The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
Growth in demand for EVs means good things for avoiding climate change, but puts more burden on the network
Europe is currently in the throes of its worst energy crisis since the 1970s. Prices are soaring, supply is low, and the system of energy production, storage and usage is stressed beyond the grid’s capacities.
Add to this disaster the crisis of global warming, with the transportation sector generating around 25% of Europe’s total greenhouse gas (GHG) emissions. As a global community, we find ourselves in hot water.
That said, EU policies to limit GHG emissions and increasing public awareness of the urgent need to reduce our carbon footprint across a range of industries have resulted in a positive trend: exponential growth in the use and availability of EVs.
And while this spike in clean-energy transportation is certain to have positive effects on climate change, it also puts new pressure on the electricity grid, thanks to a flood of demand from a vast community of vehicles that traditionally have relied on fossil fuels.
WHAT IS AT STAKE
The EV industry finds itself at a crucial crossroads. The challenge is to develop methods to efficiently charge a quickly increasing supply of EVs without putting an untenable load on the global-energy grid. Failing to do so could provoke significant and unprecedented issues for the network and would require major—and costly—infrastructure reinforcements.
While times of crisis often produce conservatism across the political and public sectors, these moments offer profound opportunities for private businesses to lead the way with proactivity and progressive thinking. Smart charging is precisely this kind of solution.
Ultimately, it means more control and increased benefit, for the planet at large and for both sides of the EV-charging equation. Users and operators can mitigate the monumental impact of skyrocketing demand and exploit a more efficient and flexible operation of the energy system.
THE SMART-CHARGING SOLUTION
Volatile electricity prices are making life worse for all of us, across the globe. But the opportunities offered by smart-charging technology guarantee an undeniable win for EV drivers, enabling them to consume power in the fastest, safest and cheapest way possible—while benefitting the planet at the same time.
Unlike traditional charging connections, smart chargers receive a constant stream of live, real-time data from the energy network, which enables remote monitoring of the charger with near-immediate effect.
Inherent to this idea is an ultimately altruistic principle: the notion that the conditioned distribution of energy, one based on considerations including safety regulations, renewable-energy prioritisation and cost efficiency, is in fact beneficial across the board, with advantages reaching every moving part of the energy grid.
The most obvious of these, of course, is the advantage incurred by the EV drivers themselves. The smart charger’s automated technology offers transparent information about network status that allows them to choose when and how to charge, thus obtaining greener and cheaper charging by delaying activation to a period of lower grid usage. Reliable forecasts about future prices also allow drivers to look ahead and plan upcoming charging schedules accordingly.
But smart charging’s benefits extend far beyond the driver. Because this technology helps to moderate the overwhelming demand for electricity, it stabilises the load placed on the network and balances the flow of energy from it, so that the ratio of output from more renewable sources can be prioritised.
Great inroads are currently being made in the area of Vehicle-to-Grid (V2G) and Vehicle-to-Everything (V2X) solutions as well. These technologies essentially frame the electric car as a battery on wheels, a storage device for energy that can be tapped in moments when the grid is overtaxed and needs energy input, thereby balancing variations in energy production and consumption.
Based on the idea that a car battery can be charged and discharged depending on different signals, V2G technologies enable us to inject stored energy from an EV battery back into the grid as needed, to the benefit of all.
Smart charging technologies also bring myriad benefits and increased revenue possibilities to the providers of the chargers themselves. While traditional pricing methods of offering users a fixed price-per-kilowatt-hour work well when the market is predictable and stable, they fail to ensure revenue for charger providers or fair pricing for drivers in environments like today’s.
Dynamic pricing offers a simple solution to this problem, allowing providers to set their tariff to follow the fluctuations of the market, with a premium on top, therefore aligning their profits with the real-time price of electricity.
This means that they will never undercharge when prices surge or undercharge when prices plummet, thereby creating a fair marketplace that benefits the needs of both provider and user. •
If you have a thoughtful response to the opinions expressed here or if you have an idea for a thought leadership article regarding an aspect of the global energy transition, please send a short pitch of 200 words outlining your thoughts and credentials to: email@example.com
The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
Efforts to green the finance sector will help the energy transition
Asked why he robbed banks, American bank robber Willie Sutton said, “Because that’s where the money is.” He had a point.
People often ask me why, as Climate Minister, I am so focussed on financial services. The financial services sector itself is not a major source of emissions.
If you ask the average person where we need to focus to bring down emissions, most people would say agriculture, transport or energy. And they would be right—except of course that all of that work requires financing.
So the role and influence of the finance sector in the transition is, I think, often underestimated. And it has been a big focus of our recent climate action in Aotearoa New Zealand.
At its launch in 2019, the Green Investment Finance bank was capitalised with an initial NZ$400 million to galvanise private sector finance into the green economy. And it has already had some wins.
For instance, solarZero, one of the companies that Green Investment Finance has worked with, was recently sold to BlackRock, an asset management firm. Over the coming seven to ten years, BlackRock is going to put a billion dollars, above the sale price, into solarZero. That is a lot of solar panels.
Meanwhile, we barred default KiwiSaver funds from investing in fossil fuels. Given that around 75% of all New Zealanders stick with their default funds, that represents a pretty big divestment. Elsewhere, we put in place a Responsible Investment Framework for Government funds, which all now have net-zero strategies.
Around the same time, we announced the New Zealand Government’s framework for the upcoming Sovereign Green Bond issue.
While Green Bonds are not new debt, this does mean that the debt we are taking on will come with strings attached. It means an extra layer of accountability taking us towards net zero.
And, of course, we were the first country in the world to require all listed companies and large financial institutions to report on their climate-related risks from next year. Through the Sustainable Finance Roadmap and engagement with the wider business community, we have heard there is industry demand to improve and extend external reporting and disclosures.
But the regime is already having an impact, even before the first reports are due out. For example, I was recently talking to a bank that has started talking to its farming customers about how to lower their climate-related risks. That means building resilience to increasingly frequent and severe storms, floods and droughts.
But it also means working out how to cut the farm emissions that cause climate change in the first place. Shifting these capital flows will make a colossal difference in the years to come. We have made a lot of progress and I know there is a lot more to come.
As I write this piece, I am preparing to depart for COP27 in Egypt. There I will be emphasising the importance of sustainable finance and aligning capital flows with a low-carbon, climate-resilient future.
The transition to a zero-carbon economy is, in my view, a once-in-a-generation opportunity to build a future that is cleaner, more equitable, and much more prosperous. Everyone has a part to play in making it happen. •
If you have a thoughtful response to the opinions expressed here or if you have an idea for a thought leadership article regarding an aspect of the global energy transition, please send a short pitch of 200 words outlining your thoughts and credentials to: firstname.lastname@example.org
The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
Heat pumps are one of the only feasible low-carbon heating options available to building owners
Interest in cleaning up heating has been building for some time—an inevitability of decarbonisation. But the Russian war on Ukraine, and the impact on global gas markets, has put clean heating and removing exposure to fossil fuels on centre-stage.
At the UN’s COP27 climate change conference in Egypt, plans have been set in motion to make buildings a specific agenda under the “breakthrough” programme, launched at the Glasgow talks in 2021.
The purpose of the breakthrough programme is to encourage international collaboration on some of the biggest climate change problems, while simultaneously stimulating market development and helping to meet wider sustainable development goals.
There are existing breakthroughs for the power sector, road transport, hydrogen and steel. Responsible for over a quarter of global greenhouse gas emissions, the buildings sector is a timely addition.
In buildings, the biggest chunk of energy demand and emissions is associated with heating. Around 60% of the world’s current heat use is provided by fossil fuels. Broadly speaking, keeping to commitments in the Paris Agreement requires removing greenhouse gas emissions, and therefore fossil fuels from heating, by 2050.
Currently, however, the buildings sector is not on track for the Paris Agreement and it is clearly in need of much greater attention and effort. Reducing the demand for heating by making buildings more efficient can directly reduce emissions and is undoubtedly a vital part of clean heating.
However, even if buildings are made more energy efficient, some heating and undoubtedly hot water production will still be needed and, fossil-fuelled heating systems still need to be replaced with low-carbon alternatives to reach zero emissions. In fact, the emission impact of switching clean heating can be much bigger than that of efficiency measures.
Heat pumps are invariably seen as a critical low-carbon heating technology. In the International Energy Agency’s net zero emissions by 2050 scenario, they become the dominant global heating technology by 2030 with 1.8 billion units installed, covering the vast majority of buildings by 2050. Analysis by McKinsey shows a similarly explosive growth trajectory for heat pumps and the Intergovernmental Panel on Climate Change describes them as a “central” heat decarbonisation technology.
Heat pumps are widely seen to be so important because most of the energy they produce is taken directly from the environment (outdoor air, water, etc.) and therefore naturally clean. The electricity to power them can also come from green sources and the fact that renewable electricity is getting cheaper means that the economics of heat pumps is getting better.
Quite simply they are a clean and cost-effective option and the truth is few other low-carbon heat options exist.
Despite their excellent attributes and while the market is growing, heat pumps are not being installed at the rate needed for the world’s climate targets. They require significant support from lawmakers.
To really accelerate the deployment of heat pumps, there is a strong need for policy packages. This is because single stand-alone policy measures, while useful, are unlikely to be enough for the radical and rapid change needed.
Rather, lawmakers need to coordinate the use of multiple tools to ensure that a heat pump rollout is rapid, smooth and equitable. This heat pump coordination needs to happen alongside the implementation of energy efficiency programmes and the fitting of heat networks.
There are three key elements (or pillars) that need to be considered in heat pump policy packages. Firstly, lawmakers need to guarantee that energy pricing and taxation supports clean heating without encouraging fossil fuels. Secondly, financial support, such as grants, should be available for buildings and homeowners where needed. Thirdly, regulation should be used to drive clean heat appliance purchasing.
Successful heat pump deployment requires active coordination by lawmakers around issues such as skills, energy system integration and communication. These are less traditional energy policy approaches, with policy historically tending to focus on changes at the scale of infrastructure. But to deal with heating, such a large and also personal part of the energy system, requires a new, more user- and installer-centred approach.
