While policymakers and companies generally acknowledge the need for an energy transition, they still underestimate the enormous task that is facing us. The real energy transition, says André Faaij, the new academic director of the Dutch research institute Energy Academy Europe, has yet to start. And, he adds, it will only succeed if it is strongly directed by government policy – preferably coordinated by Brussels – and approached in a comprehensive manner. “A limited approach, based on particular interests, that won’t work.”
The “energy transition” is “going to be a much tougher challenge” than most people realise. That’s the firm conviction of Professor André Faaij, who since 1 April of this year has been Academic Director of the Energy Academy Europe (EAE), a fairly new top-level institute in Groningen, set up in 2012 to study and help forward a sustainable energy future.
“In Europe we are already struggling to achieve 20% sustainable energy”, says Faaij in an interview with Energy Post. “And this includes nearly all the low-hanging fruit, such as hydropower and the conventional use of biomass for heat. In most countries solar, wind and advanced biomass account for only 1or 2% of energy supply. And we need to achieve 80% in 2050!”
Faaij, who is also distinguished professor of Energy System Analysis at the University of Groningen, talks with great passion about the energy transition – about the need for it and what must be done to make a success of it. Most of all, he says, what we need is an integrated, comprehensive approach. This is also where, according to Faaij, the Energy Academy Europe – based in the gas heartland of the Netherlands, which has in recent years been increasingly suffering from earthquakes resulting from past gas production activities – is different from other energy institutions. “What is unique about the Energy Academy Europe is that the academic world, companies and the government are all involved. We are an open platform bundling together research, teaching, technological development and commercialisation. This integrated approach is what is needed to solve the sorts of issues that are on the table now.”
It goes without saying, says Faaij, that such an approach requires international cooperation. “You cannot approach the energy transition from a national perspective. The issue is too big and too complex for that. This is why we have already entered into joint ventures in Europe and beyond – on all continents. We are also working together with organisations such as the United Nations and the World Energy Council.”
What is so difficult about the energy transition?
Our economy runs largely on fossil fuels. Getting away from this has enormous consequences, all of which are interconnected. There are still many countries and people working on this from a limited perspective, for example looking at only one technology. The idea is: we develop a new technology, commercialise it and then everything will be fine. In the Netherlands we also do this with our energy policy, which is aimed at different technological sectors which are all neatly compartmentalised. I am convinced this doesn’t work in the end. You have to analyse and tackle issues in connection with each other. It’s not a question of writing more reports, but of bringing about an open and critical debate, and developing good policy instruments based on good scientific work.
Can you give an example?
For example, to make 80% renewable energy possible, you have to make huge strides in energy efficiency. You won’t get there if you keep on using more and more energy. That means, for example, that when you build new buildings you must make sure that they are zero-energy. Technically, this is not a problem. But what does it mean for the energy system? For suppliers, consumers? The supply of power becomes much more an exchange between production and consumption, rather than purely consumption. A gas network and a heating network may then perhaps not be necessary anymore. These are absolutely fundamental changes.
Another example: in transport, where much less has been achieved than in the electricity sector, similar changes are possible. You can drive on electricity or on biofuels. But what does that mean for the Shells and BPs if we abandon petrol and diesel? What does it mean for the existing oil infrastructure? The refineries? For government revenues? All these sorts of consequences have not been recognised sufficiently.
You mean by policymakers? Or by companies?
Both. The problems that European utility companies are wrestling with now are a good illustration of how complex the issue is. These are major players, with a great deal of knowledge and resources, who operate at the heart of the energy market. You would expect them to be strongly focused on the long term. And yet they did not see the consequences of the energy transition coming. They have been hit hard – the stock market value of the main European utilities has almost been halved in recent years. And we are only at the start!
A Europe becoming more and more dependent on imported oil is a nightmare vision
But governments have also made mistakes. Look at how the European Emissions Trading Scheme (ETS) was set up. A good idea, but poorly managed. Look at how awkwardly solar and wind power are stimulated, and what consequences this has had. Brand new power stations have to be shut down. That’s a huge waste of capital. All because not enough consideration was given to how things affect each other in the energy value chain.
Didn’t the companies simply misjudge the market? What could governments have done about that? Should they have refused the building permits for these new power stations?
Yes! If the governments had asked the right questions then, they would not have allowed this to happen. They would have planned more carefully. This could have been prevented with a clearer long-term strategy, based on a proper understanding, and on transparent information that would have put all the parties in a position to keep control of the changes. Everyone would have been able to plan more gradually. As a policymaker you can of course say: it is the companies’ own responsibility. But as government you inevitably have to deal with the consequences. If the companies go bankrupt, who then will invest in infrastructure? What happens with electricity prices? In the end society always ends up paying the bill.
Are policymakers in Brussels able to connect the dots?
