A patchy framework and project setbacks mean Europe risks failing decarbonisation commitments.
Underinvestment in clean energy threatens to derail Europe’s path to carbon neutrality by 2050 unless more action is taken, said Allianz in a new report ‘The EU utility transition: A pathway powered by solar and wind’.
The report said that electrification is the key to decarbonisation in the European Union region.
“The utilities sector is a key focus area if climate neutrality is to be reached by 2050: electricity demand is increasing and will reach record highs, driven by transportation and industries where the electrification rate is projected to rise from 30% to 60% by 2030,” it said.
If these established technologies are then implemented, the electrification rate could reach as high as 76% by 2050, the report added. Therefore, the report stresses, growth for wind and solar photovoltaics (PV) must triple.
Recently, Europe has experienced record high prices of fossil fuels such as natural gas, causing concerns both for users and asset owners actively engaging and investing to support a smooth and rapid transition to clean energy.
Current government policies across the EU are creating issues for investors as getting projects off the ground can take several years, slowing down clean energy transition. “There is a focus on trying to get to this long-term 1.5 degree Celsius commitment. But there are very few concrete steps on what is going to happen in the next ten years,” says Dr Markus Zimmer, (Senior) ESG Economist at Allianz Research, pointing to the multiple stages involved in formulating policy and adopting national climate plans.
Zimmer believes that Europe needs a framework in place to quicken the process. “It’s not that we want to see a push in a particular technology. What we want to see is a master plan across Europe where the governments’ lay out what they are actually going to do.”
Ramp up the renewables
The Allianz report highlights sluggish growth in renewable energy projects, partly hampered by a lack of private sector investment, meaning capacity is currently falling short of expected increases in energy demand.
But Zimmer says the bigger problem is a non-cohesive framework continent-wide. “It’s not that the investor for the project is hindered by money not being available but in Germany [the hindrance] is the legislative progress of getting this project up and running.”
Despite these shortcomings, 2020 was a landmark year in Europe, with renewables overtaking fossil fuels to become the main source of electricity in the EU with 38% of generation, the report said.
This compared to 37% for fossil fuels.
But hydropower and bioenergy have stalled and 2020 also saw the largest decrease in nuclear generation since 1990, a trend that is expected to continue as countries set national phase-out targets, the report said.
This highlighted the need for a solar and wind ramp-up, especially as the EU’s recent Fit for 55 (Ff55) proposal has set a target for the share of renewable electricity of at least 60% by 2030 and 85% by 2050.
In the UK, the proportion of energy supplied from low carbon sources had increased from 9.4% in 2000 to 21.5% in 2020. Bioenergy saw a big increase, while nuclear energy’s proportion of generation fell.
Those countries that are leading in solar and wind development – Denmark, Ireland, Germany, Spain – are still a long way off from having wind and solar as the power generation mainstay and being able to phase out coal by 2030 will remain a challenge.
“An additional 100GW of wind and solar PV, as well as 15GW of ‘hydrogen ready’ gas power plants, are needed for coal’s replacement. As a result, we find that the Ff55 proposal faces a five-year implementation gap,” the report said.
In order to achieve the 1.5°C warming pathway, Allianz asserts that a front-loading of investments of €40.8 billion per year is needed until 2030 for Europe’s power grid and €44.7 billion per year for power plants.
On top of this, the report added, the coal phase-out will require an additional €131 billion across the EU, which should be broken down to €83 billion going towards wind, €30 billion towards solar and €19 billion towards new gas plants.
“Carbon capture and storage (CCS) technologies can help sectors decarbonise quicker, but deployment must be sooner and accelerated,” the report said. “In order for the Ff55 pathway to be compliant with a 1.5°C scenario, either CCS technology must be deployed across industry and utilities at a large scale in the next 10 years or the utility sector must decarbonise even faster than proposed to allow for more emissions certificates to be used for industry, buying time for CCS to pick up.”
Zimmer believes that private-public co-operation will be key whatever technology is used by different countries to decarbonise. He believes this can help more projects get on the ground quicker, which will be key to meeting targets.
“The private sector provides the financing for these energy projects. But many just never happen,” he said.