The role of buildings is now emerging as a major global energy transition focus. With time being of the essence, only collaboration at a global level will be sufficient. A buildings breakthrough might be the spark that lawmakers need to reap the benefits of clean heating. •
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The European Commission is making moves to cut permitting delays, but it may be too little, too late
GROWTH POTENTIAL At only 40 gigawatts of new capacity a year, Europe’s renewables sector is seriously lagging behind what is required to meet international global warming targets
GO TO ZONES Several proposals to accelerate permitting under being considered
KEY QUOTE Europe no longer lacks renewables ambition, but it is now facing an implementation gap
Interest in clean energy is higher than ever before, as climate targets begin to bite and cheaper renewables offer an unavoidable alternative to more expensive fossil fuels.
New policy announcements to adopt more renewables drop seemingly on a daily basis. Countries around the Baltic Sea agreed in August 2022 to increase their combined offshore wind capacity sevenfold, Spain aims to more than quadruple its solar power reserves by 2030 and the US government plans to spend big on floating wind farms.
Renewables technology is advancing at a rate of knots too. Vestas, a Danish manufacturer, recently started testing a monster 15 megawatt (MW) offshore wind turbine, while tidal facilities and floating turbine platforms are also scaling up quickly.
Another barrier to the mass rollout of clean technology, financing, is also gradually being taken down, through a mixture of changing investor appetites and progressive policymaking by regulators around the world. The European Union, for instance, has rolled out its sustainable investment rulebook to help guide money towards climate-friendly projects, while the European Investment Bank (EIB) as part of its rebrand as a “climate bank” refuses to fund gas power.
Across the Atlantic, meanwhile, US President Joe Biden’s administration successfully pushed the Inflation Reduction Act through, unlocking nearly $400 billion in cash for energy security and climate change resilience initiatives. According to BloombergNEF, an energy finance research group, more and more money is flowing into decarbonisation measures like electric transport, storage and neutralising the emissions from industry across the globe.
Administrative burden The amount of paper work required to permit a wind power project is holding the sector back
But for the renewables sector, although investments have doubled over the course of a decade from $200 billion per year to $400 billion, the figure has levelled off and not grown at the rate needed to bring greenhouse gas emissions down to where they need to be by 2050.
Admittedly, $100 of renewable energy buys you much more in 2022 than in 2012, due to the plummeting price of solar and wind electrons. However, net-zero targets and the 2015 Paris Agreement’s temperature benchmarks require a much faster energy transition than the one we are currently getting.
Ember, an energy think tank, insists that the EU needs to double the pace of its wind and solar rollout in order for the Paris deal’s limit of 1.5C of global warming above 1990 levels not to be breached. New data shows that additional renewable capacity needs to top 72 gigawatts (GW) every year by 2026 in order to keep the 1.5C target alive. Current trends suggest that EU countries will not even breach 40 GW a year.
“Europe no longer lacks renewables ambition, but it is now facing an implementation gap. Higher targets have not yet translated into accelerated deployment on the ground,” warns Ember data analyst Harriet Fox. Croatia, Finland, Lithuania and Sweden are set to hit their benchmarks but the rest of the 27-strong union could struggle to install enough clean power generation. A significant reason for that is red tape in permitting processes.
Renewable facilities like wind farms and solar arrays need to run the gauntlet of permitting and approval procedures before they can be built. Environmental impact assessments need to be made and local people need to be consulted beforehand.
EU legislation says that new projects should be permitted within two years and that repowering projects—replacing existing wind turbines or solar panels with newer, more powerful models—should take just one year.
But this is not the reality, not by a long shot. According to Zoe Grainge, a senior analyst at S&P Global Commodity Insights, “Permitting is one of the single largest obstacles to renewable power build-out in Europe, including the UK.”
Data provided by Ember and trade body WindEurope shows that none of the 18 major EU countries sampled come in under the 24-month mark for onshore wind projects. Just three markets achieve it for solar power.
This translates into completion statistics that make hard reading: in Germany, the average time taken to finish a wind project is six years. In Italy and France it takes even longer, meanwhile in China it is closer to two years. In some cases, the permitting process takes up to five times longer than the law allows. Industry players explain that a combination of digitalisation issues, byzantine local authority procedures and legal appeals are hamstringing green efforts in a big way.
Spain has more than 20 GW of wind power capacity stuck in the permitting process and just 9 GW actively under construction. Poland, which wants to ditch Russian energy imports quickly, has 12 GW wrapped in red tape and just 3 GW under construction.
Nearly the same amount of solar power capacity is also mired in the Polish administrative quagmire, waiting for the right permit that will allow the plants to be connected to the national grid. The government has been urged to reform the process sooner rather than later.
Permitting is by no means a niche issue either, as United Nations secretary-general Antonio Guterres said in September 2022, “We urgently need to put policies in place to incentivise investments and eliminate bottlenecks caused by red tape, permits and grid connections.”
It is also a matter of geopolitics and national security. In its ten-point plan on how the EU can reduce Russian gas imports, the International Energy Agency (IEA) insists that admin hurdles must be torn down. It says that 20 terrawatt-hours (TWh) of extra renewable energy could be added in the next 12 months and most of this would be utility-scale wind and solar PV projects which could be brought forward by tackling permitting delays.
“This includes clarifying and simplifying responsibilities among various permitting bodies, building up administrative capacity, setting clear deadlines for the permitting process and digitalising applications,” the report adds.
Vladimir Putin’s invasion of Ukraine and Europe’s subsequent quest to nix Russian fossil fuel imports has turbocharged energy policymaking, re-energising legislative efforts that had already been kicked off under the EU’s flagship Green Deal policy, first presented in December 2019.
The European Commission published a new strategy known as the REPowerEU plan in May 2022 in a bid to marshall the policies of the 27 member states and propose new measures to save energy and replace imports with clean alternatives.
As part of that plan, solar power installations should double by 2025, power purchase agreements (PPAs) should be streamlined and overall renewable energy should hit a 45% share by 2030. Permitting must also be improved across the board. “The duration and complexity of the permit-granting procedures greatly varies between the different renewable energy technologies and between member states,” the Commission says in the REPowerEU plan.
“Our aim is to simplify and prioritise. With our new proposal, renewable energy projects are considered as being in the overriding public interest,” EU energy commissioner Kadri Simson explained in June 2022.
Renewable energy’s new label as a matter of “overriding public interest and in the interest of public safety”, will mean that its design, permitting, construction and operation should be given priority attention by regulators.
“This is important because many wind turbine projects are subject to litigation and appeals. The notion of overriding public interest will make it easier for judges to rule in favour of wind energy when weighing its expansion against other different public interests,” explains Christoph Zipf at industry trade body WindEurope.
The Commission also urges countries to implement permitting rules already set by the Renewable Energy Directive (REDII), which stipulates that approvals should be granted within two years and that a single authority should be charged with processing them.
Other measures under consideration include “silence means agreement” or “positive administrative silence” rules, which would mean projects are automatically approved if the relevant authorities do not respond in time.
The main way that Brussels legislators are attempting to help the renewables sector navigate the permitting maze is to push national governments to be more strategic in their planning and designate so-called “go-to zones” in which to deploy clean energy.
Renewable zones would still be subject to environmental impact assessments but the projects carried out within the area would benefit from a presumption of not having significant effects on the environment. Most significantly, permitting authorities would be obligated to grant approvals within just one year in go-to zones. If eventually backed by member states, the plan could be a powerful stimulus for the sector.
The Commission says governments could either submit one plan per go-to zone or per technology type, which would incorporate more than one zone, granting authorities a bit more flexibility in how they assess potential sites. Degraded land that is not suitable for agricultural use—a nod to the ongoing fears over food supply triggered by the Ukraine invasion—industrial areas like ports and transport corridors have already been touted as easy-to-identify zones.
Lotta Pirttimaa at trade group Ocean Energy Europe, says identifying go-to zones for ocean energy should not be too challenging. “There are many studies on the resource potential and best areas for wave and tidal energy production,” says Pirttimaa.
Bodies such as the European Marine Observation and Data Network (EMODnet) are key to that effort as a network of organisations that aims to collect and distribute in-depth marine data freely. Germany recently uploaded its spatial planning to EMODnet’s portal, increasing the amount of data available to users.
However, NGOs are less keen on some of the implications of go-to zones. A WWF Europe report insists that the idea, “Could be helpful, provided that these areas are based on wildlife sensitivity mapping and reliable spatial planning”, but adds that biomass and hydropower should be excluded.
The report adds that renewable projects should not be exempted from the usual impact assessments as proposed, because that would call into question the ability of authorities to monitor and evaluate infrastructure performance over time and its impact on biodiversity.
“The solution is better spatial planning, increased administrative capacity in competent authorities and effective public and stakeholder engagement—not exemptions from important environmental legislation,” says WWF’s Alex Mason.
This issue may flare up further, as EU energy ministers agreed that for repowering projects only environmental impacts that are additional to existing installations should be subject to further assessment. According to Rystad, an energy analysis company, repowering of utility-scale solar power capacity will ramp up in the late 2030s and completely take over new capacity additions by the mid-2040s, illustrating how crucial the issue is set to become in the next stage of the energy transition.
Go-to zones are not a completely new concept in energy policymaking. California’s Desert Renewable Energy and Conservation Plan (DRECP), approved in 2016, is a notable example of a regulator pinpointing areas that have a high potential for clean energy generation.
However, Alex Breckel, an infrastructure expert with the Clean Air Task Force, a global non-profit, points out that the DRECP soured the US on go-to zones, because it in effect created “no-go zones” for renewables and that permitting is actually made more complex outside of priority areas.
French utility firm EDF is also sceptical about the EU’s plan, warning that “in the absence of sufficient human resources we fear that public officials would prioritise the files related to the go-to-areas, thus creating a two-tier system.”
California dreamin’ California’s DRECP is a notable example of a regulator pinpointing areas that have a high potential for clean energy generation
POINT OF CONTACT
According to various surveys and consultations held on how to improve permitting, one of the main causes of delays and administrative headaches is the lack of a single contact point for prospective renewable energy developers. Even though EU legislation already obligates governments to designate one authority, platform or entity to handle permitting, in practice these are few and far between.
An EU official, speaking on condition of anonymity, acknowledges that member states are in breach of REDII but that there is unlikely to be legal action while the laws are being updated. Internal dialogue is also always the preferred solution.
