TODAY’S STUDY: THE EU’S NEW ENERGY PLANS

Energy Roadmap 2050
December 2011 (European Commission)

INTRODUCTION

People's well-being, industrial competitiveness and the overall functioning of society are dependent on safe, secure, sustainable and affordable energy. The energy infrastructure which will power citizens' homes, industry and services in 2050, as well as the buildings which people will use, are being designed and built now. The pattern of energy production and use in 2050 is already being set.

The EU is committed to reducing greenhouse gas emissions to 80-95% below 1990 levels by 2050 in the context of necessary reductions by developed countries as a group1. The Commission analysed the implications of this in its "Roadmap for moving to a competitive low-carbon economy in 2050".2 The "Roadmap to a Single European Transport Area" focussed on solutions for the transport sector and on creating a Single European Transport Area. In this Energy Roadmap 2050 the Commission explores the challenges posed by delivering the EU's decarbonisation objective while at the same time ensuring security of energy supply and competitiveness. It responds to a request from the European Council.

click to enlarge

The EU policies and measures to achieve the Energy 2020 goals5 and the Energy 2020 strategy are ambitious.6 They will continue to deliver beyond 2020 helping to reduce emissions by about 40% by 2050. They will however still be insufficient to achieve the EU's 2050 decarbonisation objective as only less than half of the decarbonisation goal will be achieved in 2050. This gives an indication of the level of effort and change, both structural and social, which will be required to make the necessary emissions reduction, while keeping a competitive and secure energy sector.

Today, there is inadequate direction as to what should follow the 2020 agenda. This creates uncertainty among investors, governments and citizens. Scenarios in the "Roadmap for moving to a competitive low-carbon economy in 2050" suggest that if investments are postponed, they will cost more from 2011 to 2050 and create greater disruption in the longer term. The task of developing post-2020 strategies is urgent. Energy investments take time to produce results. In this decade, a new investment cycle is taking place, as infrastructure built 30-40 years ago needs to be replaced. Acting now can avoid costly changes in later decades and reduces lock-in effects. The International Energy Agency (IEA) has shown the critical role of governments and underlined the need for urgent action;7 with the scenarios of the Energy Roadmap 2050 different possible pathways for Europe are analysed more in depth.

click to enlarge

Forecasting the long-term future is not possible. The scenarios in this Energy Roadmap 2050 explore routes towards decarbonisation of the energy system. All imply major changes in, for example, carbon prices, technology and networks. A number of scenarios to achieve an 80% reduction in greenhouse gas emissions implying some 85% decline of energy-related CO2 emissions including from transport, have been examined. The Commission has also analysed Member States' and stakeholders' scenarios and views. Naturally, given the long time horizon, there is uncertainty associated to these results, not least because they rely on assumptions which themselves are not certain. It is impossible to anticipate whether an oil peak will come, since new discoveries have occurred repeatedly; to what extent shale gas in Europe will prove viable, whether and when Carbon Capture & Storage (CCS) will become commercial, what role Member States will seek for nuclear power, how climate action across the globe will evolve. Social, technological and behavioural changes will also have significant impact on the energy system.

The scenario analysis undertaken is of an illustrative nature, examining the impacts, challenges and opportunities of possible ways of modernizing the energy system. They are not "either-or" options but focus on the common elements which are emerging and support longer-term approaches to investments.

click to enlarge

Uncertainty is a major barrier to investment. The analysis of the projections conducted by the Commission, Member States and stakeholders show a number of clear trends, challenges, opportunities and structural changes to design the policy measures needed to provide the appropriate framework for investors. Based on this analysis, this Energy Roadmap identifies key conclusions on "no regrets" options in the European energy system. This makes it also important to achieve a European approach, where all Member States share common understanding of the key features for a transition to a low-carbon energy system, and which provides the certainty and stability which are needed.

The Roadmap does not replace national, regional and local efforts to modernize energy supply, but seeks to develop a long-term European technology-neutral framework in which these policies will be more effective. It argues that a European approach to the energy challenge will increase security and solidarity and lower costs compared to parallel national schemes by providing a wider and flexible market for new products and services. For example, some stakeholders show potential cost savings of up to a quarter if there was a more European approach for efficient use of renewable energy…

click to enlarge

A SECURE, COMPETITIVE AND DECARBONISED ENERGY SYSTEM IN 2050 IS POSSIBLE…

Ten structural changes for energy system transformation

In combination, the scenarios make it possible to extract some conclusions which can help shape decarbonisation strategies today which will deliver their full effects by 2020, 2030 and beyond.

(1) Decarbonisation is possible – and can be less costly than current policies in the long-run

The scenarios show that decarbonisation of the energy system is possible. Moreover, the costs of transforming the energy system do not differ substantially from the Current Policy Initiatives (CPI) scenario. The total energy system cost (including fuel, electricity and capital costs, investment in equipment, energy efficient products etc) could represent slightly less than the 14.6% percent of European GDP in 2050 in the case of CPI compared to the level of 10,5% in 2005. This reflects a significant shift of the role energy plays in society. Exposure to fossil fuel price volatility would drop in decarbonisation scenarios as import dependency falls to 35-45% in 2050, compared to 58% under current policies.

