Electrification can reduce fossil fuel imports by 80% says CIP

Europe can significantly reduce dependence on imported fossil fuels and lower power prices through accelerated electrification and clean energy build-out, according to CIP. 

As the closure of the Strait of Hormuz continues, a new report from CIP highlights that Europe’s continued dependence on fossil fuel imports comes with a geopolitical price premium. 

According to the fund manager for greenfield renewable energy investments, imported fossil fuels currently account for around 40% of Europe’s energy demand, at an estimated annual cost of approximately €250 billion ($292.5 billion).

The report, Charging Ahead - A Roadmap for an Electrified, Competitive and Resilient European Energy System, shows that by replacing imported fossil fuels with homegrown, clean energy, by 2050 Europe can reduce fossil fuel imports by approximately 80%, reduce power prices by up to 40% and supply 95% of electricity from domestic clean power sources.

CPI’s report analysis is based on a bottom-up energy system model that optimises Europe’s electricity, hydrogen, and heating systems on an hourly basis. The model was developed together with EA Energianalyse, a Danish consulting company providing energy analysis and performing research in the field of energy and climate change.

Commenting on the findings in a release was Martin Neubert, Partner and COO at Copenhagen Infrastructure Partners: “Europe does not have to choose between affordability and energy security. 

“Electrification fundamentally changes how the energy system operates, so by replacing imported fossil fuels with domestic renewable energy, Europe can reduce its exposure to global price volatility while bringing down power prices. As an added benefit, emissions are reduced as a direct consequence of the shift.”

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Minimising the role of gas

According to the report, Europe is structurally exposed to imported fossil fuels and, therefore, geopolitical volatility. Today, gas prices determine the price of electricity roughly 60% of the time in the EU. This carries a significant cost, as gas prices in the EU are two to three times higher than in the US.

Thus, it says that realising the shift towards local, clean power depends on accelerated investments in energy infrastructure, particularly grids and system flexibility. 

At around €210 billion ($245.7 billion) in annual investments through 2050, the cost to realise a competitive and resilient energy system is on par with the estimated €250 billion Europe spends each year on fossil fuel imports.

However, says the report, electricity infrastructure is not on track to meet Europe’s ambitions, and grid build-out is a major bottleneck. 

Europe will need to invest around €2.9 trillion ($3.4 trillion) in grid infrastructure by 2050, approximately €120 billion ($140.4 billion) per year, to support electrification and integrate clean energy at scale.

The report says that mobilising private capital to unlock grid build-out and clean energy production at scale requires political action and clear, investable frameworks. 

The report also includes 16 policy recommendations. These include: safeguarding electricity market design and using targeted tax and tariff reforms to increase competitiveness of clean energy versus fossil fuels; leveraging private capital and knowhow to meet investment requirements; and incentivising grid operators to invest ahead of demand to proactively address congestions costs.