The energy crisis is looming large in the minds of Europeans. While policymakers grapple with measures to alleviate the pressure on consumers this begs the question: are energy prices changing the investment game?
The 40% year-on-year energy price inflation has exposed the drawbacks of Europe’s reliance on fossil fuel imports. There is however a silver lining: the energy price increase is steering the European Union (EU) in the direction of accelerated decarbonisation, which will enhance the bloc’s energy security and deliver on its climate goals.
“Russia’s invasion of Ukraine is a game changer on many fronts, including the energy transition and the Green Deal. REPowerEU is the turbo gear of the Green Deal, said Catharina Sikow-Magny, Director of Green transition & energy system integration, DG ENER, European Commission
Accelerate the decarbonisation & electrification of the economy
The key solution for simultaneously tackling the climate and energy crises is the rapid decarbonisation, coupled with the electrification of the EU economy. Why so? Because direct electrification is a cost effective and decarbonised alternative to fossil fuel use in transport, as well as heating and cooling.
However, end-use sectors have been on a snail-paced transition to electric, energy efficient technologies, while the EU is not rolling out renewable energy capacities fast enough.
At the current deployment rate, by 2030 the EU will have approximately 780 GW of installed hydropower, solar and wind capacities, shows Accenture’s Game Changers report released today. Yet, we must go 2.6 times faster to deliver the over 1200 GW of clean energy that the RePowerEU estimates necessary to ensure a carbon-neutral, independent and secure energy supply by the end of the decade.
This requires continued focused investments in the power system to ensure it can accommodate massive amounts of renewables. But also, when considering the increased expectations of power system resilience from customers, who shift away their use of fossil fuels to electric solutions for mobility, heating and industrial processes.
The power sector needs enabling frameworks that allow to complete its decarbonisation, hence ensuring that customers access carbon-neutral electricity, and the EU weans itself off the dependence on fossil fuel imports. In addition, continued focused investments in the power system are needed to increase the power system resilience in an increasingly electrified economy.
“To get the energy system transformation and be where we need to be in 2030, or even in 2025, we need technology, human ingenuity and new ways of collaborating,” said Melissa Stark, Global Renewables and Energy Transition Services Lead, Accenture.
Strategic investments in a resilient, decarbonised future must urgently be made. Yet, national budgets, already crippled by the pandemic, face further strains as a period of geopolitical, social, and economic uncertainty unfolds. Against this background, unprecedent levels of capital from private investors need to be brought in to work alongside state funds.
Misguided market interventions – like price caps and “clawback” mechanisms – are unfortunately jeopardising investors’ certainty, impacting the long-term price signals and ultimately reducing their ability to invest in clean energy capacities.
This message was strongly emphasised by Claire Waysand, Executive Vice President of ENGIE, who added:
“There is ample private capital going into the energy transition. But we need predictability, and clarity of rules. What Members States are doing on interventions have bearings.”
Over the past years, tremendous technical advancements have been made. For example, software developments drive grid improvements, which in turn drive sustainability. Others lead to energy efficiency increases.
For a successful energy transition, the “grid extension is not enough”, said Matthias Rebellius, CEO Siemens Smart Infrastructure. Instead, “We need to work on efficiency, flexibility and reduce losses.” he concluded.