AleaSoft Energy Forecasting, March 11, 2022. The European Union seems finally ready to make changes to solve, as soon as possible and for the long‑term, the consequences of the energy crisis caused by the war in Ukraine. This article analyses the proposals aimed at accelerating the implementation of renewable energies and green hydrogen.
When the energy crisis was still incipient in Europe, when the prices of gas, CO2 emission rights and electricity markets began to rise at the end of the third quarter of 2021, long before the current geopolitical crisis, there were many voices that cried out that the energy transition to a completely decarbonised economy was taking place too fast and that this would bring energy prices too high for the transition to be fair.
Now, a few months later, with prices much higher than they were then, Europe is forced to speed up this transition even more. But the motivations changed. Although in the long‑term the objective is the decarbonisation to achieve the emission neutrality, in the short‑term the objective became the energy independence to eliminate the risks of depending on countries like Russia for energy.
The plans of the European Union to mitigate the consequences of the energy crisis
The plans and intentions of the European Union cover many aspects of the consequences of the war and the energy crisis that it is causing: from protecting consumers and industry from high gas, electricity and oil prices, to reducing the dependence on imports from Russia.
On this last issue, it should be noted that the Union countries as a whole import 90% of the gas they consume, and that around 45% of these imports come from Russia. In addition, Russia also supplies 27% of oil imports and 46% of coal imports. According to the European Commission, the EU can achieve the independence from Russian gas imports before 2030. For the dependence on Russian coal and oil, the prospects are even more favourable, given that there are more possible suppliers.
The Commission’s proposal to reduce the dependence on fossil fuels imported from Russia will be embodied in a plan called REPowerEU that will revolve around two points: diversifying gas supplies and accelerating the reduction in the use of fossil fuels. According to AleaSoft Energy Forecasting, these are precisely the two key, necessary and urgent aspects to improve Europe’s energy independence, with green hydrogen and renewable energies as the main players. The objective of reducing Europe’s energy dependence is a key aspect of the energy transition that this energy markets consulting company has been proposing for years.
Accelerating green hydrogen
Regarding the diversification of gas supply, the Commission proposes to increase LNG imports by sea, increase imports by gas pipelines from other countries and accelerate the production capacity of biomethane and hydrogen. For biomethane, they want to double the target of production from sustainable sources of residues and waste from agriculture established in the Fit for 55 package.
Regarding the production of green hydrogen, from renewable energies, the intention is increasing it by 15 million tons by 2030, in addition to the 5.6 that were already planned in the Fit for 55, with the aim of reducing gas imported from Russia between 25 and 50 bcm per year. For these additional 15 million tons, it will be necessary to increase the import of hydrogen by 10 million tons and increase the local production in Europe by 5 million more. The Commission’s proposal leaves open the possibility of taking into account hydrogen from other non‑fossil sources, such as nuclear energy, when replacing natural gas.
To make the use of all this hydrogen possible, it will be necessary, on the one hand, to stimulate its demand by industry and transport, and, on the other hand, to develop a hydrogen market and infrastructures capable of transporting and storing it. According to AleaSoft Energy Forecasting, the State should have a more active role in the transition towards green hydrogen, intervening directly in the creation of generation plants, storage systems and distribution infrastructures.
Accelerating renewable energies
As for the pillar of reducing the dependence on fossil fuels more rapidly, the Commission proposes that the plan contain more ambitious targets for improving the energy efficiency than the targets set in the Fit for 55, and also higher and earlier targets for the implementation of renewable energies.
The Commission proposes to speed up the processing of projects, eliminating barriers and administrative obstacles that delay or hinder them. According to AleaSoft Energy Forecasting, in Spain, the main problem currently is the administrative processing of the projects and it would be the main cause affecting the development of the renewable energy plans.
The plan proposal contemplates accelerating self‑consumption photovoltaic energy installations, wind energy and solar photovoltaic energy projects.
It also specifically mentions prioritising those projects in the electricity grid that represent a step towards integration into a single market, as well as international interconnection projects, where it gives as an example the interconnection of the Iberian Peninsula with the continent and the synchronisation of the electricity system of the Baltic countries with the rest of the EU countries.
On the demand side, the Commission, together with the European Investment Bank, will decide on the most appropriate financing mechanisms to promote PPA (Power Purchase Agreements), so that new types of offtakers can participate in them, such as small and medium industries.
AleaSoft Energy Forecasting’s analysis on the prospects for energy markets in Europe and the renewable energy projects financing
These proposals from the European Commission, as well as the evolution of the energy markets in Europe, will be analysed in the next edition of the AleaSoft Energy Forecasting’s monthly webinar. The edition of March will take place on the 17th and will feature the presence of EY, with speakers and participants at the analysis table, to discuss current issues of the energy sector in Europe such as regulatory novelties in Spain, renewable energy projects financing, PPA, self‑consumption and portfolio valuation.