Governments are also reportedly making progress on permitting under the auspices of the new Single Market Enforcement Taskforce, a forum set up in 2020 where EU and national officials can discuss matters that affect the functioning of the single market. However, Josefin Berg, an analysis manager at S&P Global Commodity Insights, says that measures like this, “Will take a while to trickle down to local decision makers.”
Aida Garcia, with sector association Eurelectric, insists that MEPs and governments should make further changes to the Commission’s permitting proposal during upcoming negotiations on the updated renewable energy directive (REDIII).
“Given the emergency need to deploy renewables, there should be a conditionality for member states to transpose the new permitting rules. Only 18 [out of 27] countries have so far transposed the directive,” Garcia explains. She suggests that ongoing payouts of loans and grants from the EU’s €800 billion pandemic recovery fund could be withheld if countries do not fulfil their obligations.
WindEurope insists that one-stop shops should also go hand-in-hand with digitalisation policies, as this would help permitting authorities to speed up applications and address understaffing issues. Germany, unsurprisingly perhaps for a country whose public authorities still insist on using the fax machine, is one of the main offenders in insisting developers submit requests on paper.
In one instance, a developer in Baden-Württemberg had to print out 36,000 sheets of paper just to file an application for three wind turbines. The printing and delivery costs topped €10,000, illustrating how lack of digitalisation is kryptonite for potential investors.
There are examples of good practice though. Ocean Energy Europe’s Pirttimaa points out that “Scotland has a very developed permitting process for ocean energy, with a one-stop-shop, Marine Scotland, and detailed guidelines available on their website.”
This has helped Scotland roll out impressive wind projects on and offshore, and become a leader in trialling tidal and wave technology. Developers recently connected the 1075 MW Seagreen offshore wind site to the grid, which is reportedly the deepest fixed-bottom turbine installation in the world.
Members of the European Parliament want to enshrine digitalisation further in the updated renewables directive, voting in September 2022 for updates that would obligate governments to ensure all applicants can submit their documents in digital form.
“If an applicant makes use of the digital application option, the entire permitting process including the administrative internal processes needs to be carried out digitally,” the final agreement states. Public hearings would also fall under this obligation.
PERMITTING IN PRACTICE
In the Netherlands, the government announced a target to install 70 GW of offshore wind capacity, as part of a commitment with other North Sea countries to hit 260 GW by mid-century. As part of the Dutch’s plans to electrify vast swathes of the country’s economy and produce green hydrogen in situ for domestic and export purposes, permitting reforms are also incoming.
One major allowance will be permission for offshore facilities to connect to the main grid via a single “hub point”. The government says this will both cut down on infrastructure costs and permitting times, as authorisations will not be needed.
The Netherlands won approval in September 2022 from the European Commission for its application for nearly €5 billion in financing from the EU’s €800 billion-strong pandemic recovery fund. The application commits to further reforms of the Dutch permitting process.
On the other side of the Jutland peninsula, eight countries around the Baltic Sea pledged to turbocharge their offshore wind buildout, setting a joint target of 19.6 GW by 2030, seven times the current capacity. “We will pursue faster permitting processes and strive for a balanced coexistence of economic and ecological needs,” states the declaration, signed by the prime ministers and presidents of Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland and Sweden.
In a separate document signed by energy ministers, the “Baltic 8” agreed to accelerate permitting processes for new renewable energy generators and the grid infrastructure at a national and EU-level including reinforcements necessary for balancing variable renewables and removing internal bottlenecks.
France is also betting big on renewables finally, opening its first large-scale offshore wind farm in September 2022. However, utility firm EDF warns that “administrative procedures are too long, mainly because of not enough public agents to process permit applications efficiently and on time.” The company adds that “the balance between biodiversity protection and climate change mitigation needs to be improved.”
In Ireland, permitting is also an issue and is one of the main hurdles preventing the gusty island from achieving the government’s informal objective of becoming “the Saudi Arabia of wind energy”. “The statutory objective is for an [onshore] wind farm application or appeal to be decided in 18 weeks. However, the average time for a decision is actually 60 weeks,” says Justin Moran from Wind Energy Ireland, an industry body.
Ireland’s offshore sector is only in its infancy, despite massive potential, and waiting times for a licence needed to map the foreshore are stretching beyond 18 months. In the United Kingdom, meanwhile, the turnaround time is between 12 and 15 weeks. “We have the pipeline of projects to deliver our targets. We have the investment. There are clear plans in place to reinforce the grid. But we cannot build them if we cannot get them through the planning system,” Moran adds.
Change is coming. Recruiting new staff is a challenge but more resources are being funnelled toward permitting divisions and the government is due to publish new reform legislation before the end of 2022. There are also plans to set up a one-stop shop for applications and a new court tasked with overseeing environmental and planning issues.
Spain, meanwhile, is working towards its target of 74% renewable power and 42% total renewable energy by 2030 by streamlining procedures. In a Royal Decree published in March 2022, new provisions for permits and grid access were written into law.
The new system offers fast-track permitting for clean energy projects that exceed 50 MW but come in under 75 MW for wind and 150 MW for solar. They must still demonstrate that they do not pose a threat of unacceptable impact on the local environment and cannot be marine-based.
New projects can also apply for a suspension of grid access permits during a grace period, which is aimed specifically at solar power installations.
ACROSS THE POND
The Biden administration’s success in passing the Inflation Reduction Act, a pared-down and retooled version of the more comprehensive Build Back Better initiative, has also prompted a rethink of how permitting is handled.
This is not just because the White House wants to deploy 30 GW of offshore wind capacity by 2030 and invest hundreds of millions of dollars in updating the country’s outdated electricity grids. There is a more pressing political need to address permitting.
In return for eventually backing the IRA, West Virginia Senator Joe Manchin—who had manoeuvred himself into a kingmaking position—won a major concession from the White House to support his push to reform energy project authorisation procedures.
Under Manchin’s proposed bill, designating projects as in the national interest—similar to what the EU would like to achieve—would be streamlined. It would also set maximum permitting deadlines and establish a single inter-agency review process.
However, Manchin’s reform push faces an uncertain future, as enough Democrats and Republicans banded together in September 2022 to block the bill. The former opposed perks for fossil fuel developers—a gas pipeline in Manchin’s home state would benefit greatly—while the latter essentially wanted to punish the senator for helping pass the IRA into law in the first place.
Paradoxically, permitting reform has been a priority for Republicans for a number of years. Manchin’s next chance to win support for the bill will likely come after November’s midterm elections or in December, as part of a government spending bill. •
ILLUSTRATION Luke Best
PHOTO Sterling Lanier
Recent policy changes mean sustainable aviation fuels will become a reality within the sector’s decarbonisation efforts
Over 21 gigatons of CO2. This is the amount of CO2 emissions that airlines expect to abate between now and 2050, noting that demand for aviation is likely to double in this time period. While today, emissions currently account for 3% of global CO2, this figure is set to grow and in a decarbonising world, so flying under the radar is not an option.
Sustainable aviation fuels (SAF)—low-carbon fuels powered by alternative sources ranging from agricultural waste to carbon captured from the air—are a viable solution to ensure the flight industry can continuously deliver benefits to society in an environmentally sound way.
Fully compatible with existing aircraft and fueling infrastructure, they can help airlines cut their emissions by up to 90% in the case of renewable fuels and even 100% for e-jet fuels. Yet, while SAFs are the most promising pathway to decarbonising air travel, they currently make up only 0.1% of all jet fuel used.
This is about to change dramatically. In the European Union, the Commission is working on several proposals that will significantly boost the production and uptake of SAFs.
As part of the “Fit for 55” package presented in July 2021, the ReFuelEU proposal includes a blending mandate imposed on aviation fuel suppliers to ensure that all aviation fuel supplied to aircraft operators at EU airports contains a minimum share of SAFs.
Starting with 2% in 2025, this share will increase over time and eventually reach 63% in 2050. Individual European countries are also taking decisive action. In January 2022, the Danish government announced that all domestic flights will use sustainable aviation fuel by 2030.
The biggest revolution, though, is coming from the United States where the Biden administration has set the record target of three billion gallons of domestically produced SAFs by 2030.
The newly adopted Inflation Reduction Act (IRA) introduces further monetary incentives to upscale the production and blending of SAFs into regular jet fuels in US airports. The combination of tax credits and competitive grant programmes are expected to have a significant impact: The International Air Transport Association projects a 50-fold increase in global SAFs production by 2025 as a result.
The evidence is clear and the foundations are being built. The impetus now is on representatives from businesses, governments, the aviation industry and technology providers to discuss the massive implications of these initiatives.
From a commercial side, we still need the dialogue with the political side to have full clarity and to assess the implication of the regulations—for instance, the IRA and REPowerEU—and then to action the actual commercial scale production to get to the finish line.
With the political tailwind we already see, we believe that COP27 can be the catalyst to further this transition. COP27 is a great forum for discussions between key industrial and political stakeholders. A series of sessions are dedicated to discussions on scaling up production and implementation of SAF and we are eager to see this transition take off. •
If you have a thoughtful response to the opinions expressed here or if you have an idea for a thought leadership article regarding an aspect of the global energy transition, please send a short pitch of 200 words outlining your thoughts and credentials to: firstname.lastname@example.org
Banks and governments can mobilise more funds for the energy transition
Amidst multiple crises where climate action, energy and development are often seen as trade-offs, small-scale clean energy solutions—such as distributed renewables, energy efficiency and storage—have been delivering people-centred benefits rapidly.
Energy solutions that are non-fossil fuels based, decentralised and operate closer to people’s lives, have been enabling affordable energy access, increased employment and improved resilience to energy price volatility and extreme weather events. They provide the fastest, cheapest solution to tackle climate, energy, and development issues—while supporting a people-centred energy transition.
However, persistence towards traditional, larger infrastructure still gets the majority support while global investment in small-scale energy solutions is nowhere near what is needed. This is especially true in emerging and developing economies (EMDE) where perceptions of risk in the small-scale energy sector often prevent investment.
In the wake of the recently concluded Annual Meetings of the International Monetary Fund and World Bank Group in October 2022, there is an important window of time where the World Bank and other multilateral development banks (MDBs) need to show their pivotal role in scaling up these solutions for developing countries.
