy security strategy will also be bolstered by plans for huge new wind farms in the North Sea and solar power parks around the shores of the Mediterranean.

But several countries such as Spain and the Netherlands have recently pared back subsidies for green power to help consolidate their budgets, and progress has been slow on the necessary grid interconnections.

Leaders at the February 4 summit will be asked to give Oettinger a mandate to explore ways of reducing the financial risks of infrastructure projects over the next decade, so that investors can be persuaded to plug the 100 billion euros funding gap.

EU funds are scarce amid the current crisis, and upcoming budget negotiations are expected to be tough, but Oettinger intends to leverage up the resources at his disposal by sharing the risk with industry on the trickiest projects.

"It is my goal to obtain up to one billion euros annually from 2014 onwards, partly from the EU budget and partly from project bonds or guarantees via the European Investment Bank," he told reporters on Wednesday.

Industry group BusinessEurope welcomed the plan.

"We need some catalyzer mechanisms at EU level to make it all happen," said BusinessEurope's energy analyst Folker Franz.

Others warned of the dangers to Europe's recovery if it misses the chance to compete on green technology.

China will invest the equivalent of over 520 billion euros in ultra high voltage transmission lines and smart grids to distribute green power over the next decade, environment consultancy E3G said in a report this week.

China's renewable energy capacity looks set to rise by 64 percent to 427 gigawatts by 2015, compared to 322 gigawatts planned in the EU by the same date, it added.

"Investment in innovation is especially essential in tough economic times, when new sources of growth and jobs are needed," EU Innovation Commissioner Maire Geoghegan-Quinn told Reuters.

"Neither public nor private R&D investment in Europe has so far been hit as hard by the crisis as one might have expected," she added. "But we need to keep up the political pressure."

(Editing by James Jukwey)

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