The European Union (EU) is taking its energy and climate goals seriously and has been taking measures to ensure that they are met. In September 2020, the European Commission (EC) adopted the assessment of the EU-wide impact of the 27 member states’ National Energy and Climate Plans (NECPs) for 2021-30. This report takes into consideration all the dimensions of the Energy Union and the European Green Deal (which aims to make Europe climate neutral by 2050). Parallelly, the EC has proposed an ambitious Climate Target Plan to reduce EU greenhouse gas (GHG) emissions by 55 per cent by 2030 compared to 1990 levels. In fact, some members of the European Parliament have called for a more ambitious 2030 target of at least 60 per cent.
To achieve the current EU 2030 targets, annual investments in energy during 2021-30 will need to increase by over 1 percentage point of GDP (or EUR260 billion) on average compared to the previous decade. For an increased GHG reduction target of 55 per cent, this amount would increase to EUR350 billion. The annual energy infrastructure investments are estimated at EUR59 billion.
The EC has considered the cumulative impact of various aspects covered in the NECPs viz. renewables, energy efficiency, GHG reductions, the EU internal energy market (IEM), and research and innovation ambitions. NECPs, prepared and submitted to the EC in line with the EU Regulation (2018/1999) on the Governance of the Energy Union and Climate Action, are both a policy tool and an investment agenda that provide a forward-looking framework for investors. In the COVID-19 context, the assessment highlights how funding under the EU’s Recovery and Resilience Package can be used to support the investments and reforms identified in the national plans.
Broadly, the assessment indicates that the EU is on track to exceed its current 2030 GHG reduction target of 40 per cent, which has given the impetus to raise its 2030 ambitions. Further, the share of renewable energy in the EU could reach 33.7 per cent, going beyond the current target of at least 32 per cent. Regarding energy efficiency, there is an ambition gap of 2.8 per cent for primary energy consumption and 3.1 per cent for final energy consumption, compared to the target of at least 32.5 per cent.
The EU has been targeting to establish a fully integrated and well-functioning IEM, which will provide appropriate price signals required for investment in green energy and technologies, secure energy supplies and allow the least-cost path to climate neutrality through smart technologies. The assessment highlights several shortcomings in the energy market with respect to flexibility through smart grids, storage and limited demand-side response.
Though most EU countries recognise the importance of the new electricity market design, only some have a holistic approach to the necessary changes in progressive objectives. The EC notes that there are only a few set specific objectives and clear timelines with respect to smart meter deployment, making it difficult to monitor progress towards the targets.
A major impediment to a cost-efficient energy transition is fossil fuel subsidies. The NECPs show only a slight improvement in the reporting of such subsidy amounts and measures to phase them out. Only Italy, Denmark and Portugal performed a comprehensive stocktake of fossil fuel subsidies and only a few countries intend to phase them out or have formulated specific policies. In view of EU’s international commitments to phase out such subsidies in the G20 and the UN, and its own policy commitments, the EC will address this issue in its State of the Energy Union report 2020 and issue further guidelines.
Important enablers for decarbonisation, market integration, security of supply and competition are electricity interconnections along with local grids. Projections of the interconnectivity level by 2030 have been included in most NECPs. Notably, most countries have already achieved and even exceeded the 2030 EU electricity interconnectivity target of 15 per cent. The projects of common interest (PCIs) have played a key role in meeting this target.
With respect to interconnection investments, Germany has stated that it needs EUR55 billion to upgrade its existing transmission system and to build new onshore transmission infrastructure by 2030. Another EUR21 billion is required for offshore transmission for the integration of 17 to 20 GW of offshore wind into the grid by 2030. Spain also plans to strengthen and augment transmission and distribution lines, including between islands, and interconnections with neighbouring countries, in particular France.
Some countries such as Estonia and Greece have specific plans with regard to energy system integration and flexibility. Estonia has planned 500 MW of pumped hydro storage by 2028, while Greece plans to implement smart policies for islands that cannot be interconnected cost-effectively, for instance by setting up innovative hybrid renewable power generation with storage systems.
The EC reiterates its focus on ensuring that markets remain liquid and competitive. It is recognised that a more structured and coherent approach is needed to promote sources of flexibility and address any barriers to market participation by new players. The recently adopted EU Strategy for Energy System Integration could become a reference point for countries on more flexible energy systems and provide the next steps in adapting energy markets to climate neutrality needs. The EC intends to promote greater demand side flexibility through a network code, revision of the State Aid guidelines and consumer information.
Most plans have identified the completion of PCI projects, strengthening of internal grids and the deployment of innovative technologies such as smart grids and new generation electricity grids, including the revision of network codes for renewable energies, as key actions with respect to infrastructure. EU grids need to adapt to the changing energy system of more decentralised, digital real-time, and two-way energy across sectors. For this, the EC plans to review the Trans-European Networks – Energy (TEN-E) and Transport (TEN-T) Regulations and the Alternative Fuels Infrastructure Directive, the scope and governance of the Ten-Year Network Development Plans, and accelerate investment in smart, highly-efficient, renewables-based electricity, district heating and cooling, and CO2 infrastructure.
Going forward, the EC plans to complete the EU-level NECP assessment by individual member state assessment as part of the State of the Energy Union report in October 2020. Simultaneously, it is also working on the Climate Law, which will transform the political promises for carbon neutrality into a binding legal obligation and send a strong signal to nations and investors.