Comments Off on Navigating towards net-zero power system: it is not the ‘heading’ but the ‘course’
The energy price and supply risks we are facing today are making the decarbonisation of the power sector by 2035 an even more significant challenge. But if we deviate the heading of our ship from the course for longer than necessary, we will lose the course we set for ourselves: cost-efficient power sector decarbonisation writes Zsuzsanna Pató.
The energy price crisis and the war in Ukraine opened a whole new dimension for the need to get off fossil fuels, alleviate energy poverty and assure reliable energy service for consumers. Pursuing these multiple objectives has always been challenging, but the urgency of action adds another facet: we need to accelerate power system decarbonisation and achieve a 75% renewable share by 2030.
We must ensure that the responsive, short-term actions taken to meet today’s security and price challenges are directionally correct for the long-term vision: a decarbonised and well-functioning economy by 2050. Building soon-to-be abandoned fossil infrastructure now is costly.
Similarly, distorting the merit order by capping gas prices slows down the replacement of fossil fuel capacities with clean resources. The scale of the challenge and the ‘need for speed’ is unprecedented. Old thinking will not deliver the new energy system we need.
With that in mind, RAP has developed a Blueprint for a decarbonised European power system, including the necessary regulatory solutions to navigate there by 2035.
A new baseline for clean investments
Recent events revealed the actual cost of gas. This is the new baseline for investment decisions into clean energy solutions. Gas and other fossil fuel prices can jump on a rollercoaster at any time and take Europe for a ride.
Decarbonising the energy system means decarbonising power generation first. Renewable-based generation technologies are proven technologies, and their costs continue to decrease steadily. The most efficient way of decarbonising heating and transport is via electrification. Both of these end-uses rely on imported fossil fuels in Europe.
Climate policy is now security policy
Rapidly displacing fossil fuels, including Russian gas, with renewable power generation capacity has its own challenges. It requires the parallel pursuit of the goals of minimising the cost of the transition, maintaining a reliable power system and safeguarding the equitable distribution of cost and benefits among consumers while alleviating existing inequalities. The ‘great energy capacity swap’ rests on a few key tenets explored below.
The basics of a zero-emissions power system
The core coordination mechanisms are markets and prices. Creating an integrated European power market has already delivered large benefits to European consumers. Prices — that are granular in time and space — are key in optimising production and consumption decisions and responses. The core European power market model is not broken and does not need a fix. However, it requires some safeguards and reinforcements to protect customers from extreme price impacts and ramp up the speed of change.
Energy Efficiency First must take its place as a key overarching principle, not just a slogan or a new name for energy efficiency. To minimise total system costs, the most efficient solution needs to be chosen from the pool of supply, storage and demand options when balancing the system, providing grid services and ensuring resource adequacy.
Low-cost management of a renewable-based power system needs a lot of flexibility from all possible sources: generation, storage and demand. Faster and larger markets further facilitate the integration of variable generation.
Consumers must wear two hats. They are the ultimate vendors, so they should be empowered to define what energy services they need. They also offer essential new system resources by their demand, storage and generation capabilities.
More grid and more generation assets will virtually always equal more reliability, but we need to ask if the gains are large enough to justify the costs each time. Optimal resource adequacy means full transparency over the cost of marginal supply-side capacity and full recognition of the value of demand-side flexibility. Thriving forward markets are key in triggering investment based on consumer choice and — unlike capacity mechanisms — without running the risk of supporting non-economic/fossil units.
Europe has ambitious offshore wind development plans. Scaling up requires new thinking: joint grid planning with anticipatory investment, multipurpose grid use (interconnection and linking wind parks onshore) and single system operation.
Power System Blueprint
RAP pulled the essential building blocks of a future zero-emissions power system in Europe by 2035. The Power System Blueprint takes a systems view, sketching out an integrated plan of regulatory solutions essential for a transition that is efficient and equitable. The solutions are designed to galvanise the dirty-for-clean capacity swap, optimise network investment and safeguard efficient spending and consumption decisions through transparent pricing. They are offered up as a toolbox to assist EU and national regulators as they identify the next steps and formulate strategies, each with its own starting points and priorities.
Conclusion
The war in Ukraine drastically changed the public discourse on energy — systems and markets. Calls for stepping back from the transition as planned to reconsider the fundamentals of markets are myopic. At this pivotal moment, it is incumbent on us to accelerate the transition while safeguarding consumers from extreme price impact while needed. Whenever you decide on next steps, you should keep the eyes on the horizon. Always. Not only on the direction of the wind.
