New challenges in decarbonising an interconnected and digital world

Post-COP 21, the European power sector has witnessed significant innovation, with new supply and digital technologies and energy-efficient business models predicted to be worth €70bn to the EU economy by 2030. Further benefits are also expected to be seen in the areas of energy security, systems cost savings, convenience for consumers, and advances in electricity supply, all of which should create efficiencies not only in energy but sectors such as transport, building, and other industrials. However, the Energy Collective highlights that the challenge is to redesign the market to support maturing low-carbon technologies and reform the EU emissions trading system to account for the changing economics of power systems, to ensure proper price signals for a cost-effective transition.

The European power sector is currently undergoing one of the most transformative changes in its history: accelerated technological change, shifting consumer preferences, the application of ICT technology to link power generation and demand, as well as the evolving EU climate and energy policy agenda. These provide unprecedented challenges and important opportunities for the sector.

As a global leader in decarbonisation, the European power sector is fully committed to decarbonising power supply by 2050, and is already taking important steps in this regard. In 2014, 56% of electricity in the EU came from low carbon sources. In the same year, the share of RES in the power mix became the largest source of low carbon electricity in the EU, comprising 28% of total power generation.

The ongoing transition in the energy sector has propelled innovation in the power sector to the fore. It has been estimated that accelerated innovation in power supply technologies and business models for energy efficiency will be worth €70 billion to the EU economy by 2030. Additional benefits are also expected in energy security, lower system costs, and consumer convenience. New and emerging technologies, combined with advances in digital technologies, create opportunities for improvements in energy efficiency, for example, not only in the power sector but also transport, buildings and other industrial sectors.

If the EU is serious about decarbonisation, we must all be prepared to embrace new trends and be progressive about creating the right market conditions for low-carbon technologies to flourish. The real challenge in this context is to create a holistic market design that delivers the technologies needed for a balanced low carbon energy mix, while being able to adapt to the evolving economics of power systems. The new market design, including a reformed and strengthened EU ETS, must provide a solid basis for sustainable investment in low carbon technologies, ensuring in particular a robust business model for such investments. Only the combination of an effectively reformed EU ETS and an improved EU electricity market design can lead to proper price signals from the relevant markets to drive investments in mature low carbon technologies, allowing decarbonisation to take place in a cost-effective manner.

Meanwhile, in the midst of this energy transition, Europe needs to ensure secure, sustainable, affordable and competitive energy for all its citizens and businesses. The Energy Union project, based on its five mutually supportive dimensions (energy security, solidarity and trust; the internal energy market; energy efficiency as a contribution to the moderation of energy demand; decarbonisation of the economy; and research, innovation and competitiveness) is intended to address these challenges.

The European power sector sees immense potential in the Energy Union project and we fully support efforts to develop an ambitious, European approach to energy policy. This is an opportunity for Member States to enhance security of supply, cost competitiveness and emission reductions in ways which individual countries cannot achieve on their own. EU institutions and Member States should therefore work together to ensure that collective and national measures lead to the development of a decarbonised and fully competitive single market in energy.

The outcome of the COP21 Paris Climate Conference last December marked a turning point in the building of a global low-carbon economy, setting in motion an irreversible trend towards decarbonisation. According to the IEA, the full implementation of climate pledges will require the energy sector to invest $13.5 trillion (€12.4 trillion) in energy efficiency and low-carbon technologies from 2015 to 2030, representing almost 40% of total energy sector investment. EURELECTRIC is therefore happy that the Paris Agreement provides a clear and unequivocal signal to government and investors to invest in low-carbon technology in line with the long-term decarbonisation objectives.

In this context, the power sector supports the Commission’s proposal to revise the EU ETS Directive. It puts the EU on course to take important steps on the path towards cost-effectively decarbonising the European economy. However, the success of the reformed EU ETS will depend on ensuring full consistency and coherence between the various elements and targets of the 2030 Climate and Energy Framework, as well as developing an adequate governance framework which enables the achievement of these objectives.

European policies and implementing instruments must therefore be designed in a way that does not undermine the overall economic efficiency and environmental effectiveness of the EU-ETS. Coherent and integrated policy instruments based on a well-functioning EU ETS will be crucial to achieve the EU’s GHG emission reduction targets on a level playing field and in the most cost-effective way.

As a global leader in decarbonisation, the European power sector is committed to decarbonising power supply by 2050. In 2014, 56% of electricity generated in the EU came from low carbon sources. We see electricity on track to becoming a carbon neutral energy carrier and if used more widely to replace fossil fuels in transport, heating and cooling, more electricity can actually mean reductions in greenhouse gas (GHG) emissions and more energy efficiency.

To date, the European electricity industry has delivered the bulk of GHG emission reductions on the pathway towards a low‐carbon European economy, these reductions coming primarily from the supply side. Looking forward, we see the electrification of the demand side sectors of the economy, which do not fall under the EU ETS, as being crucial on the path to decarbonisation.

The upcoming revision of the Effort Sharing Decision and the EU’s strategy for decarbonisation of transport and heating and cooling, provide an excellent opportunity to enhance the role of decarbonised electricity in achieving decarbonisation. We need stronger commitment to electrification to ensure that not only the electricity mix, but also important sectors such as heating, cooling and transport, will be decarbonised.

In conclusion, it is clear that digitisation and innovation, combined with the political focus on an efficient and competitive low-carbon economy, will require a complete re-think of the European power and our entire energy system.

EURELECTRIC will approach this topic at the EURELECTRIC Annual Convention taking place in Vilnius on 6-7 June 2016, which will focus on the new “e-lectricity landscape”. The conference will explore the economic, regulatory, environmental and societal factors that are giving rise to a complex and digitised, low carbon electricity system, with a number of new players emerging.

The main conference themes to be debated at this annual gathering include:

Decarbonising in an interconnected and digital world

Attracting and empowering customers in smart new ways

Enhancing the value of the intelligent grid

Smarter power markets in the digital age

Governance and politics, out of sync with a fast-changing world?

By Hans ten Berge, EURELECTRIC Secretary- General

Photo Credit: Justus Blümer via Flickr