Energy markets in 2022 were defined by two urgent imperatives: the security of affordable energy supply in the short-term and the fight against climate change in the longer-term, writes James Forrest, Global Industry Leader for Energy & Utilities at Capgemini.
These imperatives were defined in Europe where, in response to the hardships and global energy market disruption caused by Russia’s invasion of Ukraine; the European Union (EU) launched the REPowerEU Plan. The plan is designed to transform the Blocks energy system, end dependence on Russian fossil fuels, and tackle the climate crisis.
While a shift from fossil-based energy production and consumption to renewable energy sources is happening – it’s not happening fast enough to limit global warming to 1.5 degrees. In fact, some of the latest projections suggest we are heading to 2.5 degrees of warming by 2030.
However, with increased action, inspired by the need to ensure both energy sovereignty and security, the promise of a successful energy transition is edging closer. The transition won’t be easy, but every effort must be made to protect and accelerate our collective progress towards net zero. So, how can we do it?
Encourage energy efficiency
Energy efficiency and conservation gains are among the fastest, cheapest, and easiest ways for Europe to reduce reliance on fossil fuel imports in the short term and alleviate the costs of surging gas prices this winter. Cost-effective efficiency measures can deliver a reduction of 12% in annual energy-related emissions.
REPowerEU aims to increase energy efficiency savings from 9% to 13% by 2030 through measures like retrofitting buildings, switching to more energy efficient household appliances, using higher fuel economy standards for vehicles, and improving the recovery of industrial waste heat. France, for instance, has announced subsidy increases for the installation of heat pumps to replace less-efficient gas boilers and is now Europe’s leading market for heat pump sales.
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Governments, businesses, and individuals must all take incentives to reduce their energy consumption. This is especially important in the shorter term as the impact of the energy crisis continues to be felt across Europe. For businesses alone, turning down thermostats by just one degree can deliver a 10bcm reduction in energy use.
State players must play a vital role in setting energy reduction strategies and creating incentives to help households reduce their energy bills. The potential for long-term impact is significant as efficiency initiatives could deliver a 40-70% reduction in greenhouse gas emissions by 2050.
Leveraging the biomethane opportunity
The EU has been relatively swift in responding to the continent’s energy dependence from Russia. Russian energy supplies made up 45% of European gas imports in 2021, by comparison, in September 2022 the figure dropped to just 14%. This was due to the EU’s ability to find alternative supplies and reduce demand to compensate for the shortfall. But to fulfil future energy needs and establish a sustainable energy mix, we need to activate long-term energy strategies that will stand the test of time and growing population demands.
Biomethane gas (or Biogas) is one part of the solution, and REPowerEU includes a target to produce 35bcm a year of biomethane within the EU by 2030. The Biogas target will replace 20% of natural gas imports from Russia with a sustainable, cheaper, and locally produced alternative. As a renewable and dispatchable energy source, scaling up the production and use of biomethane also helps to address the climate crisis.
The EU is already bracing to accommodate this new model, by 2024, EU states will have to collect organic waste separately, which marks an opportunity to upscale the production of sustainable biomethane as well as create income opportunities for farmers and foresters.
However, meeting the energy and climate crises requires a complex response and Europe will need to look beyond just gas to ensure a diverse and balanced supply of energy. Therefore, accelerating research and development (R&D) in green energy technologies is becoming vital for long-term European energy strategy.
Accelerating Wind and Solar
Renewable energy output made up 28.7% of global electricity generation but meeting 2050 net zero targets requires renewables to share more than 60% of electricity generation by 2030. Currently, wind generates 15% of Europe’s electricity, while solar generates 10% but we still need to see more technological advancement aimed at improving wind and sun conversion rates.
As the most advanced renewable solutions currently available, wind and solar power are the frontrunners for Europe’s renewable energy mix. Last summer, the EU generated 12% of its electricity from solar power, helping to avoid a potential €29 billion ($31.3 billion) in gas imports. Still, further technological advancements in solar power are possible like developing alternative materials to increase the efficiency of solar cells.
To accelerate deployment of clean and efficient energy technologies, the EU will need to address slow and complex approval procedures for renewable projects and attract increased investment. This means addressing bureaucratic red tape and it’s already starting to happen. The COP27 summit saw the creation of the Planning for Climate Commission which is designed to fast-track approvals for solar and wind projects. We can expect to see EU players leading the charge in these efforts in the short-to-mid-term.
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Elsewhere, for wind, floating offshore wind platforms deployed on floating structures secured to the seabed are an emerging solution. Floating offshore wind presents the possibility of deploying wind projects on deeper waters where the wind is stronger and can produce electricity more frequently.
Navigating the renewables paradox
With solar and wind production set to increase exponentially in the coming years, European players will need to be cognizant of where they source wind turbines and PV modules. For instance, in our annual WEMO report we saw that 75% of all imports of PV panels come into the EU from China. European domestic PV production has declined sharply over the past decade as many manufacturers have been unable to compete with cheap procurement from China.
Historically, Europe has been the technology and price taker, rather than a leader. To avoid replacing Russian gas dependency with Chinese solar PV dependency, the EU must seize the opportunity to invest in its own solar panel and wind turbine R&D and industries to regain sovereignty.
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The ongoing economic and energy crises presents the Block with an opportunity to do things differently and an opportunity to regain its energy sovereignty while also making progress on achieving climate action goals. Achieving the REPowerEU ambition is possible, with continued commitment and investment the EU will be able to achieve secure and reliable sources of energy to meet the needs of its growing populations and corporate industries.
Ultimately, it will require a combination of policy, innovation, and collaboration to effectively balance energy security with climate change goals in Europe. By working together, Europe can ensure a sustainable and secure energy future while also playing a leading role in the global fight against climate change to limit global temperature to 1.5 degrees.