Comments Off on Cutting ties, forging alliances: how transport electrification and renewable electricity can reshape Europe’s economic landscape
Along with the existing environmental and economic rationale for ending reliance on fossil fuels, the war in Ukraine has motivated many in the European Union to increase energy sovereignty. One of the larger fossil fuel consuming sectors is transportation, for which electrification is the alternative, accelerating the pace worldwide with Europe being the biggest market. Reducing direct transport emissions through electrification requires further rollout of renewable electricity production for the full climate impact mitigation and air quality impact. Transport electrification not only reduces the need for fossil fuels but also provides economic opportunities for Europe and European consumers.
By 2030, the continued increase in electrifying transport can cut spending on oil imports from outside the EU by at least 49 billion euros. Instead, this money could re-circulate within the EU and consumers will notice by saving money when switching to an electric car. A rapid electrification (for example, by European CO2 targets and energy savings obligations) of high-mileage vehicles, such as taxis, buses, delivery vehicles and fleets can accelerate this change – and feed the second-hand market over the years to come. The time is now to spotlight the wider economic opportunities in the electric vehicle (EV) lifecycle, as well as the need to accelerate both transport electrification and renewable energy buildout.
Vital to the whole lifecycle of these vehicles — from manufacturing to usage and recycling — is its alliance with renewable energy. There’s a strong synergy between transport electrification and power system decarbonisation: sector integration boosting the flexibility in charging that can match the variance in renewable production and zero tailpipe emissions matched by zero-emission energy.
Society and economy benefit from electrifying transport
Saving energy is amongst the top recommendations to reduce energy import dependency. Electric vehicles provide a significant two-thirds of energy savings over their diesel and petrol counterparts. Speeding up vehicle electrification and developing the regulatory and market ecosystem for charging flexibility is an important further contribution. Flexibility in charging will make the renewables-based energy system transition easier, cheaper and faster. Although electrified transport means additional electric demand, it can also help make the switch in the power system from gas and coal to renewables easier. Charging can be better managed and match available generation and network capacity.
By charging at the right time EVs can help integrate renewable energy and prevent additional draw on fossil fuel power plants while reducing costs for their owners. By shifting and shaping demand and, with bidirectional charging, feeding power back into the grid, EVs can reduce the need for additional generation capacities and help the electrical grid run more efficiently. These benefits of EV charging require a regulatory framework that recognises the contribution that demand-side flexibility can bring to the power system, such as what’s shaping up in Poland. Next to that, new flexibility services are needed to align EV owners with these system benefits.
The planning, rollout and operation of renewable energy, grid and EV charging infrastructure is made easier, more timely and more profitable with a data-driven approach. There’s a new industry emerging at the intersection of data and energy. This digital energy industry needs new skills for the new jobs, connecting academic, energy and policy perspectives. It’s not just grids and flexible loads that need to interact, but also sectors and organisations. Vice versa, new alliances create mutual benefits for the joint EV and renewables transition.
Decarbonising as the competitive edge in manufacturing
There’s another field where sectors – manufacturing and energy industries – should build strong ties to seize economic opportunities.
In the past, vital elements of electric vehicles, such as the battery, have been sourced from outside Europe. Increasingly, vehicle manufacturers looking to secure supply chains, as well as reduce the lifecycle greenhouse gas emissions of their vehicles, brings crucial manufacturing closer to the European market and its renewable energy. The renewable energy to power these manufacturing plants will provide lower long-term predictable costs, with power purchasing agreements providing the investment certainty helping the further expansion of renewable energy production.
In the same week that Tesla’s first European plant opened in eastern Germany, battery producer Northvolt announced a new production facility in northern Germany – close to offshore wind and grid interconnections. Germany’s federal minister for Economic Affairs, Robert Habeck, stressed the locational advantage of Germany with its Energiewende, the multi-decade plan to decarbonise the energy system. Investors recognise the clear path laid out towards a renewables-based power system. Other European regions can learn from this: having a strategy for the decarbonisation of the energy system and industry and making significant steps towards full decarbonisation within the next two decades, will send the right signals to investors in new battery capacity or other crucial manufacturing plants, as well as provide long-term viability for existing ones. An industrial policy fit for the European market requires a decarbonisation strategy.
The upcoming European battery regulation (as well as consumer demand) will require decreasing the carbon footprint of the materials mined, processed and manufactured into EV batteries. Recycling and material recovery targets will require growth in the industrial scale circular industry around the battery. Related industries in the EV ecosystem — such as EV charge points manufacturing, charger and car parts production and vehicle assembly — will also need to address the energy sources in their production process. For some heavy industries, amongst them steel, it’s not as easy as adding rooftop solar or signing a long-term power purchasing agreement, but there’s an accelerated movement in Europe to reduce carbon emissions in steel production. Now is the time to think and plan to end the dependency on fossil energies for all these sectors to secure their role in Europe’s economy of the future. The EV ecosystem will need to forge an alliance with renewable energy and accelerate its rollout to remain competitive and economic policies require a focus on decarbonisation.