This can set the scene for constructive dialogues at the nexus of climate, energy and development at COP27. MDBs are distinctively placed to leverage private finance at multiples of what is available through public finance and help build more bankable projects in EMDE.
From 2017 to 2021, MDBs contributed at least 81% of the public finance that was invested in small-scale energy solutions. Yet, the value is only a fraction of what MDBs have in their financing pot and what the world needed in terms of annual investment.
Distributed renewables and energy storage only account for 0.5% and 1% of total MDB energy-related finance, respectively. In contrast, large-scale infrastructure projects still account for more than 90% of all MDB energy spending. Furthermore, over 15% of these investments are still going to fossil fuel projects—widening the gap for finance directed to cheap and clean small-scale renewables.
Geographically, these small amounts of public finance are still largely concentrated in high-income economies. For instance, over the past five years, investment in smart meters across EMDE was only one-fifth of smart meter investment in advanced economies, despite the need and opportunity being far greater in EMDE contexts.
Given all these investment needs, currently MDBs finance only 1.2% of the public investment needs for small-scale energy solutions, estimated to be at least $302 billion.
MDBs have the opportunity to make structural adjustments and shift finance towards small-scale solutions. At the same time, the shareholder governments must be aware of the potential of small-scale solutions and seek opportunities to implement these recommendations in MDBs.
There are seven action points that MDBs and shareholder governments can do to increase this finance and drive substantial development benefits:
Europe should take hydrogen seriously now, rather than view it as a future fuel source
As the European weather forecasting agency, ECMWF, warns of a particularly cold winter, lawmakers could be forgiven for thinking they are right to focus on acquiring replacement gas in its shift away from Russian supply.
But this would be a strategic misstep. There is little value in a continuing reliance on natural gas for Europe in the long run, as it does not match Europe’s climate ambitions.
Instead, Europe should be spending its resources on energy that will not just address short-term problems, but solve long-term challenges. That means investing in hydrogen.
Overreliance on the Nordstream pipelines was a strategic error, but we should not forget that the gas crisis started before Russia’s invasion of Ukraine. A combination of stronger-than-anticipated demand and insufficient gas storage levels, a market failure, led to historically high prices late in 2021.
This has set off a frenzy of state visits to the Gulf countries, as Europe tries to secure alternative gas in the form of additional LNG cargoes.
Now, several new LNG terminals have come online or are being constructed and Germany is producing more power from coal and lignite than previously hoped for.
All of this is to prevent companies from bankruptcy and European citizens from freezing this winter. Much of this activity is coming at the expense of climate targets, which will be damaged if resources are spent on swapping out one source of natural gas for another.
It does not have to be this way. Europe has a huge network of 200,000 kilometres of high-pressure gas pipelines and a multitude of distribution grids. Rather than simply use these for natural gas, they could instead be repurposed for hydrogen.
We still hear many voices expressing doubts about hydrogen as a major energy carrier, often referring to conversion losses in the hydrogen supply chain. Although conversion should always be minimised, the reality is that these losses are going to be compensated by efficiencies in transport and storage.
Europe has a seasonal energy demand pattern and that will not change. As a result of the energy transition, in the future, we will have more energy supply in the summer months, whereas the peak demand will remain in the winter.
For that reason, Europe already has several thousand terawatt-hours of energy storage in the form of underground natural gas storage, petroleum tanks and coal heaps. To put that into perspective, electricity storage, mostly in the form of pumped hydro, is negligible compared to storage in energy molecules. (Electrochemical storage in batteries cannot even be seen on the scale we are discussing here and will never be meaningful in seasonal storage.)
In addition to storage, bulk transport of gas is 10-15 times cheaper than electricity. Europe’s electricity grid is more than 100 years old, can hardly cope with growing demand, and is certainly not prepared for the exponential growth of renewables.
However, Europe has an established gas grid. This network can be repurposed to accommodate hydrogen and the cost of that conversion is estimated to be 20% to 25% of an entirely new pipeline system.
A leading consortium of European gas transmission system operators estimates that 75% of Europe’s gas grid can be made suitable for hydrogen. In contrast to natural gas, hydrogen can be produced in Europe, or purchased from friendly countries.
So, the strategic value of hydrogen lies in the low cost of transport and storage, as well as the flexibility in supply options.
The Hydrogen Accelerator, part of the REPowerEU strategy, which was released just eight days after Russia’s invasion of Ukraine in February 2022, calls for an amount of hydrogen (20 million tons of green hydrogen by 2030) four times larger than previously targetted (5.6 million tons).
Half of that amount, ten million tons per year, is to be covered by imports. This is a lot of clean hydrogen, 2030 is effectively tomorrow, and there are no better places to serve Europe than the Middle East and North Africa.
We should almost certainly see more deals like the hydrogen supply agreement between the United Arab Emirates (UAE) and Germany earlier this year, particularly as the Gulf states work to place themselves at the heart of hydrogen production.
Already host to one of the major industry conferences in ADIPEC, and set to host COP28 next year, the UAE, alongside other major hydrogen producers, is looking to take advantage of their existing hydrocarbon infrastructure to better position itself in the global hydrogen market. This is a strategic move that the EU should not just look to benefit from, but imitate.
Last month, the Hydrogen Bank was announced by European Commission President Ursula von der Leyen in her State of the Union address. It is time for Europe to take hydrogen seriously now, not just wait for it as some far-off solution for the future.
It must make sure that it uses today’s crisis to navigate the energy transition. Anything less will be a strategic misstep.•
The EU’s renewables directives count what fuel is burned for heating, as opposed to the amount of heat produced
Never has the spotlight shone so brightly on Europe’s heating and cooling sector. And for a good reason. Fossil gas makes up around 39% of the energy used to heat buildings and much of Europe wants to rapidly phase it out.
To help do so, the European Parliament recently voted in favour of a key amendment to the Renewable Energy Directive (RED): raising the annual target for the share of renewable energy in heating and cooling.
The new goal—a 2.3 percentage-point increase each year until 2030—is roughly double the one proposed in the Fit-for-55 package unveiled in 2021.
The clear signal has been set, yet there is something off with the way the metric is measured. By counting fuel burned instead of heat produced and not including electricity used for heating or cooling, the RED favours inefficient technologies.
IGNORING THE MUSHY PEAS ON THE FLOOR
Imagine a toddler having lunch. Her father has prepared a bowl of 300 grams of mushy peas and figures that this meal should meet half of the two-year-old’s nutrient needs for the day. She is a messy eater though and jettisons around half of her food on the ground. Once her dad sees the empty plate, he pats himself on the back, thinking that he filled her belly. He should look at the floor.
Measuring the renewable share of heating and cooling in the RED is simple. It tallies all the energy used to heat and cool from renewable sources, then divides it by the total. The key question is: which energy counts as renewable?
Unfortunately, the RED’s answer to this is flawed. It only counts final energy use or, in other words, the fuel that is delivered to the customer to use in their heating appliance. That means if someone burns a log in a fireplace at 50% efficiency and it produces 100 kilowatt-hours (kWh) of heat, how much “renewable heat” does that account for?
If you were thinking “100 kWh” you would be wrong. The RED counts that as 200 kWh, since that is the energy content of the biomass that was combusted at 50% efficiency.
That is a big problem because heating systems have different efficiencies. An electric heat pump typically produces 100 kWh of heat with 33 kWh of input electricity. The remaining 67 kWh is drawn from the ambient air for free. An 85% efficient pellet boiler needs 117 kWh.
The point: Less efficient technologies need more input energy for the same useful heat outcome. The RED discourages switching to more efficient heating appliances and electrification. It counts the full weight of the mushy peas, not just those that were eaten.
The other problem with the RED methodology is its scope. It does not consider the renewable electricity used for heating and cooling at all. Whether it is used to drive a heat pump or just an electrical resistance heater, it does not count toward the renewable heating and cooling target. Even for cooling, which is virtually only based on electricity.
This is an effort to avoid double-counting. The data wranglers do not want to count renewable electricity in both the power sector and the heating and cooling sector. As a data wrangler myself, I appreciate their commitment to neat allocation. But in this case, neatness has its downside.
Electricity providing a heating or cooling service should be considered towards the renewable heating and cooling target. Otherwise, heat pumps could be undervalued in terms of their contributions. If the methodology does not even consider where the electricity comes from, the heat output of the heat pump can never be fully renewable.
If the renewable share of electricity would be considered in the RED’s methodology as a heating and cooling service, the incentive to promote heat pumps would even be stronger. Member States will thus be encouraged to implement policies that aim to achieve the heating and cooling target, with the ancillary benefit of growing the deployment of efficient heat pumps to do so.
As it stands, the least efficient and least electric technologies are those that have the most potential to meet the goals under the RED. More efficient and electricity-based heating appliances risk falling behind.
THE WAY FORWARD
Getting metrics right is crucial to ensuring a rapid and balanced transition to clean heating and cooling. The Renewable Energy Directive’s goal should be to promote efficient heating and cooling technologies that maximise useful energy while minimising input energy.
This means counting the useful heat that is produced by a heating system, not the input energy needed. It also means including the electricity used for renewable heating and cooling.
Since electricity realistically contributes to both the headline renewable energy target (32% in the RED II and voted to increase to 45% by the European Parliament), as well as the renewable heating and cooling target. Both calculations should factor it in so that the statistics are accurate.
Double-counting can be avoided by ignoring the electricity used in the heating and cooling sector when calculating the headline target.
Metrics matter. Only by counting the useful heat produced can the Renewable Energy Directive provide the right incentives for phasing out fossil gas and spurring the clean electrification of heat.•
Communication key in supporting local communities
The energy transition is no longer a concept to debate or consider. It is an urgent requirement that communities across the world are implementing. While energy-related legislation and guidelines at national and international levels are undoubtedly needed, action in cities and sub-national regions demonstrate that there is so much that can also be done and led by communities.
Communities are keen and able to herald in energy transition: from coal regions whose workforces and communities want to be actively leading a just transition, to urban dwellers setting up renewable energy communities (RECs). It is the role of networks, researchers and experts to support communities in this work.
Local authorities are in the perfect position to support their citizens to lead this transition, but they need support.
