Russia gas supply threat focuses EU debate on power connections

Thu Jun 26, 2014 12:07pm EDT

* Pressure on France to boost links to Spain

* Britain, Italy, Spain virtual energy islands

* European Commission has named 15 percent power link goal

* All links, including South Stream, have to be EU legal

By Barbara Lewis and Geert De Clercq

BRUSSELS/PARIS, June 26 (Reuters) - Russia's cut in gas supplies to Ukraine has driven European Union leaders to debate how to bridge the gaps in Europe's grid urgently, replacing decades of fragmentation with a single, united energy market.

EU policymakers have long dreamed of matching economic union with energy union, in which power and gas flow freely from Amsterdam to Athens.

So far, the European Union's 28 countries have been slow to connect their wires, looking instead to protect national interests as each member state still has right to decide its own energy mix.

In particular, France, home to nuclear electricity giant EDF and one of Europe's biggest exporters of power, has stood in the way of letting Spain's abundant surplus of power and natural gas head over its border for the benefit of other nations, rivals say.

Spain's surplus has the potential to make a big contribution to Europe's energy security. The maximum amount of power used in the country on the coldest day of 2013 was less than half of its installed capacity. It also imports gas from a variety of non-Russian suppliers, which could be distributed widely.

Portugal and Ireland also have energy to spare.

A draft prepared ahead of EU leaders' debate on energy as part of a two-day summit on Thursday and Friday, presents a more joined-up network of cables and gas links as part of the answer to EU energy vulnerability.

The document underlines the case for "fostering missing infrastructure to put an end to any isolation of member states from European gas and electricity networks by 2015."

In what EU diplomats said was a reference to Russia's South Stream pipeline, the document, seen by Reuters, also said all power and gas links, including those involving non-EU nations, must respect EU single market rules on competition when operating on EU territory. This aims to prevent a single company controlling both the pipeline and the gas flowing though it.

Gazprom's South Stream provides security of gas transit because it would pipe gas directly from Russia to the EU, bypassing Ukraine, but it fails to meet EU concerns about diversifying supplies. The Commission also says in its current form, it breaks EU competition law.

The bloc relies on Russia for about 30 percent of its gas needs. Roughly half of that is shipped via Ukraine, whose own gas supplies Russia has cut off because of a row over pricing and unpaid bills.

More joined-up grids and pipelines - provided they respect EU law - are the answer, the Commission, analysts and many member states say. They have other benefits, such as evening out price differences, cutting costs for those who pay the most.

POLISH PLAN

Poland, which neighbours Ukraine and is a route for Russian gas, has led the calls for EU energy unity, while identifying France as a problem.

"If Portugal and Spain would be connected to the rest of Europe, just doing that would increase energy security," Polish Prime Minister Donald Tusk said in a Brussels speech in May.

EU diplomats say Poland's plan, which includes coordinating gas purchasing to prevent Gazprom agreeing sharply different prices with different nations, has critics, but there is wide support for better connections.

In its energy security strategy published earlier this year, the Commission mooted a target for cross-border links to equate to 15 percent of a nation's power generation capacity by 2030.

There is no gas pipelines goal, but the Commission has drawn up a list of energy projects relevant to more than one country, which qualify for EU funding and accelerated planning. They do not include South Stream.

Spain and Portugal are pushing for an interconnection target of 30 percent, EU diplomats said.

That would be challenging, given that the EU is far off an existing non-binding target of 10 percent and Britain, Ireland and Italy, as well as Spain and Portugal are virtual energy islands with connection capacities of just 3-5 percent, according to Commission figures.

France's lack of links to Spain is a particularly sore point for the Spanish - and its utilities such as Acciona Energia and Iberdrola - who would like to offload the abundant surpluses they have following investment in renewables.

"France has no interest in letting in power from Spain, but connections from Spain into the rest of Europe could help mitigate the Ukraine problem," a high-ranking official at a Spanish energy company said, speaking on condition of anonymity.

France denies that it is an obstacle and says the main problems are the high costs and environmental constraints on building infrastructure through the Pyrenees. (Additional reporting by Tracy Rucinski in Madrid. Editing by Jane Merriman)

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