The electrification of transport in all aspects of its lifecycle shows the importance of building new ties to double down on decarbonisation. Reducing dependency on fossil fuel imports provides an opportunity for those Member States that accelerate the transition to renewable energy and electric vehicles. Cutting ties with fossil fuels might give the needed push to accelerate electrification of transport now, but it is new alliances for renewable energy that will deliver the economic benefits. It’s time to forge them.
Comments Off on How to deploy heat pumps at scale – and fast
The EU’s ‘RePowerEU’ plan aims to accelerate the rollout of heat pumps, including doubling the deployment rate in the next five years. Richard Lowes explains how it can be done.
In the past few weeks, European energy policy and its perception of fossil energy have seen a seismic shift. Heat pumps were always undoubtedly a critical heat decarbonisation technology, not just in Europe but around the world.
In addition to being vital for decarbonisation, heat pumps are seen as a critical technology for enhancing the EU’s energy security to reduce Russian gas imports. A new report from the Regulatory Assistance Project and its partners, ‘The perfect fit: Shaping the Fit for 55 package to drive a climate-compatible heat pump market’, explores how the EU’s Fit for 55 package can drive greater growth in heat pumps and how in the interim period, member states can drive action.
Why heat pumps?
While heat pumps use electricity, the heat that a heat pump moves into a building is inexhaustible energy from the environment (the air, the ground or water).
Heat pumps provide significantly more useful heat than the electricity used to power them, making them a cost-efficient technology for decarbonising space and water heating in buildings.
Even a heat pump running on electricity solely produced using fossil gas would reduce total gas use and greenhouse gas emissions. But as the share of low carbon electricity continues to grow across Europe in the coming decades, so will the gas savings and emissions reductions that heat pumps bring.
This combination of efficiency and ability to use low carbon electricity explains why heat pumps play a central role in the decarbonisation of heating in buildings, district heating networks and low-temperature industrial processes for numerous decarbonisation pathway studies, including work by the European Commission and the IEA.
Fit for 55 is a crucial heat pump policy moment
Many areas of the EU’s Fit for 55 package could, if advanced, support the growth of the EU’s heat pump market. A proposal in the Energy Efficiency Directive would disallow energy savings associated with fossil fuel boilers from counting towards the EU’s energy savings target, and a proposal in the Energy Performance of Building Directive (EPBD) would require member states to lay out plans for fossil fuel heating phase-outs by 2040. Both proposals would get member states to consider heat pumps in their medium- and long-term policy planning.
The revised Energy Taxation Directive and a new, second emissions trading system covering buildings can potentially shift the overall economics of heating away from fossil fuels towards heat pumps and should, in general, be supported.
Stronger minimum energy performance standards for existing buildings in the EPBD would ensure that the building stock is more efficient and better able to guarantee affordable and quick adoption of heat pumps at scale.
Time is of the essence
However, the Fit for 55 package will take time to be negotiated and will most likely not become law until 2024. The EU’s ‘RePowerEU’ plan aims to accelerate the rollout of heat pumps, including doubling the deployment rate in the next five years. Achieving this accelerated pace of change will require significantly more action by member states ahead of the introduction of the EU’s new legislation.
Fossil fuel heat bans are an obvious and key policy measure. New home fossil fuel heating bans can be introduced rapidly in advance of the EU 2030 target. To expand gas infrastructure in the face of a climate and gas crisis is clearly witless. This is hardly a new policy, with a number of countries, including the Netherlands and Denmark, already moving to ban gas in new buildings.
Furthermore, strengthening the European Commission’s proposal for new energy labelling and eco-design standards for space and water heating appliances alongside the Fit for 55 packages would be another important step — it would avoid the sales of new, less efficient gas condensing boilers on the EU market. This minimum energy performance standard should be combined with fossil heating bans with sensible lead-in times, an ultimate policy goal that should be clearly reflected in the EPBD.
In the interim period before the proposals become EU law, and likely for the foreseeable future, national governments should ensure they offer financial support for households to purchase heat pumps, with grants being a simple, tried and tested option.
More is needed
The transformation to low carbon heating by 2050 was already going to be a challenge. In addition to the heat pump policy measures currently proposed, thorough coordination of heat decarbonisation from international to local levels is needed. Such coordination needs to consider how building energy efficiency renovations happen alongside the rollout of heat pumps and more local developments around district heating networks.