What I like about EU policy is the consistency with which it is implemented. Also, Brussels consistently stresses why the energy transition is needed from an economic perspective. So energy policy is anchored more solidly at the EU level than in many member states.
But what is still lacking is a clear roadmap. As well as implementing current policies, you need to be working on large-scale demonstration and commercialising of the new technologies of the future. It takes decades to get these ready for the market. In addition, policy initiatives need to be properly coordinated. For example, you can increase the share of biomass in your district heating systems, but what if you then build in such a way that you no longer need this heat? If you don’t have an overall strategy, you get all kinds of clashes like this.
If policy is so important, what remains of the liberalisation of the energy market? Does it have to be reversed?
There was a time when many people believed the market would take care of things. By now we have learnt that there are many things the market does not do. Market players focus too much on the short term. And there are too many market imperfections. Also: energy is a strategic commodity, we have seen this again recently with the crisis in Ukraine. It is not a free market.
But we do not have to go back to the past. The market can do a great deal, very efficiently. It’s about finding the right balance. Leaving everything to be determined by the government or by a monopolist, that does not work either these days, with the decentralisation that we see today. The world has become too complex for this. You need a market model, but within a strict policy framework. Preferably a European policy framework.
Should Brussels have a bigger role in the area of energy?
Yes. I see a tremendously important role for the EU to achieve a good, healthy energy policy. There is an enormous need for an integrated European energy policy. For example, take the additional costs we will have to incur for expanding renewable energy production, promoting energy efficiency, and building new infrastructure. These costs are a necessary and good investment, but they are much greater if every member state carries on doing its own thing. Then you lose countless economies of scale.
I would like to see a strong European energy agency and a strong energy directorate with greater powers than it has at the moment
Also, you can offer European companies a much better position if they can operate across the whole European market. American companies always have that advantage of a big domestic market. Also in the area of knowledge and knowledge infrastructure you can achieve much more by working together. In this connection the European research programmes are also extremely important.
And there is the strategic dimension. Cooperation is enormously important in order to meet our sustainability objectives. So that’s why I would like to see a strong European energy agency and a strong energy directorate with greater powers than it has at the moment.
If there is so much involved, is it really worth it? Couldn’t we go a bit easier on the energy transition?
Nothing is as easy as continuing along the present route, business as usual. Vested interests will always try to maintain the status quo. And true, in the short term change costs money. So it is very easy to let emerging economic sectors go to waste. But then you are back to square one. The Netherlands has done this a number of times in the last ten years.
But this attitude carries costs with it too. The costs of our energy supply are rising. Europe is already paying 400 billion euros a year for its oil and gas imports, and this will only increase. This is very disadvantageous for the European balance of trade. We will have to create more and more added value in order to compensate for the costs of these higher imports. And then I haven’t even mentioned the dramatic price tag of continuing climate change.
You can also give this a positive twist: energy transition offers many new opportunities. A great deal of new revenue and added value can be achieved in a sustainable economy. Solar energy, wind power, smart grids, the bio-based economy, we can all do this ourselves, and gain a leading position in the world. Our future prosperity is not a given. This is one of the few major growth sectors that we have on the radar that offers a great deal of potential. For me, a Europe becoming more and more dependent on imported oil is a nightmare vision.
It’s justified to provide incentives for renewable energy. It is not simply a matter of direct costs, but also of the costs and benefits to society in the long term
For years, the International Energy Agency (IEA) has been showing in its annual World Energy Outlook (WEO) that in the long term business-as-usual turns out to be more expensive than a change to renewables. The more you develop renewable energy, the lower the costs of these energy options become. At the same time you need fewer fossil fuels, so the costs of fossil fuels are also limited. As a result, despite the initial investment needed, you are cheaper off than continuing with business as usual.
That’s why it’s justified to provide incentives for renewable energy. It is not simply a matter of direct costs, but also of the costs and benefits to society in the long term.
Are there examples of countries that are doing it right?
I think Denmark is a good example. That country is at the forefront, worldwide too. It has a stable policy framework, despite changes in government. They have always persevered. And they have shown that you can combine increased prosperity with lower emissions. They even make money from their sustainable strategy – not only from the wind sector, but also in agriculture and in energy efficiency, for which they have good strategies. They are always driving the agenda forward and have their sights fixed on the next phase.
André Faaij (1969) has been Academic Director of the Energy Academy Europe since April 2014. Before that he was professor Energy System Analysis and scientific director of the Copernicus Institute at the University of Utrecht. He advises the European Commission, the UN, governments, companies and NGO’s. He was appointed Young Global Leader by the World Economic Forum. He is the (co) author of more than five hundred publications and qualifies as “highly cited scientist” according to criteria of Thomson Reuters (global top 100 of his research field).