The European Union must almost double its electricity grid capacity by 2030 to keep on track for its 2050 carbon dioxide reduction target, says the European Climate Foundation think-tank.
Although a new ECF report reckons that planned investments in renewable energy and infrastructure are likely to be “adequate” for 2020 decarbonisation targets, accelerated spending is needed after that to ensure that generation is largely free of carbon emissions by 2050.
“The grid is the glue that will hold together our decarbonised power system,” says Dr Johannes Meier, the foundation’s chief executive. “Only by setting a clear policy direction to 2030 will it be possible to achieve the decarbonisation goal.”
The ECF says that €628 billion must be spent in 2010-20 – €567 billion for generation,
€15 billion for back-up capacity and €46 billion on grids. And €68 billion is needed for 109GW of extra transmission capacity in 2020-30, it adds.
Dr Fatih Birol, chief economist of the International Energy Agency, says that renewables will account for 25% of the $2.5 trillion of electricity investment needed in Europe in 2010-35, including 40% for transmission and distribution – $2 billion/week. The agency has warned that Europe has five years to switch to green energy technology to avoid being locked into a long-term high-carbon future.
In October, the European Commission said that €200 billion must be spent in the next 10 years, including €140 billion for high-voltage transmission, storage and smart grid projects, plus €70 billion for gas projects including pipelines and liquefied natural gas terminals and €2.5 billion for CO2 infrastructure.
The commission’s 2010 energy plan calls for 42,000km of new lines, including 20,000km for renewables, said Georg Wilhelm Adamowitsch, the commission’s connections coordinator: “This is nothing less than an industrial revolution.”
The commission said this means that current investment levels have to be increased considerably – a 30% rise for gas and a 100% increase for electricity compared to 2000-10.
Yet the industry warns that the targets could be missed, in part because investors are unwilling to stump up the money. The ECF points to difficulties in establishing infrastructure plans and in winning consents – up to 30 years in some cases as a result of strong public opposition – coupled with the lack of clarity over cross-border cost allocation among countries and operators.
The commission says that a greatly improved, expanded and smarter high-voltage grid is essential to connect up and exploit an expected surge in distributed renewable-energy generation. The EU has 2020 targets of a 20% reduction in greenhouse gas emissions, a 20% increase in energy efficiency, and a 20% share of energy consumption for renewable energy.
For example, the EU forecasts large amounts of wind power in the north of Europe and large amounts of solar power in the south – which would have to be moved long distances to consumers. In the long term large amounts of solar power could be generated in north Africa and shipped to Europe.
The grid is also at the heart of the EU aim for an internal energy market, with electricity and gas traded freely across borders, by 2014. EU energy commissioner Günther Oettinger says: “Without the internal market the only result will be that gas and electricity will be more expensive.”
The 2014 target is “reasonable,” according to Alberto Pototschnig, director of the Agency for the Cooperation of Energy Regulators (Acer), set up last year by the commission to help coordinate national regulators. He told a recent Brussels meeting on the internal market: “It’s achievable. With a bit more effort from everyone we can get there.” Yet the power industry has told Oettinger that it cannot find the money for the completion of the internal market and for the proposed long-term grid investments.
“I have more and more doubt that we will have adequate transmission capacity by 2014,” says Daniel Dobbeni, president of the European Network of Transmission System Operators for Electricity, which has a plan for an extra 64GW of transmission lines in the decade to 2020 – a 38% increase.
The industry complains about the risk posed by political and regulatory uncertainty, citing a Citigroup report published in September which claimed that the EU’s utility sector had suffered from 27 “political interventions” since January 2010 – leading to a €200 billion loss of shareholder value.
Ignacio Galán, chief executive of the Spanish utility Iberdrola, rails against what he claims is energy re-regulation in many EU countries: “We are going back,” he says. Electricity tariffs in Spain and Poland, for example, are below costs and suppliers are subsidising markets, even as more taxes are applied, he says.
“For our industry the uncertainties have never been higher,” says Jean-François Cirelli, president of the French utility GDF Suez. “This is certainly a major impediment for investment.”
Philip Lowe, director general of the commission’s energy directorate DG Energy, said that the EC might next year consider possible barriers to investment: “More attention to market signals for investment might be necessary.” However, he rejected suggestions at the Brussels meeting that energy investment was unrealistic: “The financial sector also has to have a reality check – there’s a long-term market in electricity for investors,” he said.
Yet even Oettinger is not betting on an internal market by 2014, after several missed past deadlines. “I have some doubts about whether this goal is achievable by that deadline,” said a visibly annoyed Oettinger at the Brussels meeting.
“If we don’t all work together I very much fear that our boat is going to go aground,” he said. Switching metaphors, he said he sometimes felt that it was “one step forward and two back,” even though failure would mean widely diverging market and network rules, limited cross-border energy flows, fewer economies of scale, less competition, less choice for customers, and less security of energy supply.
“Meeting our climate change objectives with 27 markets would be much more expensive and much less efficient,” he added, warning about the threats to EU peace, solidarity, cooperation and trade. “Without an internal energy market, Europe would be vulnerable. We would all pay the price,” he said.
The internal market challenges include setting-up regional electricity markets and day-ahead electricity trading, with detailed technical codes and cross-border deals. Lowe said: “Regulation and infrastructure development must go together.”
However, DG Energy’s Inge Bernaerts said that the main electricity and gas decisions should all be taken next year, including choosing priority projects and setting rules on congestion, capacity allocation, load and demand balancing, grid connection and operation, gas interoperability and transmission tariff structures. “On all of these issues the work is well on track,” she said.
System codes for the internal market are more advanced for electricity than for gas, according to Walter Boltz, the vice-chair of Acer: “We are about a third of the way, maximum,” he said. However, the gas sector, as it includes small markets often supplied by a single pipeline and a single company, needs more than just system codes, said Boltz.
To address funding concerns, the commission has proposed, in the EU’s 2014-20 budget, a €40 billion Connecting Europe fund for priority energy, transport and digital infrastructures, including €9.1 billion for energy.
The money would be in the form of project bonds, grants and loan guarantees. Grants would be for “common interest” projects, such as an offshore grid in the North Sea and a southern gas corridor to import gas to Europe from the Caspian basin. Projects could receive 50-80% of their funding from the EU.
The commission’s proposals also include streamlining – to speed up, with a three-year deadline – project permit procedures, letting national regulators and Acer allocate costs in line with benefits to countries, and increasing public acceptance of projects.
At the launch in November of an agreement by grid operators (including the UK’s National Grid), green groups and other organisations to promote sustainable modernisation of grids, Oettinger rejected a suggestion that the €9.1 billion was inadequate. He also called for good project proposals, successful projects and public acceptance of projects: “Then maybe we will get additional money in 2016 or 2017, on the way to 2020,” he said.
He added: “We need bankable projects. We need a story for a roadshow for financial institutions.”
The grid agreement calls for public acceptance, transparency, participation and benefit sharing. Oettinger insisted that the commission’s proposals would not undermine environmental protection or public influence: “We need to make sure that citizens get involved and are informed,” he said.
He added: “The task ahead is enormous. We have to act together and we have to act now.”
However, Professor Mark O’Malley, from the school of electrical, electronic and communications engineering of University College Dublin, blamed “the total lack of political leadership” for any under-investment: “The politicians are the problem,” he said.
Being deliberately provocative, he said that “you need a lot of copper” but that the cost was not great in overall terms. “If you do not build it you will not get that renewable energy.
“Get on and do it!”