They can, for example: prepare their communities for upcoming shifts in energy sources and systems; provide resources and education to support more energy efficient and sufficient behaviour; and can advocate for and implement regulations that support solutions like RECs, which are often seen as at-odds with traditional, embedded energy systems.
However, communication plans are often underdeveloped in communities, including in coal regions in transition. This makes it even more important to engage with stakeholders and citizens to broaden awareness, acceptance, and activate transformative actions.
Participatory processes have to be set-up to achieve political, technical and social approval at the local and higher levels. This will democratise energy transition processes.
COAL REGIONS IN TRANSITION
One pillar of this support work is assistance to coal and carbon-intensive regions.
This must span technical assistance tailored to specific coal and carbon-intensive regions; exchange programmes to forge community and knowledge-exchange amongst regions; facilitating open communication between coal+ regions and higher-level policy makers; and sharing knowledge like toolkits, case studies and webinars that are widely accessible and useful.
In addition, we must help amplify the voices of coal regions, creating a narrative log of their journeys and providing them with the opportunity to directly express their challenges, needs and success stories. Coal and carbon-intensive regions are on the front lines and must therefore also hold the megaphone.
The above represents crucial work to herald in just transition on the supply side. What about the demand side?
Energy impacts so many facets of our lives and the systems that we rely on, including housing, building stock, heating and cooling systems, transport, food systems and more.
We need specific, concrete changes at the EU-level to help communities adopt more sustainable energy behaviour. For instance, the EC could provide succinct guidelines with clear definitions, targets, monitoring systems, and administrative procedures for RECs. It should also incentivise models for electricity and thermal energy sharing and investment in prosumer technologies.
Meanwhile, there needs to be an internal market for energy storage that privileges energy efficiency and renewable energy services instead of gas or other fossil fuels plus binding (not indicative) targets for increasing renewables in heating and cooling, and for district heating and cooling.
In addition to advocating at higher levels, we must directly help local authorities and communities to consume energy more efficiently—in other words, we must build energy-responsible communities.
THE BIGGER PICTURE
Whether considering energy- (and fossil fuel-) producing regions, or any facet of energy consumption, communities must be at the heart of energy transition.
We need EU-level regulations that make it easier for communities to produce and consume sustainable energy and direct support from all levels of government to the most vulnerable community members, including those who are subject to losing their jobs in energy transition.•
Citizens, businesses and local governments must join forces to equip themselves with facilities for the production and self-consumption of energy from renewable sources by promoting virtuous behaviours
Today, market transformation is happening in a very disruptive way. The historical events of the past six months demand an impressive acceleration of the trajectory outlined by the European Green Deal in 2019.
Looking back at the past eight years, global investments in clean energies have blossomed to $371 billion, an increase of approximately $60 billion compared to 2014 levels.
Is there enough to go around? The answer for most of us is simple: no.
The Ukraine conflict and its consequent war on prices are proving that our society does not have access to abundant, reliable, cheap and clean energy—placing its economic and social progress at stake.
But we still have a lucky coin in our pocket: energy efficiency measures can substantially reduce Europe’s carbon footprint if combined with consistent investments in renewable energy.
If renewables are the only reliable cost-effective source of electricity, energy efficiency itself can be considered a source of (saved) energy which can be adopted in a very short time.
For this to happen, it is key to experiment with new ways of assisting people through their journey towards electrification, digitalisation, a self-use of energy and more efficient consumption. These are necessary solutions which may seem complex but can improve our everyday life and are actually easy to use.
Households can thus save money on energy bills while at the same time being more sustainable. How much energy efficiency mixed with renewables can generate economic and environmental benefits, depends on our ability to innovate.
Consumers have many opportunities to make their homes both more efficient and sustainable. The instance where energy efficiency comes closest together with renewable energy is via heat pumps providing heating and cooling solutions.
Heat pumps can be up to four times more energy efficient than gas boilers. The renewable energy they harvest from the ambient air can deliver up to three times the energy they absorb from the grid.
Furthermore, its attractive role as an easy substitute for fossil fuel-dependent gas boilers has made it one of the centrepieces of the European Union’s RePowerEU Plan.
But these households need help with accessing this technology. These are only some of the reasons why heat pumps, and the smart heating and cooling potential they bring, play a central role throughout the utilities’ offering to the residential, commercial and industrial market.
Overall, we know that innovation in infrastructures and facilities can be an end in itself if not properly supported by investments in education and social awareness. This is true for public administrations as well as for private stakeholders.
Innovation therefore must be accompanied by a social wave of knowledge and learning. It is what is most urgent to make our lucky coin not just accessible to the market but enjoyed by everyone. Only with spread awareness of its great benefits, energy efficiency through renewables can be turned into a reality.
Citizens, businesses and local governments must join forces and seize the potential of a clean energy system, fully embracing energy efficiency and the production and self-consumption of energy from renewable sources. Everybody can play their part and promote virtuous behaviours which support the goal of climate neutrality.
The path to a sustainable Europe is clear, we just have to join forces and take that lucky coin out of our pockets. •
There are more benefits to energy efficiency measures than simply saving money
Climate change is happening rapidly and so are the consequences of not fighting it adequately, intentionally and consistently.
Despite scientists showing us the marked impact of climate change as well as what we need to do to mitigate it, we are not currently on the right path towards meeting the Paris Agreement and the EU’s 2050 climate neutrality goal.
Add to that the recent hike in energy prices and fast action is essential.
We can still get on track if we all play our part by taking responsibility and acting now. Our sector—the construction sector—plays a particularly important role in the transitions ahead as it is responsible for 36% of global carbon emissions, of which 26% comes from using buildings.
That means we will simply not achieve the goals of the Paris Agreement without putting the construction sector at the heart of the green transition. For that, we need a well-functioning internal market for construction products to raise standards and ensure thorough market surveillance.
And then we need to significantly increase the number and extent of renovations of existing buildings with a heightened focus on energy efficiency and indoor climate improvements.
Through inaction, the citizens of Europe will continue to pay the price, not just from climate change consequences—droughts, floods, heat waves and generally erratic weather—but also from poor living conditions.
The impact on (wasted) energy usage and energy dependency is huge. Fifty million European households are already subject to energy poverty and this figure is set to sharply increase along with mounting energy prices.
The negative effect on Europeans’ health and well-being is also significant. The average person spends around 90% of their life indoors and, according to new data that RAND Europe has put together for VELUX Group, sub-par conditions such as damp, dark, cold or excess noise, affect one in three Europeans.
The related health impacts are well known and include asthma, respiratory problems and cardiovascular disease, but new studies also document the impact of poor indoor climate on general well-being and life satisfaction, as well as on productivity and learning ability for school children.
There is also a significant economic dimension to this. For instance, reducing exposure to damp and mould and rectifying the lack of daylight in residential buildings can result in well-being benefits of around €90 billion per year—in addition to the healthcare savings that come from preventing illnesses, such as those mentioned above.
Interestingly, data from the World Health Organisation shows that investing in housing improvements has a greater positive impact on health over a two-to-four-year period than investing directly in health.
This increases the urgency of making more sustainable, resilient and energy efficient buildings. Within the next eight years, we need to increase the renovation rate to at least 2.5%, as recommended by the International Energy Agency.
If we reach that level by 2030, we will be on track to renovate most existing buildings and to make them more energy efficient, healthy and carbon neutral by 2050. That is a commitment we have already made at EU level.
All new buildings need to be Net Zero Carbon ready by 2030, meaning that they are designed with a minimum impact on carbon emissions during their lifetime, including carbon emissions from the manufacturing of materials.
Unfortunately, we have a long way to go. However, the rallying cry for action is strong and growing. Europe needs a true energy efficiency first approach with the renovation of the existing building stock at its core.
We have a window of opportunity right now. The REPowerEU plan points squarely at energy efficiency as one of the main building blocks of energy independence. At the same time, vast sums of money have been put aside for the renovation of buildings as part of national recovery and resilience plans.
These need to be made into concrete projects and be accompanied by powerful legislative frameworks that will help achieve our ambitions and unlock societal, environmental and economic benefits.
We need to make sure that the revisions currently on the legislative table—the European Performance of Buildings Directive and the Energy Efficiency Directive—create the most ambitious platform for impact and success.
Part of that concerns rethinking how we build and renovate, by focusing on a more sustainable and holistic approach to buildings, including making improvements to them, like creating healthy indoor climates.
If we succeed in this, then we could possibly help to ensure a resilient and sustainable future for Europe, while also keeping EU citizens healthy, happy and exposed to indoor environments in which they can thrive.
It is my hope that tackling the climate inside our buildings might become as important a battle as the one needed outside them. It is definitely a battle worth fighting for because buildings are a necessary part of the equation to help solve climate change. •
Overuse and mismanagement of bioenergy resources damage carbon sinks, creating emissions rather than absorbing them
RESOURCE MISMANAGEMENT Overlogging and demand for biomass are reducing the carbon sequestration capacity of Europe’s forests
CLIMATE RISK Natural carbon sinks are also being put at risk from a changing climate, further limiting their effectiveness in decarbonisation pathways, yet governments continue to rely on bioenergy as a low-carbon fuel
KEY QUOTE We have witnessed a massive increase in biomass use, which is having a full-scale negative impact on the functioning of forest ecosystems
Contrary to public perceptions, the lion’s share of Europe’s renewables is not sourced from hydropower, solar or wind energy. According to official statistics, nearly 60% of the EU’s renewable energy comes from bioenergy.
Two-thirds of this is sourced from “woody biomass”, which includes wood pellets, while the final third comes from agricultural and waste sources. Most of the total output is used in Europe’s heating sector, with a portion going to electricity production and transport fuels.
Wood-burning is classed as a renewable energy source by the EU, based on the logic that the carbon dioxide released was absorbed by the tree in the first place. But its status is now in doubt, after members of the European Parliament voted in September 2022 to put restrictions on what type of wood can be burned for energy and how much of it can be subsidised.
Under the current Renewable Energy Directive, known as REDII, bioenergy is only eligible for subsidies and can count towards renewable energy targets if it satisfies certain sustainability criteria like checks on harvesting practices. New power plants must also reduce greenhouse gas emissions by 70% compared with the fossil fuel alternative—a target that is set to rise to at least 80% by the middle of this decade.
