While energy price rises have started levelling off after steep inflation in 2022, the requirement to boost sustainable electricity capacity in Europe is becoming ever more pressing. There is need for strengthened transmission networks, boosting security of supply against unreliable partners such as Russia, in concert with further reduction of carbon emissions.

This is the conclusion of EU electricity association Eurelectric, which launched a Power Barometer in September 2023, while calling for a ramp up in capacity and transmission investment.

‘Following the unprecedented price spikes and policy interventions in 2022, gas consumption dropped by 19% and millions of consumers shifted to electric heating systems. Power prices also improved. Wholesale electricity prices have stabilised, going from an average of €227/MWh in 2022 to €100/MWh this year, with retail prices following suit,’ said Eurelectric.

Kristian Ruby, Eurelectric Secretary General, added: ‘We need more lines, more digitalisation and more climate resilience to get our grids fit for net zero. This requires a change in the regulatory approach. Grid operators must be allowed to make anticipatory investments so we can start preparing for higher electrification.’

Russian embargo impact 
Eurelectric data shows how Russia’s blocking of gas supplies to Europe initially harmed EU consumers, with the median household energy bill rising by 14.5% during 2022 compared to 2021. EU governments spent €46bn ($49bn) to shield private and business consumers from these price hikes. But with European energy markets adjusting to a loss of Russian gas supplies, the medium- and potentially long-term damage will be felt in Russia, noted a report from the European Council on Foreign Relations (ECFR) released in July 2023.

Russian pipeline gas exports fell from almost 146bn m³ in 2021 to 62bn m³ in 2022, with the Nord Stream 1 lines to Germany sabotaged in September 2022, and reports now suggesting Ukrainian special forces might have been responsible. Russian gas continues to flow to Europe via Turkey and (despite the ongoing war) Ukraine, but in the first five months of 2023, Russian pipeline gas exports to Europe were down to 10bn m³, as Gazprom cut gas production 20% year-on-year in 2022.

Meanwhile, the EU has found new suppliers and ramped up plans to build domestic renewable production and transmission, which will also help meet its international climate change commitments. ‘Europe’s response to Moscow’s gas war has so far been successful, causing irreparable damage to Russia’s energy trade,’ said the ECFR report.

Building renewable energy capacity 
A key element of developing energy autonomy in Europe is building renewable capacity. This has helped strengthen political consensus behind investments in EU green energy and stronger transmission networks. In March, the European Parliament and the EU Council of Ministers approved in principle changes to the EU Renewable Energy Directive – the policy underpinning the use of green power. The law, which was signed and published in October, raises the EU’s binding renewable energy target for 2030 to 42.5%, up from the 32% target and almost doubling the existing share of renewable energy in the EU.

Eurelectric analysis projects this will require around 605 GW of renewable capacity additions by 2030, mostly from wind and solar, delivering renewable capacity of 1,631 GW by 2030. Eurelectric has released a dynamic database called ELDA (ELectricity DAta) that shows that, as far as power generation is concerned, renewable energy operators already deliver 44.2% of EU electricity output – compared with 23.2% nuclear and 32.6% fossil fuels.

But the need for more investment is clear. EU hydropower, for example, hit by hot dry summers in recent years, generated 345 TWh in 2019 and 303 TWh in 2022. Wind is also an uneven source of power, with offshore wind generating 70 TWh in 2020 compared to 51 TWh in 2022; although onshore wind output has been steadily increasing from 300 TWh in 2019 to 378 TWh in 2022. Solar power output, a more predictable source of energy, has been steadily expanding from 123 TWh in 2019 to 220 TWh in 2022, according to ELDA.

‘We need more lines, more digitalisation and more climate resilience to get our grids fit for net zero. This requires a change in the regulatory approach.’ – Kristian Ruby, Eurelectric Secretary General

E-transport and sustainability mandates 
Transport poses a more significant challenge, with EU mandates to push up electric vehicle (EV) use finalised in April 2023 insisting that all new vehicles registered in the EU must be zero emission by 2035. The new Renewable Energy Directive lays down a lower target for transport by 2030, with green energy consumption at 29% of the total by 2030 and greenhouse gas (GHG) intensity reduction of at least 14.5% by that date.

