TODAY’S STUDY: HOW EUROPE’S PIONEERING ENERGY POLICY WILL WORK

European Union Clean Energy Policy; Potential Implications of the EU 2050 Greenhouse Gas Targets for Smart Energy and Transportation
Kerry-Ann Adamson and Clint Wheelock, 3Q 2011 (Pike Research)

Executive Summary

EU-27 Moves to a Low Carbon Economy

This white paper looks at the potential development of smart energy and smart transportation within the current EU-27 through the current basket of policies aimed at moving the European Union to a low carbon economy.

The 27 member states of the EU have committed to the following goals: 20% of energy consumption from renewable energy, a 20% decrease in GHG emissions, and a 20% increase in energy efficiency – all by 2020. Since this agreement was put in place a further round of more aggressive targets for 2050 in the areas of transport, energy efficiency, and energy production have been developed.

Current estimates indicate that the member states are on track for the 20% penetration of renewable energy and reduction in GHG emissions. However, energy efficiency improvements are not on track. To ensure that the process does not falter, in 2010 the EU enacted a further round of policy consultations and policies. The outcome was the 2050 targets, which aim to transition the EU to a successful low carbon economy.

click to enlarge

It is clear that the only way to achieve an overall reduction in GHG emissions of up to 82%, as outlined in the table, is to substantially increase energy efficiency and the penetration of renewables, thereby keeping to the tenets of the original 20-20-20 goals. To this end, the EU is in the process of releasing a number of roadmaps, including roadmaps for energy and transport. These roadmaps provide very clear guidelines as to the requirements of technology, technology development and adoption, and the continued development of finance mechanisms. The three key words in this basket of EU policies developed for the 2050 targets are, understandably, smart, intelligent, and integrated. The policies explicitly recognize that for these targets to be achieved, transport, energy, and national policy can no longer work in silos. Rather, they have to be linked in a systematic fashion. Directional signposts have been established for technologies ranging from fuel cells and batteries to new services, such as energy storage and carbon capture and storage (CCS), linked with GHG emissions targets. In addition, broader roadmaps, such as the Smart Cities Initiative, have been set up for more integrated ecosystems.

Coupling economic growth with carbon reduction transitions is not an easy task. In fact, many other countries and regions are shying away from this task. The EU is taking a big risk, but a calculated one, and it is the birth of the smart and intelligent generation of technologies that has enabled this risk to be taken. The impact these plans will have on the smart industry in Europe is to embed them between now and 2050 into everyday life for the current 501 million inhabitants…

click to enlarge

Summary and Conclusions

Throughout this white paper, the aim is to highlight the breadth and importance of EU policy on the development of the smart energy and smart transportation ecosystem, but a fair question now is “So what?” What are the technology and business implications of these policies, not just for companies in the EU, but also for companies wanting to do business in the EU?

This wrap-up section presents the Pike Research view on the “so what,” highlighting that, unlike in many other countries, the clear framework and market structure that the policy documents are putting in place should make a transition to a smart energy system substantially smoother, and potentially a lot quicker, than in many other parts of the world.

click to enlarge

Technology Development and Deployment

The policy framework has a number of high-level indicators for the development and deployment of new technologies, focusing on the markets described below.

Shipping

With the EU’s push on reducing emissions from shipping, and the maritime sector in general, we will see an increased push for the development and deployment of commercially available, lower emission propulsion systems and auxiliary power units (APUs) for ocean going vessels, as well the development of new or cleaner fuels.

Pike Research believes that the stepping stone in Europe will be the spread of so-called green ports, which would be designated zones of low emissions, with the deployment of low-to-zero carbon ship-to-shore docking and the use of zero carbon dockside vehicles and, potentially, zero carbon tugs.

click to enlarge

Alternative Fuel Vehicle Refueling Technology

With the clear statement that no country can deploy technology, which by proxy prevents the free movement of people or goods, Pike Research believes that the EU is pushing for the standardization of refueling technology for alternative fuel vehicles.

For example, a standard set of interconnects for EV recharging points will need to exist across Europe, and a standard set of pressures will be needed for fuel cell vehicle hydrogen refueling. This should see the 27 member states of Europe leading the way in cross-boundary standardization of technology.

Also, in terms of hydrogen refueling station rollouts, Pike Research forecasts a two-level phased rollout across Europe. The first level will be along major city corridors and the second will join the dots with the minor cities.

click to enlarge

Residential

Higher efficiency homes will become the norm, with micro combined heat and power (mCHP) rolled out in most countries in the EU. Due to the technologies’ increased efficiency and being able to use mCHP as a stepping stone in the reduction in emissions from the current building stock over the medium term, this will become the norm. Initial rollout will start in the next few years.

Development of Alternative Business Models

As well as seeing the development and deployment of a number of new technologies in the European market place, the policies that the EU has launched are also likely to see a number of new business models created.

click to enlarge

Energy Storage

As the overall percentage of renewables in the electricity generation mix increases, energy storage will become the rallying cry for the green energy lobby for both grid level, energy storage and a much more distributed level. This provision of energy storage solutions could, Pike Research believes, see a different business model evolving from the renewable energy providers. Instead of selling as much renewable power to the grid, as and when it is available, we could see the development of a just-in-time market for renewable electrons in which the provider teams its own storage with its renewables, becoming a much more flexible energy company.

click to enlarge

Microgrids and Distributed Generation

Although microgrids will not become the norm across Europe, they will see a large increase in adoption, alongside, and in parallel with, the development of the Transeuropean Electricity Networks.

In terms of business models, Pike Research believes that this could cause the development of a two-tier energy supplier system, akin to what is already in place, for example, in both Germany and the United Kingdom. In this model, you have large multinational grid operators and smaller, much more local, energy producers and providers. The microgrids are more likely to be run by some form of local cooperatives with input and support from the smaller independent operators, rather than by the supergrid operators.

Development of Alternative Consumption Models

Some very interesting shifts in consumer behavior could occur alongside the new business models that could be created.

click to enlarge

The Use of ITS

ITS will become standard, which is clear from the policy. Although this will be challenging, as some countries have nationalized transport companies and others have privatized them, the requirements for each mode of transport to become interconnected will increase to a level at which the barriers will have to be removed. This will be the case for the transportation of goods as well as people, occurring across boundaries.

The aim is to remove the barriers, and some of the desire, to use road transport for long distances, which implies a shift in consumer behavior. In the short to medium term, this is clearly a large task. Although Europe’s use of public transport, especially trains, is much more advanced than America’s, it is still a car driving-based society.

Since it is much harder to rewire consumer behavior, the haulage companies are more likely to switch first to a mix of transport solutions. This is already being seen in the United Kingdom, with a road haulage firm being the first in many years to create a private rail haulage system.

click to enlarge

Carbon Reduction at Residential Levels

Albeit somewhat of a long shot, in terms of potential, the trend of using home smart meters to track carbon emissions as well as electricity use could increase.

Citizens of the EU discuss carbon emissions and climate change as a normal part of their lexicon. So, as well as developing and using smart meters to track and monitor electricity consumption, homeowners using them to track and monitor the carbon footprint of individual homes could take off in Europe.

It is highly unlikely that we will see any form of individual carbon quotas in the EU, but in order for the residential and services sector to reduce their emissions by 91% by 2050, the engagement of people on the street level will need to occur, and the use of smart meters makes an easy entry into the home.

In summary, while EU policy has not directly legislated new technology in the market place, it has created the opportunity for the rollout of a smart energy and smart transportation system across 27 countries in a more coordinated fashion than would be possible without any such policy.