An updated version of that directive (REDIII) is currently making its way through the EU’s legislative process. In addition to an overall 45% renewables target for 2030—a big upgrade on the existing 32% benchmark—there are other provisions that relate specifically to bioenergy.
Key fuel In the EU, most wood pellets are burned to generate heat but around 40% is used to generate power
MEPs on the European Parliament’s environment committee voted in July 2022 to rewrite the rules so that “primary woody biomass”—typically made up of branches, stemwood and other parts of trees taken directly from forests—would no longer be covered.
This would mean only secondary biomass like sawdust, forestry residues and wood products no longer usable by consumers would remain eligible for subsidies and would count towards clean energy targets under the reformed directive. Given that primary woody biomass comprises about 50% of all the wood burned for energy in the EU, according to the Joint Research Centre, the vote was a significant signal from the Parliament about how energy policy should change.
There were doubts that a full sitting of MEPs would agree with the traditionally more progressive environment committee and change the status quo of bioenergy, given its substantial contribution to renewable energy goals and pressing concerns about keeping the lights on this winter.
However, lawmakers did in fact do just that on September 14th, 2022.
The Parliament’s reforms would implement a cap on the amount of primary woody biomass that can be counted as renewable energy, based on the average amount used between 2017 and 2022. That cap would be gradually phased down based on reports produced periodically by the European Commission.
More significantly, MEPs agreed that primary woody biomass should not be eligible for subsidies under REDIII, meaning that any investment in the sector will have to be made based on a less-attractive business case.
As a result of the vote, the door remains open for bioenergy in Europe.
Markus Pieper, a conservative German MEP that led work on the overall REDIII rewrite, said following the vote that, “We do need wood-based biomass as a source of energy if we genuinely are to undertake this energy transition.”
Nils Torvalds, a Finnish member of the Parliament’s liberal wing, backed removing primary biomass from REDIII but warned of the clean energy shortfall that governments would have to fill if the measure were to be supported by MEPs. “If primary woody biomass would not be counted toward the renewables target, Germany would end up with 74 terawatt-hours (TWh), Sweden 32 TWh and Finland at least 20 TWh less renewable energy,” Torvalds explained before the vote.
Even MEPs that had campaigned in favour of stripping biomass of some of its legislative perks were not totally satisfied.
Michal Wiezik, a Slovakian lawmaker with the liberal group, said before the vote, “We have witnessed a massive increase in biomass use, which is having a full-scale negative impact on the functioning of forest ecosystems.”
Afterwards, when asked about his take on the outcome, he insisted there are too many loopholes, including allowing salvage logging—the removal of trees from forests damaged by natural disasters—to enjoy subsidies. Wiezik also warns that there is not enough data to calculate the 2017-2022 average, opening the door for governments to game the rules
Civil society and the forestry industry issued predictably diverging reactions to the vote. WWF Europe’s Alex Mason called it a “turning point”, while Fern—a forestries NGO—praised MEPs for removing subsidies for the “most climate-wrecking type of biomass”. However, the group did criticise that woody biomass was capped and not excluded from renewable energy targets altogether.
Industries issued mixed responses. Enviva, the largest wood pellet producer in the world, lauded the vote for continuing to recognise primary woody biomass as a renewable energy source and a tool in the energy transition. “A failure to increase woody biomass use in the EU would mean failure in meeting climate goals, increased cost to EU consumers and further disruption to security of energy supply,” says the company’s Thomas Meth.
The Swedish Forest Industries Federation (SFIF), meanwhile, was more explicit in its criticism of the result. “[It] fails to safeguard the largest renewable energy source in the middle of the energy crisis”, the group insists, adding that it jeopardises Sweden’s “societal use” of wood for heating and “important investments will be lost”.
The federation’s bioenergy chief Mårten Larsson warns that companies planning to spend big on climate mitigation technologies that use forest residues might have to reconsider their climate goals and strategies.
Now the full REDIII text will have to be hashed out with the Commission and Council of member states—complicating matters further.
One major hurdle will be the timeline of these negotiations. Talks are unlikely to wrap up before the end of 2022, which means that Sweden’s six-month presidency of the EU Council will take over from Czechia in January 2023 at a crunch moment.
Sweden has a massive forestry sector, where exports were worth about €15 billion to the economy in 2021, according to the SFIF. A recent national election is also likely to install a government coalition that is more industry-minded and less willing to compromise when it comes to climate legislation than Magdalena Andersson’s outgoing administration.
However, Germany’s government has confirmed that it will seek to remove primary woody biomass from the new directive. Given Berlin’s track record of influencing other countries during backroom talks, it means that the outcome of the negotiations is difficult to predict.
The issue will be complicated further still by civil society, as several NGOs have teamed up to launch legal action against the European Commission’s decision to include biomass within the EU’s sustainable finance taxonomy.
Panama capped Panama is one of the only countries in the world to achieve negative emissions thanks in part to its forestry assets
Meanwhile, in a separate vote in June 2022 on upgrading rules for the land use, land-use change and forestry (LULUCF) sector, MEPs agreed to increase the required amount of carbon removals—particularly by natural carbon sinks—from 225 million tonnes to 310 million tonnes by 2030.
This would result in a de facto increase of the EU’s overall climate target from 55% emission cuts to 57%. There appears to be a certain amount of common ground between lawmakers and member states on this issue. However, the Confederation of European Forest Owners warned that the target would put a lot of extra pressure on their industry.
Natural sinks are still by far the main way countries are seeking to neutralise their carbon emissions. Along with grasslands, wetlands and bogs, wooded areas are the most important carbon sinks. Bhutan, Panama and Suriname are so far the only countries in the world to achieve negative emissions by counting on immense forestry assets and only having relatively small carbon emitting footprints.
Finland’s government plans to neutralise its emissions by 2035. As the most forested country in Europe—trees cover about 75% of Finnish land—the Nordic nation is ostensibly well placed to achieve its ambitious plan. But there is a snag. Finland’s land-use sector became a source of emissions in 2021, according to preliminary data released earlier this year, potentially jeopardising the government’s strategies.
Finland’s emissions for 2021—excluding the LULUCF sector—remained relatively stable. More renewables capacity and less polluting energy meant emissions fell by 0.2% despite an increase in power demand. Factoring in the land use and forestry sector, however, Finland’s emissions go up. The absorbing power of Finnish carbon sinks—equal to about 6.7 million tonnes of CO2—was insufficient and actually added emissions worth more than 2 megatonnes.
Unexpectedly slow tree growth and excessive wood-cutting are the main culprits, according to the government’s statistics office. Other factors linked to tree-felling, such as the release of carbon from disturbed organic soils, also reduced the sink’s efficacy.
Increased demand across the board for wood products, from sawn timber and pulpwood to fuel for bioenergy, is driving appetites for more Finnish lumber, as well as other forested nations like Estonia.
Data for 2020 is also being updated so may reveal that Finland’s sinks began emitting carbon even before 2021. “The situation is alarming, especially when we know that the pressure to increase tree felling even more is great,” says Kaisa Kosonen of Greenpeace Finland, an environmental organisation.
However, industry group Metsä insists that the figures refer to Finland’s carbon sinks as a whole, not just forests. “Last year was a year of active harvesting and the forest sink reduced but it still was a clear sink. Also, more carbon was stored in wood products than the previous year,” Juha Laine, a group spokesperson, told FORESIGHT Climate & Energy.
Seeing the wood for the trees
Calculating carbon sink capacity and monitoring forestry output is an extremely complex process, made all the more difficult by a lack of data and a patchwork of different methods and practices.
Norway, for example, has been keeping tabs on its forests for over a century. Its agencies constantly update LULUCF emissions because only 20% of forestry plots are measured every year. In other countries, the methodology is not so defined.
“There is no point building advanced policy packages if you can’t measure progress and failures,” warns forest expert Professor Sten Nilsson.
“Currently, EU-based forest databases are weak and sketchy. To deal with climate change and decreasing biodiversity, we need to collect new indicators not collected previously. The quality of the existing data varies largely between countries,” he adds.
The European Commission is heeding calls to improve data collection. In August 2022, it opened a consultation period on a new observation scheme that would provide open access to detailed, accurate, regular information on the condition and management of EU forests.
“It is expected to increase public trust in forest management, reduce illegal logging, incentivise and reward more sustainable forest management and support the adaptation of forests to climate change,” the EU executive says in a statement.
The EU has already reaped some dividends from other initiatives that are built on solid data and monitoring frameworks, notably the Copernicus observation satellites, which have proved invaluable in reacting to wildfires and other natural disasters.
Existing biomass maps that show tree cover and other essential data needed to manage forests effectively could benefit immensely from more integration with Earth observation assets like Copernicus, says the EU’s Joint Research Centre (JRC) in a recent report.
The JRC warns that existing maps “present substantial uncertainty at subnational and, in particular, at a pixel level, where the relative error is larger than 50%”. The report insists that this level of detail is needed for local management and modelling activities.
Under government climate plans, Finnish land is supposed to remove around 18 megatonnes of carbon dioxide by 2035 but if the figures for 2021 prove to be accurate, then the country has an emissions gap of some 23 megatonnes to close—roughly the annual emissions of Estonia.
As it happens, Estonia’s land-use sector has also become an emitter of greenhouse gases. It was predicted to happen in 2023 but early data also suggests that the sinks became sources of emissions ahead of schedule in 2020. “Over-logging, deforestation, drainage, peat soils, ploughing and lower logging age are the main factors,” says Liina Steinberg, a member of Estonian civil society group Save the Forest.
Professor Sten Nilsson, a forestry expert who has contributed to Intergovernmental Panel on Climate Change reports, adds that it is not just bad resource management to blame but also other factors affected by climate change. “It is plausible that some very warm and dry summers are a driving force. There is recent research showing that the boreal forests are more sensitive to increased temperatures and droughts than thought earlier,” Nilsson explains.
There is massive pressure on Estonia’s government to strike a balance between ecological and industrial interests. Wood pellet production for bioenergy generation is worth about 10% of the country’s total exports and business is booming.
Graanul Invest, a wood pellet producer based in Estonia, is the biggest in Europe and the second biggest globally. Operating in the Baltic and United States, the company’s revenues approached the half-billion dollar mark in 2020.
