The path to implementing Europe's energy strategy

Planning an energy strategy for Europe is paramount: implementing it will deliver climate and economic success, writes Kristian Ruby, secretary general of Eurelectric.

The year 2022 was an unprecedented year of turbulence for the energy sector, as European citizens and businesses were left reeling from skyrocketing gas and electricity prices. Energy-intensive industries suffered a hammer blow: more than a third of the EU’s aluminium, zinc and silicon production was curtailed, with risk of permanent smelter closures.

Utilities also faced hardship with an unprecedented liquidity crunch driven by high-margin calls and strict collateral requirements. EU governments had to come to the rescue, extending around €148 billion in credit lines. Meanwhile, oil and gas companies raked in historic profits close to €200 billion. One year on and the outlook has improved.

Europe managed to keep its lights and heat on, while reducing Russian gas imports as well as overall gas consumption by 19%. Concurrently, day-ahead electricity wholesale prices came down to €115 per MW/h due to higher imports of liquefied natural gas from Norway, the US and Algeria, full gas reserves, warm weather conditions and reduced demand.

And the energy crisis did not stop the power sector from decarbonising. As shown in Eurelectric’s Power Barometer 2023, the EU electricity mix has gotten much cleaner over the years, with our emission intensity dropping by 36% compared to 2000.

Have you read?
Eurelectric urges accelerated grid expansion and digitalisation to meet green goals
Massive clean electrification must drive Europe’s decarbonisation – Eurelectric

In 2022, lower generation from nuclear and hydropower caused by droughts and maintenance backlogs resulted in a slight rise in emissions due to increased coal-based electricity. Improved nuclear and hydro production, however, along with warmer weather brought things back on track.

Implementing targets

With seven years until 2030 and an unprecedented landscape of challenges, the EU must now refine its strategy to win the ultimate battle: climate change amid a new balance of power. While the planning of any strategy is paramount, it is the implementation that will ultimately deliver success.

The power sector will have to go through a systemic transformation in the coming years to meet ambitious decarbonisation targets on the back of more frequent extreme weather events and increasing geopolitical tension. Yet, electrification rates have been stagnating over the past 15 years in all sectors.

To reach net zero by 2050, the share of electricity in the overall energy mix needs to triple, according to Decarbonisation Speedways, a study commissioned by Eurelectric. However, we see, some encouraging trends both in the housing and transport sectors. In 2022, heat pump sales reached a new record with a milestone of 20 million cumulative units and a 36% increase from 2021. Similarly, over 20% of new cars and 13% of new buses sold in 2022 were electric. These are clear improvements even if change needs to happen faster to comply with the political targets.

A critical element to make e-mobility a success is a proper charging infrastructure. Across Member States big disparities persist and the EU would need a seven-fold increase in the charging infrastructure by 2030 to keep up with EV growth. Additional effort is needed here. The same is true for renewables. While solar deployment has soared, the same cannot be said for wind projects.

Both onshore and offshore deployment are lagging behind, mainly because of supply chain issues, poor tender design and permitting delays. Some 80GW of wind capacity was stuck in lengthy permitting processes as of 2022. Adding to the complexity is the capacity of the distribution grid to accommodate growing connection requests from renewable projects, EVs, heat pumps, and smart charging stations.

As shown in Eurelectric’s recently published Power System of the Future report about grid capacity, the EU grids will need to be ready for 50 million heat pumps, 65 to 70 million electric vehicles and over 600GW of additional renewable capacity. Most of the new generation capacity will be connected directly to distribution grids, which today face cumbersome permitting and insufficient investments.

Increasing resilience

It is high time legislators and regulators recognise the need for anticipatory investments to expand and digitalise Europe’s electricity infrastructure, thereby enabling higher electrification rates while increasing resilience to more frequent threats from extreme weather and foreign actors. According to the European Commission, the needed electricity grid investments amount to €587 billion, with the majority going to the medium and low voltage level.

Getting our infrastructure fit for net zero will not only support the massive renewable generation needed to decarbonise our economy, but also strengthen our security of supply and reduce the EU’s dependence on costly fossil fuel imports. With electric solutions moving centre stage, security of supply will increasingly be about reliable electricity. Homegrown renewables will have a key role to play, but we need a systemic perspective with a focus on energy savings, infrastructure, and firm and flexible technologies to back up variable renewables.

Conventional power plants will continue to play an important role to stabilise the system. At the same time, however, we now must scale up the firm solutions of the future. Storage technologies need to be rolled out much faster than is the case today. Currently, pumped hydro storage accounts for 90% of our storage capacity, and while we need to build it out further, batteries both at prosumer and utility level will need to massively expand as well.

Innovation, infrastructure buildout, digitalisation and reliable supply all require investment. Making a clear business case to invest in Europe’s energy transition is our most powerful tool to win the climate battle. In other words, the ongoing negotiations about reforming the electricity market can really make or break the transition.

A balanced reform will keep the energy transition on track. A botched reform that hampers investor confidence could fundamentally derail climate action in the EU.

2022 was a year of historical hardship, but also a turning point. Policymakers, electricity industry and consumers responded to the crisis and, collectively, we are better equipped to face the new reality. But we shouldn’t rest on our laurels.

Massive challenges persist and unforeseen events like a cold winter or new geopolitical developments could further complicate the situation. Even if things have improved, we are not yet out of the woods, so let us stay focused and stick to the strategy.

Join Eurelectric at Enlit Europe and attend the Digitopia session on the Digitalisation hub on Tuesday 28 November, from 1.30-3.30PM.