EU turns to long-term solutions for energy crisis
After a turbulent year marked by dwindling gas supplies and soaring energy bills in 2022, Europe is now looking beyond emergency measures to explore long-term fixes to the energy crisis and lay the groundwork for the green transition.
Last year saw EU capitals scramble to plaster over the cracks of the energy crisis, using government chequebooks to protect the most vulnerable households and support industry.
Now the EU is looking to fill in those cracks with long-lasting measures that should pave the way to a renewable energy future and shield consumers from excessive bills.
“We are in a special situation where we have to see how we can get from these kinds of crisis measures to more structural ones,” said Eero Ailio, an advisor at the European Commission’s energy department.
Europe’s actions in 2022 meant it made it safely through this winter, with gas demand dropping 20% and increased solidarity between EU countries.
But the bloc isn’t out of the woods yet, Ailio told participants at a EURACTIV event about the impact of the war in Ukraine on Europe’s energy transition.
“Prices are down now compared to where they were in August, but they are not low,” the official said, adding that uncertainty about prices will remain in 2023.
This year will see several initiatives to build up Europe’s domestic energy supply and reduce the impact of volatile prices. That includes reforming the EU electricity market, completing negotiations on renewable energy and energy efficiency targets, and plans to green industry.
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Finalising Europe’s climate legislation
Even before the energy crisis, the EU was working on a historic package of legislation to reduce emissions by 55% before the end of the decade, decrease energy demand and phase out fossil fuels.
The end of 2022 saw most of the emission-related laws agreed and the decisions made show the EU is “still on track” to reach its climate targets, according to Andreas Graf, a senior associate at the think-tank Agora Energiewende.
This year should see the finalisation of laws to boost renewable energy and energy efficiency. There will also be a push to complete legislation on improving the energy performance of buildings and decarbonising gas.
Together, these should help Europe replace pricey, CO2-emitting gas with renewables and decrease its overall energy consumption.
Alongside reducing gas consumption, the EU will need to phase out coal to meet its emission reduction targets.
However, in light of the ongoing volatility of energy prices and likelihood of further challenges posed by Russia, Europe should reassess how it phases out coal, said Radan Kanev, a Bulgarian lawmaker who sits in the European Parliament’s environment committee.
“We should anticipate a decade of turmoil in the energy markets, which means gas is not a working solution for the levels of coal generation that we have here,” said Kanev.
The Bulgarian lawmaker called for the EU to move coal plants into reserve rather than shutting them down entirely, calling the fossil fuel an “indispensable element of energy security”.
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Coal demand in Europe went up for the second consecutive year in 2022, led by “strong growth” in electricity generation, where it has partly replaced gas as a backup power source, according to the International Energy Agency (IEA).
But Graf pushed back against the idea that coal came to the rescue in 2022, pointing to a report by think-tank Ember that showed it only accounted for one-sixth of the power supply gap last year.
“What we’ve seen in the power sector is that coal went up compared to the year before, that’s clear, but it’s still far below the historic levels,” he said, adding that much of the coal was not used, but went into strategic reserves, helping to calm markets.
The Ember report predicts that the role of fossil fuels in power production will decrease dramatically in 2023 as more renewables are rolled out and nuclear and hydropower generation return to normal.
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Electricity market reform
The rise of renewable energy should be supported by a reform of the EU’s electricity market, which is expected to be tabled in the spring.
An update of Europe’s electricity market was always going to be needed to allow for more renewables, Graf said at the event.
“What was always clear was that we would need to relook at the market design in the long term because of our decision to transition to a market that would be more dominated by low cost generators – wind and solar especially,” he explained.
But in doing this, Europe needs to be careful not to rock the boat when it comes to investor confidence in renewables.
Opening up the electricity market is like opening Pandora’s box, said Wanda Buk from the Polish Electricity Association (PKEE). Speaking at the event, she warned against permanently applying the emergency measures introduced in 2022, like the revenue cap for cheap electricity production.
“Let’s keep them in force only for a specific period of time so they address a short term crisis,” she said.
Each EU country was left to decide how low to set the revenue cap, but there has been criticism of the law’s implementation in Poland, including a lawsuit by renewable energy company EDPR.
According to Ailio, the Commission will favour a moderate approach over a radical one in its proposal, expected to be tabled on 14 March.
If 2022 was the year of emergency measures to tackle the energy crisis, then 2023 will mark the start of addressing the root problem and ensuring a similar crisis never happens again. Whether that succeeds or not is yet to be seen.
This article follows the EURACTIV-organised policy debate “Energy transition paths – What has the war in Ukraine changed?” supported by PKEE.
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