Estonian opinion polls suggest that 63% of citizens favour reduced logging and more than 90% back plans for a moratorium during the important spring and summer nesting seasons.
Good industry practices do exist when it comes to bioenergy. Metsä only uses “felling residues” like bark for energy production and 25-30% of that has to be left in the forest. The group also does not collect materials for bioenergy from forests that have nutrient-poor soil. Those practices will be put to the test as demand for domestically-produced wood pellets increases across Europe as a result of Russia’s invasion of Ukraine.
In Finland, there are concerns that supplies will run out this winter because an EU ban on Russian and Belarusian imports of wood pellets came into effect in July 2022, knocking two of the bloc’s biggest suppliers out of the equation. In 2021, the two countries supplied nearly 2.5 million tons of pellets to the EU.
Total EU consumption in 2021 was estimated at 23.1 million tonnes and is expected to grow to over 24 million tonnes in 2022. The European Commission says that the use of biomass, in general, will continue to increase gradually this decade. Most wood pellets are burned to generate heat in the EU but around 40% is used to generate power.
Estonian conundrum Bioenergy is a key export sector for Estonia, but there is public opposition to logging
Biomass burning is also under scrutiny beyond the EU’s borders. In Russia, the sector is facing huge uncertainty as 80% of wood pellet production was exported to the EU market before sanctions following the country’s invasion of Ukraine halted the trade.
With no real economically viable alternative, it is hard to predict what Russian companies will do with already logged inventory and forest assets.
In the UK, a group of organisations has successfully lodged an official complaint against energy giant Drax Group, over claims it has made about the climate impact of burning wood in its power plants. A mediation period is ongoing.
Drax has also announced plans to build what, it claims, will be the world’s largest carbon capture facility at one of its biomass power stations. Once operational, the group says up to eight million tonnes of CO2 will be captured every year.
Gniewomir Fils, a clean technology expert, has compiled a comprehensive list of CCS applications and rated them from unavoidable to uncompetitive. Waste-to-energy, cement and biogas rank at the top of the ladder, while small- and large-biomass plants feature near the bottom.
Fils explains that biomass will face demand competition for raw materials from sectors like next-generation aviation and maritime fuels, as well as supply competition from other energy sources. In the UK in particular, Fils says “offshore wind plus storage will blow Drax out of the water.”
Drax is nevertheless ploughing ahead with its £2 billion investment and the UK government is also jumping on the bioenergy with carbon capture and storage (BECCS) bandwagon.
In August 2022, then-UK energy secretary Kwasi Kwarteng launched a consultation period that will look into how best to stimulate and support the BECCS industry.
Russia’s invasion of Ukraine prompted the EU to come up with strategies to nix Russian fossil fuel imports. One of those, the REPowerEU plan, increases renewables and energy efficiency measures but has been criticised for not being more comprehensive.
“We are disappointed that the role of bioenergy does not feature more prominently in the REPowerEU plan,” says industry association Bioenergy Europe. Indeed, bioenergy is mentioned just once in the document, while gas is mentioned 128 times.
Michal Wiezik MEP warns that the war in Ukraine is hampering attempts to amend the rules, adding that the rush to replace Russian hydrocarbons might favour a “more benevolent attitude” towards burning wood.
“Given the geopolitical and energy situation in Europe, I don’t think the EU has much of a choice. It has to use bioenergy, although the scientific verdict is still out whether this is good for the climate or not,” Professor Nilsson says. “I see this as another argument to get solid EU forest monitoring established in the EU as soon as possible in order to secure the sink capacity and identify possible negative impacts of the use of bioenergy,” he adds. •
TEXT Sam Morgan
In the absence of regulation, insurance has a big role to play in boosting investor confidence in the voluntary carbon market
McKinsey’s estimate that the voluntary carbon markets could grow fifteen-fold to $50 billion in the period 2020-2030 seems an astronomical ask. But it does need to happen if we are to limit global warming to 1.5°C by 2050.
To get there, businesses of all sizes and stripes need to get behind the voluntary market. The demand is there but the buy-side remains a little tentative. This is uncertain territory for most and the need for regulation is obvious.
Past lessons can offer some solace that the necessary changes are possible.
In 1911, investing in stocks and shares was fast becoming America’s national sport. So Kansas introduced state laws intended to protect investors from worthless securities. Basic disclosure laws required documentation to explain the interest an investor could expect and why. It was not perfect, as an issuer could still sell a security with unfair terms, as long as they were open about what the terms were.
For unscrupulous characters committed to finding them, there were ways around the law. But investing was for the rich, people with pockets deep enough to suffer a few bad choices. Fraud was simply another risk. This was well known—and enough to deter the casual first-time investor.
The situation in early 20th Century Kansas has several parallels with the voluntary carbon markets today.
Some excellent carbon businesses and projects exist, but unfortunately, there are also people selling carbon credits that are not worth the paper they are written on. Often, the price of the credit bears no relation to the carbon-sequestering capabilities of the underlying project. So although there are plenty of investors with an appetite, the number of high-quality securities needs to grow to meet the latent demand.
The state laws in Kansas eventually evolved into the regulation of the US stock market, which ushered in an era of increased transparency—this is exactly what the voluntary carbon market needs in order to grow up into a $50 billion market.
The vital role of insurance, today and in future
A strong example of a well-performing regulated carbon market comes from another former frontier state. The California Cap and Trade Scheme has been successful in its initial goal to drive emissions to pre-1990 levels by 2020, in fact, it achieved this four years early. As it stands, California is ahead of its target to reach net zero by 2045.
At around $150 million, California Cap and Trade is a small carbon market but a progressive one. It redistributes profits to other emission-reducing schemes and affected communities. It is a strong example of how a fully functioning, regulated carbon market should work, and the industry can learn some lessons from this.
Cap and trade has a progressive attitude towards using insurance. It was the first market to seek out carbon credit invalidation coverage, locking in the value of millions of carbon credits.
The credits are indemnified against fraud and negligence, and various other factors that can devalue the asset. If issues arise and the carbon credits being produced do not sequester the correct amount of carbon dioxide, the policyholders could rectify their carbon position.
This helps create confidence in the efficacy of the scheme and of carbon offsetting as a whole, which is exactly what is needed to grow the voluntary markets.
As offsetting becomes mainstream, there will be many companies staking their reputation on their net-zero credentials.
There are plenty of companies that have publicly stated a goal to become a net-zero operation. Offsetting will be a necessary part of that. If the credits were to be invalidated during an audit, it would serve to undermine the entire net-zero strategy. Negative press and reputational damage would inevitably follow.
The stakes are high for businesses. Soon carbon credits will become completely embedded into the way things are done. Making them accessible and trusted by the masses is an essential part of the big-picture goal.
If the goal is to get as many quality projects funded and en route to full carbon-capturing maturity as soon as possible, the insurance industry needs to step up.
Until regulation comes, the ability to insure voluntary carbon offsets is an important driving force towards reliability and quality. When securities are insured, insurance gives people confidence in that security which, in turn, supports confidence and liquidity in the market. Ultimately, it will increase the availability of much-needed capital to be channelled into high-quality carbon projects on the ground.
As well as providing a useful balance sheet to lean on, insurance companies bring expertise in risk management and due diligence. Their increasing involvement in the voluntary market will raise standards, smooth the transition to the regulated environment and help take the bumps out of the rocky road to net zero. •
The scale of renewable energy generation growth required to meet targets puts the natural environment at risk
COMPETITION CONCERN Greater ESG focus is causing investors and power purchasers to examine the biodiversity impact of their assets
MARKET REDESIGN Tender and permitting procedures should consider biodiversity measures alongside prices for future projects
KEY QUOTE It is completely impossible to reach our climate goals if biodiversity and protection of nature are not taken more into account in renewable energy deployment
Irrefutably, a massive expansion of renewable energy capacity is a prerequisite to achieving the global carbon reduction targets set out in the 2015 Paris Agreement on climate change.
This growth is beginning to pick up speed with a growing number of ambitious national and regional plans. The International Energy Agency forecasts clean energy investments to exceed $1.4 trillion in 2022 with an annual growth rate of 12% since 2020.
The significant increase in demand will bring a realisation of large gigawatt-scale tenders, new market possibilities and compelling returns on investments. However, there is also an ongoing debate about the potential negative impacts of this expansion of renewables generation on local nature and biodiversity.
For many years now, this has been one of the main reasons for the delay or even abandoning of many renewables projects. It is also threatening the clean energy targets required to avoid the catastrophic effects of climate change.
RISK FOR BUSINESS
To meet the EU 2030 climate targets, Eurelectric, a power trade association, calculated an additional 8900 square kilometres for offshore wind, 10,152 square kilometres for onshore wind and 2028 square kilometres for solar would be needed—putting at risk locations precious to nature and wildlife. This 21,080 square kilometres of additional area for renewables capacity equates to a little more than the total size of Israel.
Minimising the biodiversity impact of both solar and wind installations and integrating biodiversity aspects into the development of renewable energy projects is gaining more attention from energy companies, authorities and investors.
According to Virginia Dundas at Danish energy company Ørsted, biodiversity is a risk for business. “It is clear from the current state of nature and biodiversity that the world is in urgent need of ways to ensure that the renewable energy build-out is in balance with nature. Biodiversity loss has been highlighted as one of the top five business risks by the World Economic Forum in 2022, so we must find solutions that address the biodiversity crisis and minimise business risk,” she says.
Dundas believes biodiversity efforts are important to enhance renewable energy deployment. “We need to find a way of building in balance with nature or else we won’t be able to deliver the accelerated green energy build-out that the world needs to realise our global climate goals and solve the increasing biodiversity crisis,” Dundas adds.
In 2021, Ørsted presented a new biodiversity strategy with the ambition to provide a “net-positive biodiversity impact” at all its renewable energy projects that will be commissioned from 2030.
According to Kristian Ruby of Eurelectric, there are many benefits for energy companies to include biodiversity considerations more when developing renewable energy projects.
“Renewable energy projects can actually, if planned smartly and based on holistic thinking, contribute to improving local nature and biodiversity. This can help speed up approval processes, reduce the extra costs and economic losses that many companies are currently experiencing in approval processes and it can help ensure more broad support to the expansion of,” Ruby says.
