How Can Europe Ensure the Energy Security of Supply in the Future?

What a long winter! Out of the never ending cloudy skies and below zero temperatures, a slight appearance of the sun has never made me so happy. Don´t you feel the same? I know that some of you may not be experiencing this in other regions of the world, but this has been a remarkable long winter in Europe. I wonder how it would be if heating inside our homes were not possible.

This leads to an important question: can European countries´ energy infrastructures ensure such standard of living for the decades to come with affordable prices and without energy shortages or environmental impacts?

For centuries, energy has been a centerpiece in international relations and, most recently, its infrastructure has become the backbone of modern economies and societies. In the center of the European debate is the energy security of supply, involving three important pillars: Availability, Sustainability and Affordability.

Composed by heterogeneous countries in terms of accesses to energy resources, different views on how each power mix should be, different national policies, market designs and demand growth trends, Europe has a bold challenge to implement an integrated energy market in order to ensure the continent´s security of supply.

On the availability and primary energy side, unless tight oil and shale gas are developed in Europe, the continent will increase its oil and gas imports dependency. Europe will still rely on supplies coming mainly from OPEC countries, the Russian Federation and Norway (eventually from North America in the future). For this purpose, the EU is aiming at further interconnections, an enhanced supply chain to main production sites and future gas price renegotiations.

Europe´s sustainability agenda is being driven by the 20/20/20 targets that establish a 20% of GHG emissions reduction, 20% of renewable sources in the final energy consumption and 20% energy efficiency gains by 2020. This agenda is being backed up by an important power matrix transformation.

According to our estimations on power generation, EU-27 power mix trends for 2010-2030 forecast a sharp increase of renewable sources (mainly solar and wind) from 10% up to 30%, while hydro power remains stable at 10%. As renewable power increases its role in the power matrix, the power grid will demand further grid reinforcements, additional robust electricity highways and intelligent distribution grids in order to link renewable sources to the consumption centers, to compensate their fluctuations and to connect “prosumers” into the grid.

Nuclear tends to decline from 28% to 21%, mainly driven by the phasing out of reactors in Germany and eventually in Belgium and Switzerland. France, on the other hand, will keep nuclear as a strong pillar of its energy mix while countries in the Central East Europe may push forward new installed capacities.

Fossil fuels will decline from 51% to 38%, mainly in coal and oil. In the short term, due to low CO2 prices and a lower coal price compared to gas, new coal plants may be added to grid, but their dominance will tend to decline over the long run. Natural gas, despite suffering current competitiveness issues, will tend to maintain a 24% share and be the preferred fossil fuel for efficient and backup power generation.

But all these developments come with a price. The system affordability has been facing rising electricity prices due to fuel and grid costs increase, feed in tariffs for renewable and taxes to support efficiency programs. Such price developments pose questions on how to change the energy market design to limit the increase of electricity prices but also to incentivize investment in low-carbon fossil power generation technologies.

To overcome the security of supply challenges of the 21st century:

• One answer will not be enough.
• Efficiency will have to come from the entire energy chain.
• Solutions will have to be sustainable, competitive, robust and adapted to local peculiarities.

Finally, bold economic and political moves will be crucial to harmonize different market designs, incentivize efficient conventional and renewable generation, and interconnect the continent in order to ensure energy sustainability, availability and affordability in Europe.

Author Christian Hoffmann is a Senior Advisor at Siemens Corporate Strategies and a Blogger for the WEC 2013: Road to Deagu project.