A renewable Europe: is it really possible?


Given climate concerns and Europe’s vulnerability to external supply shocks and threats, the ambition of becoming a zero-emission continent is particularly fascinating nowadays. Yet, whether it is science-fiction or coming future is debatable. Can Europe rely exclusively on renewables for its energy consumption? At the moment, the answer is negative: despite the increased weight of renewables in primary energy consumption, the EU remains heavily dependent on imported fossil fuels.

As we already explained in this newsletter, this dependence makes Europe particularly weak vis-à-vis external suppliers. Indeed, the conflict in Ukraine has once again raised concerns about the EU’s dependence on Russian gas imports, putting the security of supply objective at the forefront of the policy debate. In a context in which it is increasingly difficult for countries to push for energy and climate objectives on their own, the volatility in global energy markets, with oil and coal prices dipping to record lows and shale gas booming in the US, has added further challenges for the EU.

Internally, the lack of economic growth has delayed the need for new energy investments, but has added pressure on customer bills, making it harder to attract investments. Last but not least, delays in the completion of the internal energy market have also made it harder to fulfil the EU’s energy and climate objectives. Reliance on indigenous energy resources, such as renewables, and improvements in energy efficiency would mitigate Europe’s dependence on imported fossil fuels, thus reducing its vulnerability to external supply shocks. This has been well understood by the EU, which has put the climate agenda at the core of its Energy Union proposal as a way to strengthening energy security in Europe.

Europe has made significant steps towards its climate policy targets, but effort remains to be done. In 2012, greenhouse gas emissions had decreased by 19.2% relative to 1990 levels and the weight of renewables in total energy consumption had increased from 8.7% in 2005 to 14.1% in 2012. Projections show that some Member States are not on track to meet their 2020 renewables target, leaving the overall EU27 figure at 17.9%, short of the 20% objective. Nonetheless, the climate policy agenda remains ambitious.

The 2030 climate and energy package, recently released, commits Europe to reducing greenhouse gas emissions by 40% as compared to 1990 levels, to increasing the EU-wide weight of renewables on final energy consumption to 27%, and to improving energy efficiency up to 27% by 2030. Further, the Roadmap for moving to a competitive low carbon economy states that the EU should be prepared to reduce its domestic emissions by 80% in 2050, as compared to 1990. The achievement of this goal requires almost full decarbonisation of the power sector, given its greater potential to reduce emissions through renewable generation, as compared to other polluting sectors in the economy,  notably, transport and heating.

Member State projections indicate that current policies would only reduce emissions to 22% below 1990 levels by 2030. The additional measures currently planned would enhance emissions reductions, but only up to 28%. Even if more optimistic, estimates by the European Commission and the International Energy Agency also indicate that current policies are insufficient for the EU to comply with its 2030 emissions target. Thus, there seems to be a unanimous view for the need of further efforts to achieve decarbonisation. As recently stated by the European Environmental Agency “in order to meet its 2050 objectives and contribute fully to meeting the global 2°C target, the EU will need to accelerate its implementation of new policies, while restructuring the ways that Europe meets its demand for energy, food, transport and housing”.

As a consequence, progress to date does not allow pushing energy security objectives at the expense of climate policy objectives. How to tackle these two sets of objectives simultaneously represents one of the major challenges for stakeholders, policy makers and the society as a whole.

The Energy Union strategy implements this idea through a series of policies. The strengthening of the internal energy market through increased interconnection alleviates both security of supply and environmental concerns. On the electricity front, a more closely-linked network facilitates the integration of renewables into the electricity system by reducing the amount of back-up capacity necessary to compensate for their intermittency. It also enables a better use of renewables by reducing the likelihood of overproduction, which occurs when renewable energy production peaks at times of low demand. On the gas front, completing links in the gas network will curb our dependence on Russia as Europe’s dominant gas supplier. Increased infrastructure will also improve the functioning of the gas market, contributing to Europe’s resilience to unforeseen supply disruptions. There is no doubt that a substantial amount of additional infrastructure has to come online to reach those objectives.

In the Energy Union package, Europe aims at becoming the “most energy efficient economy in the world” as well as “number one in renewables”. While traditionally falling within the climate agenda, the strengthening of energy efficiency and renewables targets can also alleviate concerns over security of supply. Since gas consumption in buildings represents 40% of total gas consumption in Europe, there is ample scope to decrease import dependency by reducing gas consumption in heating through improved efficiency or through the use of renewables for district heating. Indeed, as estimated by the European Commission (EC)5 , a 1% increase in energy savings could diminish gas imports by 2.6%. Finally, the revival of coal at the expense of gas raises not only environmental concerns, but it also puts security of supply at risk as gas-fired plants are being mothballed – particularly so in central Europe.

While there are several factors behind that trend, it is beyond dispute that the failure of an oversupplied carbon market to deliver sufficiently high and stable permit prices – which have plunged almost 70% since 2008 – has not deterred power companies from switching from more expensive gas to more polluting coal, particularly so in the UK, Germany, Spain and the Netherlands. Indeed, carbon prices of €40/Ton would be needed for power companies to be willing to switch back to gas. However, with current prices at around €6/Ton, it is unlikely that future prices will increase enough unless reforms are put in place to absorb the current surplus of allowances.

To the extent that the survival of natural gas plants is facilitated by higher carbon prices, a deep reform of the EU Emissions Trading Scheme is necessary first and foremost to address the environmental externality, but also, as a tool to reinforce security of supply in Europe.

It seems that Europe is struggling to enhance a green energy system, with redesigned electricity markets. The expected picture would be a regulator with a more prominent role in determining the amount of gas to be procured. Consequently, driven by competition among potential investors, prices would decrease to the average costs of the best available technologies, thus allowing consumers to benefit from technological progress through lower prices.

Thus, given the abovementioned facts and figures, can Europe rely exclusively on renewables for its energy consumption in the next future? It is possible (and it could be also desired), provided that the renewables-based energy system is backed up by gas.

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