(2) Higher capital expenditure and lower fuel costs

All decarbonisation scenarios show a transition from today's system, with high fuel and operational costs, to an energy system based on higher capital expenditure and lower fuel costs. This is also due to the fact that large shares of current energy supply capacities come to an end of their useful life. In all decarbonisation scenarios, the EU bill for fossil fuel imports in 2050 would be substantially lower than today. The analysis also shows that cumulative grid investment costs alone could be 1.5 to 2.2 trillion Euros between 2011 and 2050, with the higher range reflecting greater investment in support of renewable energy.

The average capital costs of the energy system will increase significantly - investments in power plants and grids, in industrial energy equipment, heating and cooling systems (including district heating and cooling), smart meters, insulation material, more efficient and low carbon vehicles, devices for exploiting local renewable energy sources (solar heat and photovoltaic), durable energy consuming goods etc. This has a widespread impact on the economy and jobs in manufacturing, services, construction, transport and agricultural sectors. It would create major opportunities for European industry and service providers to satisfy this increasing demand and stresses the importance of research and innovation to develop more cost-competitive technologies.

(3) Electricity plays an increasing role

All scenarios show electricity will have to play a much greater role than now (almost doubling its share in final energy demand to 36-39% in 2050) and will have to contribute to the decarbonisation of transport and heating/cooling (see graph 2). Electricity could provide around 65% of energy demand by passenger cars and light duty vehicles, as shown in all decarbonisation scenarios. Final electricity demand increases even in the High energy efficiency scenario. To achieve this, the power generation system would have to undergo structural change and achieve a significant level of decarbonisation already in 2030 (57-65% in 2030 and 96-99% in 2050). This highlights the importance of starting the transition now and providing the signals necessary to minimise investments in carbon intensive assets in the next two decades.

click to enlarge

(4) Electricity prices rise until 2030 and then decline

Most scenarios suggest that electricity prices will rise to 2030, but fall thereafter. The largest share of these increases is already happening in the reference scenario, and is linked to the replacement in the next 20 years of old, already fully written-off generation capacity. In the High Renewables scenario, which implies a 97% share for renewable sources in electricity consumption, the modelled electricity prices continue to rise but at a decelerated rate - due to high capital costs and assumptions about high needs for balancing capacity, storage and grid investments in this "near 100% RES power" scenario. For example, RES power generation capacity in 2050 would be more than twice as high as today's total power generation capacity from all sources. However, substantial RES penetration does not necessarily mean high electricity prices. The High Energy Efficiency scenario and also the Diversified Supply Technology scenario have the lowest electricity prices and provide 60-65% of electricity consumption from RES, up from only 20% at present. In this context, it has to be noted that price in some Member States are currently artificially low due to price regulations and subsidies.

(5) Household expenditure will increase

In all scenarios, including current trends, expenditure on energy and energy-related products (including for transport) is likely to become a more important element in household expenditure, rising to around 16% in 2030, and decreasing thereafter to above 15% in 2050. This trend would also be significant for small and medium-sized enterprises (SMEs). In the long term, the rise in investment costs for efficient appliances, vehicles and insulation becomes less important than the reduction of expenditure on electricity and fuels. The costs include fuel costs as well as capital costs such as costs of purchasing more efficient vehicles, appliances and refurbishments of housing. However, if regulation, standards or innovative mechanisms are used to accelerate the introduction of energy efficient products and services, this would reduce costs.

(6) Energy savings throughout the system are crucial

Very significant energy savings (see graph 3) would need to be achieved in all decarbonisation scenarios. Primary energy demand drops in a range of 16% to 20% by 2030 and 32% to 41% by 2050 as compared to peaks in 2005-2006. Achieving significant energy savings will require a stronger decoupling of economic growth and energy consumption as well as strengthened measures in all Member States and in all economic sectors.

(7) Renewables rise substantially

The share of renewable energy (RES) rises substantially in all scenarios, achieving at least 55% in gross final energy consumption in 2050, up 45 percentage points from today's level at around 10%. The share of RES in electricity consumption reaches 64% in a High Energy Efficiency scenario and 97% in a High Renewables Scenario that includes significant electricity storage to accommodate varying RES supply even at times of low demand.

click to enlarge

(8) Carbon capture and storage has to play a pivotal role in system transformation

Carbon Capture and Storage (CCS), if commercialised, will have to contribute significantly in most scenarios with a particularly strong role of up to 32% in power generation in the case of constrained nuclear production and shares between 19 to 24% in other scenarios with the exception of the High RES scenario.

(9) Nuclear energy provides an important contribution

Nuclear energy will be needed to provide a significant contribution in the energy transformation process in those Member States where it is pursued. It remains a key source of low carbon electricity generation. The highest penetration of nuclear comes in Delayed CCS and Diversified supply technologies scenarios (18 and 15% in primary energy respectively) which show the lowest total energy costs.

