While the final agreement of the Clean Energy Package represents a critical step forward for the energy industry, I have some bad news. There is still a lot more work to do.
Whilst it might be tempting to think of the design of energy regulations and markets as a path from ‘bad’ to ‘good’, this is not the case. It is a never-ending journey driven by changes in context, people and technology. Ten years ago, I helped produce the landmark European Climate Foundation report ‘Roadmap 2050’. Back then, few people accepted the technical or economic feasibility of decarbonising the energy system, even of achieving 80% reductions in emissions. We demonstrated however, that large proportions of renewable energy sources could economically and reliably integrate onto the energy system. Indeed, this report, and subsequent work by the Commission, underpins much of the legislation currently in the Clean Energy Package.
A lot has changed over the past ten years. We are now experiencing the realities of deploying renewables at scale and costs have fallen much faster than expected. Also, the role of energy consumers, empowered by digital technologies and new ownership models, has changed enormously. These are seismic shifts preoccupying much of the strategic and policy bandwidth in the industry.
There is also one further development, the most significant of all. Scientific consensus is pointing towards the need for a more urgent decarbonisation agenda, as demonstrated in the Commission’s 2050 long-term strategy and the Paris Agreement. Despite the important steps in the Clean Energy Package, it is now necessary to question whether these changes will be enough to deliver deep decarbonisation of the energy system.
Questions for decarbonising the energy system
Deploying renewables and electrifying the heat and transport sectors will need to do the heavy lifting of energy system decarbonisation. Doing so enables us to map out the necessary future pathway and to identify associated challenges. This analysis is described in a new E3G report launched today. Unfortunately, it tells us there are still many big issues to overcome, issues for which the Clean Energy Package does not provide ready solutions. Three issues stand out as needing urgent attention by EU policy makers concerned with the energy system regulatory and market framework.
Firstly, important choices about our future energy system infrastructure must be made. Keeping several options open is too costly and more certainty is required by those operating in both regulated sectors and energy markets. When must we end coal-fired power generation? What is the future for gas? How many electric vehicles can we expect on our roads and what does this mean for charging infrastructure and power system planning? How are we planning to decarbonise heat? Unfortunately, political obstacles currently stand in the way of many member state governments making these important choices. This, in turn, is due to the absence of a credible plan for growth and jobs in a low carbon future. The Commission must now focus on helping member states move forward with further analysis, exploring where EU-wide measures may be helpful. When do key choices need to be made? How can a whole systems approach to energy infrastructure planning and prioritising efficiency minimise the costs of the system transition? Where is innovation critical to support the transition and is this consistent with innovation funding priorities? Where and how might EU funds be deployed to support regions undergoing industrial transition?
Secondly, energy consumers must start changing the amount and the way they consume. This will involve upgrades to homes and businesses as well as adopting new energy service relationships underpinned by digital technologies. This is not going to happen unless it clearly and demonstrably improves citizens lives. Whilst we have the technology solutions we need, we do not know how to develop the consumer ‘pull’ that will enable the mass deployment of the necessary measures. Policy makers must be prepared to challenge the way consumer facing markets work and consider what changes are needed. What is the new narrative that moves beyond ‘switch and save’? How to encourage companies to invest in consumer premises whilst preserving/enhancing consumer protections? How to maintain fairness and ensure everyone benefits from the energy system transition? How will efficiency and demand response become reliable system resources that can offset traditional infrastructure expenditure? What governance structures will allow mass deployment programmes that take advantage of local differences and allow diversity of approaches?
Finally, member state governments must be assured their citizens will continue to enjoy secure energy supplies. Currently, this is done by exerting regulatory control over transmission system operators and operating national energy markets (recall extensive debates over the role of ‘capacity mechanisms’ during the development of the Clean Energy Package). This will be insufficient in the future when there are high proportions of renewables, much of it locally distributed. A new approach will be required that manages significant international trading coupled with the dynamic operation of local energy systems. What local power markets will allow efficient electric vehicle charging and smart heating and cooling of buildings? How to efficiently plan and build new infrastructure requirements? Where will resource sharing between member states deliver the largest cost benefits? What are the institutions that will deliver the assurance needed by member states to confidently share resources? Who provides information? Who makes decisions? What is their incentive framework? How will international institutions need to be integrated with local balancing entities to create a robust overall assurance framework?
None of these are easy questions to answer, but if we are to tackle the increasing threat of climate change we must rise to the challenge. The obstacles are political, not economic or technical. The agenda set out above will help overcome current roadblocks and avoid new ones emerging. It should be a priority task for the incoming Commission and Parliament.