On Wednesday 18th, the European Commission released its seventh State of the Energy Union report, addressing the current state of the energy sector in the EU. The situation outlined is twofold, seeing both improvements and shortcomings in the transition towards carbon-neutrality, to be achieved by 2050, and to reducing emissions by at least 55% below 1990 levels by 2030.
The origins of the crisis
The year 2020 has set a record low in the EU (and the rest of the world) in terms of greenhouse emissions, which, as compared to the situation in the base-year 1990, have decreased by 32% (Statista). In the meantime, the share of renewables in the energy mix of the EU has increased: in 2020, renewable energy sources accounted for 22% in gross final energy consumption.
However, 2020 was an anomaly, as emissions were particularly low due to the Covid-19 pandemic, which entailed an overall decrease in energy consumption (Eurostat). In 2021, consumption expenditure increased, shifting from services to manufactured goods, which require much energy to be produced and delivered from the places of production (especially Asia) to the markets in which they are sold (the West). Indeed, in 2021 total energy consumption has rebounded.
But the recovery has been quite unequal: in the decade before Covid, the 2010s, energy consumption had grown slower than the economy (by an average of respectively 1% a year and 3% a year), while last year it was almost the same (6% – 5,8%), meaning the demand was far higher than usual (World Bank). The situation was worsened by many other factors – Europe and China still using coal; the strong dependency from Russian gas, also due to the decline of the nuclear sector in France; Japan shifting to fossil fuels after the accident of Fukushima – of which the Russian invasion of Ukraine was just the last piece.
If it wasn’t already visible, the war in Ukraine showed Europe that the diversification of energy sources and energy flexibility are crucial to security and that energetic matters are not devoid of geopolitical consequences. As a result, the European Union has now not just one, but three problems to solve: energy cost, energy security and climate.
A difficult transition
In the medium-long run, the transition to renewable energy sources is fundamental to solve these problems, but it has to be addressed properly. Current investment in the green sector is not sufficient, the same way as supply chains are not sufficiently safe and workers not sufficiently skilled. In addition, there seems to be a lack of coordination in the EU between the private and the public sector and friction along different territorial levels (EU, states, regions, communities) on the right steps to take towards the transition.
Efficiency cannot be overlooked either: renewables cost money, and money cannot be thrown away. Take hydrogen as an example. Hydrogen is both an energy source and a carrier, but it needs energy in order for its potential to be freed. There is now an increased demand of energy for electrolysis as big as the entire energy consumption of France (Politico, 11/10/22). For this reason, investment in hydrogen is not in itself bad, but it is not a resilient energy source and it will cost too much for final consumers.
Another efficiency issue is that of electricity grids, power-intensive firms were originally placed near coal plants, where energy came from, so that now they are not located near renewable energy fields. This issue has to be addressed and re-planned by the EU
The state of the art
As for the outlook for the current year, both hydroelectric and nuclear-power production have decreased due to climate-related issues. Global warming is causing severe droughts that are detrimental to both sectors: lower levels of rivers and reservoirs have threatened the generation of hydroelectric energy, while unreliable water sources and increased temperatures mean a lack of water for cooling down nuclear power plants.
Despite being a valid mid-term solution in order to eliminate fossil fuels from the energy mix before Europe can count on renewable sources only, the nuclear sector is aging: nuclear power plants are old and, without the needed investments, the total output of nuclear energy production – now at less than 25% of total electricity production – is bound to decline until 2030, also considering that the construction of a power plant requires many years (EccoClimate, 18/8/22).
The solar powerhouse
But there is also good news. 2022 has recorded an increase in power generation from solar and wind, even though bioenergy is still the main source of renewable energy, accounting for 58% of the total. In particular, biofuels, together with non-biological renewable fuels, are essential for the de-carbonization of transport.
Solar seems to be the main asset of the transition and a valid mid-term solution to the current crisis, this year witnessing record growth of solar photovoltaics (PV) deployment, by 17 to 26%. With REPowerEU, the Commission proposed to phase-out fossil fuel-based heating and to optimize domestic solar energy generation. This will also help tackle soaring energy prices for households.
Nevertheless, some issues need to be solved. Europe still relies too much on external actors for producing the hardware (solar panels). As for the gas coming from Russia, we must take into account strategic concerns and avoid binding ourselves to a limited number of states, especially China, for key resources. In order to secure its PV supply chain against competitors and reduce dependency on raw materials, the Commission announced a European Critical Raw Materials Act, “which will also identify strategic projects all along the supply chain (extraction, refining, processing and recycling) and ensure that these project attract private and public investments” (European, Commission, 18/10/22).
The plan for the future
At the end of the decade, the share of renewables in the electricity mix is expected to grow from 37% in 2021 to 69%, but in order to maintain this trend and respect the commitments of the REPowerEU, a steep increase in the deployment of renewable energy will be required, together with simplification of bureaucratic requirements, integration of the electricity grid, improvement of the supply chain and, more importantly, Research and Innovation (R&I) activities in order to make required technologies available to the market.
According to the Commission, the whole process of implement the green transition and eliminate dependence on Russian fossil fuel imports by 2030 would require 300 billion euros, spread among different fields: €86 billion for solar photovoltaic and wind, 27 bn for renewable hydrogen, 56 for energy efficiency and heat pumps, 41 for adapting industry to use less fossil fuels, 37 for increasing biomethane production, 29 in power grid and electrification, 10 for new LNG infrastructure and gas pipeline corridors, and 1.5 to ensure security of oil supply. Part of this money has already been allocated through the REPowerEU Plan and the national Recovery and Resilience Plans, but further investment, both from the public and the private sphere, is much needed.
In conclusion, the energy crisis, started in 2021 and exacerbated by the war in Ukraine, has put enormous stress on the Union and on Member States. Russia has killed its European market and has deprived us of resilient resources, revealing how the energy transition is no more only a climate matter, but also a security one. On the other hand, these difficult times are pushing Europe to step up renewables. Despite the huge gap between where we are and where we should be on the path towards the energy transition, if politics is committed to address the problems outlined before, renewables are the solution.