(10) Decentralisation and centralised systems increasingly interact

Decentralisation of the power system and heat generation increases due to more renewable generation. However, as the scenarios show, centralized large-scale systems such as e.g. nuclear and gas power plants and decentralised systems will increasingly have to work together. In the new energy system, a new configuration of decentralised and centralized large-scale systems needs to emerge and will depend on each other, for example, if local resources are not sufficient or are varying in time.

click to enlarge

Link to global climate action

The scenario results for decarbonisation scenarios all assume that global climate action is taken. First, it is important to note that the EU's energy system needs high levels of investment even in the absence of ambitious decarbonisation efforts. Second, scenarios indicate that modernizing the energy system will bring high levels of investment into the European economy. Third, decarbonisation can be an advantage for Europe as an early mover in the growing global market for energy-related goods and services. Fourth, it helps in reducing its import dependency and exposure to the volatility of fossil fuel prices. Fifth, it brings significant air pollution and health co-benefits.

However, in implementing the Roadmap, the EU will need to consider progress, and concrete action, in other countries. Its policy should not develop in isolation but take account of international developments, for example relating to carbon leakage and adverse effects on competitiveness. A potential trade-off between climate change policies and competitiveness continues to be a risk for some sectors especially in a perspective of full decarbonisation if Europe was to act alone. Europe cannot alone achieve global decarbonisation. The overall cost of investment depends strongly on the policy, regulatory and socio-economic framework and the economic situation globally. As Europe has a strong industrial base and needs to strengthen it, the energy system transition should avoid industry distortions and losses especially since energy remains an important cost factor for industry.14 Safeguards against carbon leakage will have to be kept under close review in relation to efforts by third countries. As Europe pursues the path towards greater decarbonisation, there will be a growing need for closer integration with neighbouring countries and regions and building energy interconnection and complementarities. The opportunities for trade and cooperation will require a level-playing field beyond the European borders.

click to enlarge

MOVING FROM 2020 TO 2050 – CHALLENGES AND OPPORTUNITIES…Transforming the energy system…Rethinking energy markets…Mobilising investors - a unified and effective approach to energy sector Incentives…Engaging the public is crucial…Driving change at the international level…

THE WAY FORWARD

The Energy Roadmap 2050 shows that decarbonisation is feasible…The overall system costs of transforming the energy system are similar in all scenarios. A common EU approach can help keep costs down…To achieve this new energy system, ten conditions must be met:

(1) The immediate priority is to implement fully the EU's Energy 2020 strategy. All existing legislation needs to be applied, and the proposals currently in discussion, notably on energy efficiency, infrastructure, safety and international cooperation, need to be adopted swiftly. The path towards a new energy system also has a social dimension; the Commission will continue to encourage social dialogue and social partners' involvement to help a fair transition and an efficient management of change.

(2) The energy system and society as a whole need to be dramatically more energy efficient. The co-benefits of achieving energy efficiency in a wider resource efficiency agenda should contribute to meeting the goals in a faster and cost-efficient manner.

(3) Particular attention should continue to be given to the development of renewable energy. Their rate of development, impact in the market and rapidly growing share in energy demand call for a modernisation of the policy framework. The EU's 20% renewable energy target has so far proven an efficient driver in development of the renewable energy in the EU and timely consideration should be given to options for 2030 milestones.

(4) Higher public and private investments in R&D and technological innovation are crucial in speeding-up the commercialisation of all low-carbon solutions.

(5) The EU is committed to a fully integrated market by 2014. In addition to technical measures already identified, there are regulatory and structural shortcomings which need to be addressed. Well-designed market structure instruments and new ways of cooperation are required for the internal energy market to deliver its full potential as new investments are coming into the energy market and the energy mix is changing.

click to enlarge

(6) Energy prices need to better reflect costs, notably of the new investments needed throughout the energy system. The earlier prices reflect costs, the easier the transformation will be in the long run. Special attention should be paid for the most vulnerable groups, for which coping with the energy system transformation will be challenging. Specific measures should be defined at national and local levels to avoid energy poverty.

(7) A new sense of urgency and collective responsibility must be brought to bear on the development of new energy infrastructure and storage capacities across Europe and with neighbours.

(8) There will be no compromise on safety and security for either traditional or new energy sources. The EU must continue to strengthen the safety and security framework and lead international efforts in this field.

(9) A broader and more coordinated EU approach to international energy relations must become the norm, including redoubling work to strengthen international climate action.

(10) Member States and investors need concrete milestones. The Low carbon economy roadmap has already indicated greenhouse gas emission milestones. The next step is to define the 2030 policy framework, reasonably foreseeable and the focus of most current investors.

On this basis, the Commission will continue to bring forward initiatives, starting with comprehensive proposals on the internal market, renewable energy and nuclear safety next year.