Flexibility is key when it comes to renewable energy directives. The 42.5% target is an EU-wide goal, which enables less sustainable member states to piggyback on greener peers. That matters, given the wide gulf in renewable energy performance between EU governments, as shown by ELDA and EU statistical Eurostat data.

The gross energy consumption of Sweden, for example, in 2021, comprised 62.6% renewable sources, according to Eurostat. According to ELDA, 70.1% of Sweden electricity generation in 2023 came from renewables, producing 71 TWh of hydropower and onshore wind 33.3 TWh in 2022. By contrast, Belgium has significant catch up, with just 13% gross energy consumption coming from renewables in 2021. ELDA estimates that this year renewables will provide 34% of EU power, nuclear 42.2% and fossil fuels (largely natural gas) 23.7%.

As for the EU’s most populous countries, the 2021 renewable proportion of gross energy consumption was mostly similar: Germany at 19.2%, France 19.3%, Italy 19%, Spain 20.7% and Poland 15.6%.

Outside the EU, ELDA shows how public policy is not always linked to natural endowments in fossil fuels. Norway’s hydropower sector enables it to generate 98% of its electricity from renewables – leaving its North Sea oil and gas for export markets. The UK, by contrast, uses fossil fuels (mostly natural gas) for 45.7% of its power generation.

Improving cross-border transmission 
Transmission, especially cross-border trades, will help deepen these developing power markets and increase imports of renewable energy to some countries.

ELDA indicates significant swings in imports and exports, showing how green energy exports could play a key role in boosting sustainability. The UK had a net import of 25,677 GWh in 2021, but a net export of 3,845 GWh in 2022, and a net import of 22,242 GWh to November this year.

One problem for the UK in trading electricity, however, has been its withdrawal from the EU market coupling regime through the EU capacity allocation and congestion management regulation, following Brexit. This has led to trading inefficiencies. The UK government in August 2023 released a paper saying it planned to explore recoupling the two hourly day-ahead GB electricity auctions, offered by European Power Exchange EPEX Spot SE (EPEX) and Nord Pool AS (NP) to develop a single GB clearing price (as happened under EU membership), rather than the independent prices prevailing post-Brexit.

Within the EU, the European Climate, Infrastructure and Environment Executive Agency (CINEA) has been rolling out major grants to improve energy links between member states and with neighbouring non-EU countries. CINEA is evaluating responses to its latest call for proposals, which will receive €750mn in EU funding from the Connecting Europe Facility – with an announcement due in January 2024.

This follows grants from this programme, such as €307mn on building an interconnector between Sicily and Tunisia, along with €73mn building transmission lines between Slovenia and Croatia. These followed even larger Connecting Europe Facility grants in 2022, such as the EuroAsia Interconnector, where €657mn is being spent on linking the power networks of Cyprus and Greece. Also, a €170mn Baltic Synchronisation Project Phase II is reinforcing Poland’s grid and upgrading transmission infrastructure in Lithuania, Latvia and Estonia.

New electricity market rules 
To help ensure these investments deliver the most efficient movements of power, the EU has been debating new reforms to EU electricity market rules, which were proposed in March 2023 as amendments to the EU’s Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

One key change designed to improve market stability and hence the cross-border movement of power is a proposed requirement that public support for new investments in below cost renewable and non-fossil electricity generation should be via two-way contracts for difference (CfD), where governments channel excess revenues to consumers and utilities are protected against low prices.

Planned changes to the REMIT regulation will give national and EU regulators more authority to monitor energy market integrity and transparency, ‘thus ensuring that markets behave competitively, and prices are set transparently’, said a European Commission note. These reforms are still under discussion at the EU Council of Ministers and the European Parliament, although the Council struck a general approach on REMIT in June, backing its proposed ban on energy trading.

Ultimately, the EU is seeking to push forward an interrelated set of reforms designed to boost transmission operations, especially across borders, deepening electricity markets to aid the sale of, and hence investment in, renewable energy.

Speaking to the Smart Energy Summit in Brussels this April, EU Energy Commissioner Kadri Simson stressed: ‘The Commission’s market design reform proposal contains a wide variety of measures to stimulate the use and development of non-fossil flexibility. Increasing the flexibility of the electricity system and promoting non-fossil solutions will be key for an affordable, secure and decarbonised energy system.’ 
 

EU Energy Commissioner Kadri Simson calls to increase flexibility and promote non-fossil fuel solutions
Photo: European Commission – Lukasz Kobus