There is a huge amount to do and very little time. The Russian war against Ukraine and the surrounding gas crisis adds a shorter-term imperative, which has focused minds on the future of heating.
The challenge now is to rapidly deliver policies at a national level that drive immediate change while ensuring that a robust Fit for 55 packages is agreed upon to provide a structural shift away from fossil fuel heating into the future. Undoubtedly, we should have started this earlier. But now more than ever, there is no time like the present to act, and our report can be a useful guide for policymakers.
Comments Off on We Need a Lorry-Load of Energy Savings; in the new ECO, the Government Delivers a Hatchback
The United Kingdom was once a world leader in energy savings. We proved that investing in buildings, insulating lofts, and switching to efficient boilers, motors, and lighting created jobs, saved money, and lowered the environmental costs of energy systems. But in recent years we have turned our back on our own evidence, reducing the breadth and depth of energy efficiency programmes.
In this less ambitious scene, the government has finally revealed its plans for the next phase of the Energy Company Obligation (ECO). Happily, the new version contains some important design improvements over earlier plans. Unhappily, the programme as a whole is still too narrow and too small, failing to deliver bill savings to the vast majority of UK households (businesses remain unserved too).
Here is a quick summary of the new changes to the ECO for energy savings:
Lower ambition, narrower target: From 2017 onwards the current expenditure for ECO of £870 million per annum will be reduced to just £640 million, a 26 percent cut. Since efficiency is our lowest-cost clean energy choice, this reduction in effort is a false economy, but it was expected—in the Spending Review and Autumn Statement 2015, the former Chancellor set out his plans to reduce the spending for ECO. The other key change is a shift from delivering savings across all types of households towards addressing households in fuel poverty alone—the budget for the fuel poverty related target of the future ECO will be increased by 45 percent to £450 million per annum. After 2018 all ECO spending is supposed to be allocated to fuel poverty alleviation.
Better programme design: As always with efficiency programmes, details matter, and the design of ECO will change in some useful ways. The government will return to using predetermined savings estimates (called deemed savings) for energy efficiency improvements, an approach that RAP has long advocated, since it lowers administrative costs whilst still providing confidence that real savings are being delivered. In addition, energy efficiency measures in social housing with an energy performance certificate (EPC) rating of E or below are planned to be included, which will increase the targeting efficiency of the programme. Both of these changes are steps in the right direction, both reducing costs and increasing the targeting efficiency of ECO when it comes to fuel poverty.
In a nutshell, the overall ambition of ECO is being reduced, but the design will improve and be more in line with the “keep it simple principle” that is so important for effective Energy Efficiency Obligations. We support most of these design modifications and have argued for many of them over the years. However, the overall target for ECO and the level of investment is insufficient to meet our national targets both on fuel poverty and on carbon reduction.
Why are we stuck in this debate? The government’s main argument for reducing ECO spending is affordability, as some of the costs of efficiency programmes end up in consumer bills. But since investing in cost-effective efficiency actually saves more than it costs, that arithmetic is upside-down. Investing in efficiency does cost something, but so do investments in power stations, transmission upgrades, capacity requirements, and gas imports—and the supply-side options cost even more. More ambitious ECO targets for energy suppliers have generated significant net-benefits to consumers, both to those who directly participate in the programme and those who do not. A narrow focus on the cost of Energy Efficiency Obligations such as ECO is misleading, since the benefits on bills as well as the benefits in health, environment, and energy security outweigh the programme costs. This conclusion is supported by previous analysis by the Department of Energy & Climate Change (DECC) which concludes that “in 2020 households are estimated on average to save around 11% […] on their energy bills compared to what they would have paid in that year in the absence of policies.”
However, this analysis was made before the current government announced plans to reduce spending on energy efficiency programmes. In the autumn of 2013, the consensus that rising energy prices are best addressed by improving energy efficiency started to break and the exact opposite became government policy. Interestingly, in the past, and in many other places around the world, rising energy prices were a trigger for increasing energy efficiency spending—academic analysis shows that the target of CERT, the predecessor of ECO, was increased by 20 percent in 2009 following wide-spread media coverage of rising energy prices and windfall profits made by the energy companies.
The new Prime Minister recently said she wants “to see an energy policy that emphasises the reliability of supply and lower costs for users.” The cheapest and most effective way to achieve this is investing in energy efficiency. We know how to do this from several decades of experience. Now is the time to get serious about energy efficiency and launch an ambitious national programme that helps us achieve the new Carbon Budget, reduce bills, and stimulate the economy in times of uncertainty.
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