The message from the EU’s statistics arm in mid-March couldn’t have been clearer: the region is firmly on course to meet its 2020 targets for renewable energy, following a doubling in its share of final energy consumption since 2004.
Right direction of travel to meet targets
The news that renewable sources supplied 16.7% of the energy consumed in the EU in 2015, within striking distance of the 2020 target of 20%, gives a boost to the European Commission’s “Clean energy for All Europeans” package, which began laying the foundation for the EU’s 2030 energy goals this month with the European parliament’s first public hearing. Although the legislative process is likely to take up to two years, the headline commitments are clear, and set the direction of travel for EU clean energy policy over the next decade.
The Commission is proposing an EU target of at least 27% (likely to rise to 30%) of energy demand to be met by renewables by 2030, a 40% cut in GHG emissions compared to 1990 levels, and at least 27% energy savings compared with the business-as-usual scenario.
A huge investment opportunity
To meet these targets, the European Commission calculates that €380 billion of investment will be needed each year between 2020 and 2030, mostly in energy efficiency, renewables, and infrastructure. It estimates that €1 trillion will need to be invested in renewable energy generation alone between 2015 and 2030.
This creates enormous opportunity for renewable energy development, especially for the most cost-effective technologies, namely onshore wind and solar PV. In sites with good wind resources, onshore wind farms can compete, without subsidy, with fossil fuel-fired capacity. The continuing fall in the cost of solar generation is making the technology increasingly cost-competitive, on an unsubsidised basis, in the sunnier regions of Europe.
But beware potential pitfalls
So, while it appears relatively straightforward to meet the new objective of 27% by 2030, there are some potential pitfalls.
The new Europe-wide goals do not include national targets, unlike the existing 2020 directive and there is a significant difference in rates of progress between countries. The UK has been playing catch up and is something of a laggard, so arguably Brexit could improve the bloc's renewables outlook, in terms of meeting EU-wide targets.
Furthermore, the energy network in Europe is not yet integrated. For example, Germany’s surplus power is flowing into Poland and the Czech Republic, putting their grids under pressure.
However, the Commission’s efforts to harmonise standards to support cross-border power trading are now well advanced and should make a major contribution to bringing down balancing costs over the next five years. Investment plans for additional cross border capacity (i.e. interconnectors) will facilitate the creation of a large-scale flexible power grid that should help with the integration of much more renewable power generation capacity and reduce the need for back-up power from fossil fuel plant.
Energy efficiency companies will also benefit
The package is also a positive for those companies offering energy efficiency solutions for the industrial, transport and residential markets. It proposed a higher target than the 27% agreed by ministers in 2014, and extends the requirements that energy suppliers save 1.5% of energy each year – a policy which has driven private investment and spurred the creation of new participants. Overall, the Commission’s energy efficiency proposals are set to add €70 billion to the region’s GDP, create 400,000 jobs, and cut the EU’s fuel import bill.
A compelling long term investment opportunity
Investors in renewable and energy efficiency are looking forward to further clarification of the legislation. However, the direction of travel is very encouraging and the EU is clearly pressing ahead with a low-carbon transition that promises an enormous investment opportunity over many years to come.