Eurelectric’s Power Plant report, published in June 2022, recommends a new model for renewable energy deployment where biodiversity and nature are integrated into development plans.
“It is completely impossible to reach our climate goals if biodiversity and protection of nature are not taken more into account in renewable energy deployment. So it is important that companies and also authorities begin to look at biodiversity and renewable energy as deeply interconnected,” says Ruby.
Even though renewable energy projects are vital to secure the world’s biodiversity from a carbon reduction perspective, several analyses also show that renewable energy installations do have negative impacts on nature across its whole lifecycle.
This is regarding the withdrawal of natural materials, the construction and year-round operation of wind and solar farms and the decommissioning of turbines and panels.
This has led to criticism from local communities, nature protection groups and political parties. In Denmark, public opposition, based directly on biodiversity arguments, has delayed and closed down several wind energy projects.
In 2021, Swedish Energy company Vattenfall cancelled plans to expand the Danish Nørrekær Enge wind farm comprising 36 new turbines delivering an annual 400,000 megawatt-hours due to local protests. Soon after, the company also chose to divest all of its wind activities on land in Denmark.
In a 2021 survey of 44 solar developers in the United States, more than half placed permitting challenges among the top three barriers to achieving the nation’s solar energy goals. Among other high-ranked challenges were access to transmission lines and supply chain disruptions.
According to Eurelectric’s report, it takes developers four-to-six years to complete the permitting procedure for new renewable energy installations with issues around nature and biodiversity as the main factor for delays, says Ruby.
“Permitting is the main bottleneck for wind farms,” says Mattia Cecchinato at WindEurope, a trade association. “Improving the impact on biodiversity is an option to shorten permitting processes and also to help maintain high levels of social acceptance for wind farms,” Cecchinato adds.
CHANGE OF STRATEGY
In line with Ørsted, several renewable energy companies such as Iberdrola, Vattenfall and Enel have started to look more closely into biodiversity aspects when setting up new renewable energy installations and are beginning to incorporate biodiversity protection measures as part of their business strategy.
Ørsted, for instance, includes a criterion that all new projects by 2030 must have an overall net-positive contribution to natural ecosystems, habitats and species in and around new renewable energy projects. “This means that we make a measurable contribution to improving biodiversity and nature is left in better shape than before we started,” says Dundas.
Vattenfall has announced an ambition to become biodiversity net positive in all of its activities by 2030. “It is clear that we are facing a global biodiversity crisis, if we don’t manage our biodiversity impact, it will also affect our ability to run a successful business. It is becoming more and more important in environmental approval processes, in winning tenders and ensuring our general acceptance,” says Helle Herk-Hansen from the Swedish utility.
She adds that protests and concerns about the impact on biodiversity are a threat to the company’s activities. “We spend more time on environmental approvals than on the actual setting up of the wind turbines, therefore biodiversity and our work to avoid negative impact on nature and biodiversity and attain positive impact instead have to be an important part of our strategic work,” Herk-Hansen says.
At a political level, there is also a growing focus on biodiversity aspects within renewable energy market design. In 2019, the UK Government ruled that new projects in England would be required to demonstrate a 10% increase in biodiversity on or near development sites.
Meanwhile, the tender of the 1.5 gigawatt Hollandse Kust West offshore wind site in the Netherlands included extensive use of non-price criteria including biodiversity and system integration. At one of the two sites, “nature contribution” was a main criterion for the bidders, with 50% of the tender scoring weighted to this.
“There are more and more countries that are beginning to include non-price criteria in tenders with biodiversity and nature as one of the indicators. We expect this to become much more widespread in the coming years as part of improving permitting timescales and ensuring social acceptance of the renewable energy expansion,” says WindEurope’s Cecchinato.
The European Commission also recently presented its Nature Protection Package, which set a 20% legally binding restoration target of European land and sea for all member states. The package will also affect the expansion possibilities and locations of new renewable energy installations.
Off the back of these revised regulations, investors are also looking more closely into the impact on biodiversity of their green assets and renewable energy projects. According to Torben Möger Pedersen at PensionDanmark, Denmark’s largest labour market pension fund and one of the 50 largest pension funds in Europe, the EU’s financial taxonomy for sustainable finance and other new regulation is pushing in that direction.
“Extensive regulation of sustainable financing has already been initiated by the EU, which is why investors like PensionDanmark must report to a much greater extent on the impact of our investments on biodiversity. We expect that the increasing regulation in the area will create ripples in the water, which will ensure that biodiversity aspects are integrated to an even greater extent in all renewable energy projects,” says Möger Pedersen.
Möger Pedersen adds that biodiversity is being increasingly included in tenders as a competitive parameter. Herk-Hansen of Vattenfall says the company is also experiencing an increase in questions regarding the company’s biodiversity efforts, not only from investors but also from business customers when discussing power purchase agreements.
Eurelectric’s Power Plant report identifies a range of areas and examples where safeguarding biodiversity and optimising power output from wind energy could be “mutually beneficial” if installations are built based on more nature-friendly practices and design.
“The industry has made big steps in limiting the impact that wind farms can have on biodiversity and nature and there have been many technological improvements for instance in reducing noise and vibrations emissions when installing offshore wind turbines,” says Cecchinato of WindEurope.
Dundas from Ørsted says there is evidence that including biodiversity initiatives at renewable energy sites can help to restore habitats and species while also addressing climate change. “There is consensus amongst our stakeholders that the offshore wind industry can contribute to the recovery and restoration of marine biodiversity and the societal benefits of restoring ecosystems and species are well documented,” says Dundas.
Möger Pedersen points to the 400 megawatt Anholt Offshore Wind Farm, of which PensionDanmark owns 30%, as an example. At the site in the Kattegat, environmental NGO WWF Denmark and Ørsted installed 12 3D-printed artificial reef formations on the seabed between the project’s turbines that offer juvenile cod a safe haven where they can find food until they are big enough to move on. “This will hopefully create a better marine environment, while the offshore wind farm produces sustainable electricity,” Möger Pedersen says.
FAR TO GO
Despite these early efforts and a growing focus, there is a long way to go before reaching a net-positive biodiversity impact for renewables projects. Integrating biodiversity measures is at a pilot scale and inclusion of biodiversity considerations is yet to become a widespread standard in the renewable energy sector.
“Focus on this is growing, but it is still only a small group of frontrunners that are going beyond legal compliance and are really starting to integrate regenerative biodiversity in their business activities,” says Eurelectric’s Ruby.
It is also a complex task with difficulties accessing relevant and qualified data, limited experience with the area and a lack of industry-wide standardised approaches to measure biodiversity impact.
The Science Based Targets Network, which is an alliance of companies and organisations that originates from the Science Based Targets Initiative (SBTi), is developing nature science-based targets and is working on a framework for measuring and setting targets for reducing companies’ biodiversity footprint.
This is a cross-sector framework but would be relevant for the renewable energy sector’s biodiversity efforts, according to the Power Plant report. “We need to ensure that biodiversity efforts are truly green and not greenwashing. This calls for standardised methodologies that provide credible and transparent data on companies’ impact on biodiversity,” says Ruby.
Vattenfall is also in the process of calculating its biodiversity footprint from its economic activities throughout the value chain in collaboration with French environmental protection company CDC Biodiversité.
“An important first step in this is to ensure qualified data and full overview of our biodiversity footprint—just as we have done with our carbon footprint. This is a prerequisite to work with this on a strategic level, set the right targets, initiatives and measure our progress,” says Herk-Hansen.
Another important step is also to ensure further development of a stronger common legislative framework for including biodiversity in renewables projects.
A study published in the Proceedings of the National Academy of Sciences that examines the potential impacts on biodiversity and nature by the global expansion of renewables capacity concludes that conflicts between renewables and protected areas do occur. Renewables however would not significantly affect area-based conservation targets if deployed with appropriate policies and regulations.
Including biodiversity as a bigger part of the permitting frameworks and tenders—in line with its Hollandse Kust West site—is also a priority of Ørsted. “We believe action could be taken earlier in the process incorporating the requirement for biodiversity action into the bidding process for offshore wind,” says Dundas.
Möger Pedersen says biodiversity should be incorporated as a factor in the approval process of renewables projects from day one. “What Europe generally needs now is actually to speed up, not delay the handling process of green investment projects. It will, among other things, be a good idea from the start to consider these [biodiversity and renewable energy projects] together rather than treat them separately and often even an extension of each other.” •
TEXT Anna Fenger Schefte
Bigger is not always better when it comes to power
In engineering, it can be tempting to simply make components larger when we want them to do more. The scale of individual wind turbines has steadily increased in the last few decades in response to climbing renewable energy demand and unrelenting pressure to maintain projects’ profitability by keeping the levelised cost of energy (LCOE) down.
In offshore wind, turbine manufacturers have responded to this challenge by increasing output—rapidly developing newer, larger turbines with greater power density and more complex designs, attempting to streamline their supply chain.
But the industry cannot simply rely on increasingly massive turbines to reduce LCOE. The apparent effectiveness of hyper-powering new wind farms in this way is masking existing inefficiencies in offshore operations and maintenance (O&M), letting the costs of minor faults, energy leakage, scattergun repair strategies and catastrophic breakdowns continue to gnaw away at even the most profitable of assets.
Despite the first offshore wind turbine being installed more than 30 years ago and there now being over 55 gigawatts (GW) of offshore wind capacity worldwide, currently just under 30% of UK offshore wind farms are implementing linked-up digital tools across their operations, beyond relatively basic condition monitoring.
With 62% of wind industry stakeholders believing that access to data is the biggest barrier to digital advancement, an interconnected approach to digitalisation holds the key to de-risking new turbine technologies, keeping O&M costs low and unlocking new efficiencies in offshore wind. Owner-operators can avoid the rat race—for the biggest turbine, for the cheapest parts, for the lowest service contract costs—and focus on creating optimised, future-proofed portfolios for decades to come.
Digitalisation, first and foremost, enables condition-based predictive maintenance, monitoring and targeting of minor repairs before they worsen into major faults; an overlooked issue, but accounting for approximately 50% of scheduled O&M costs. Lost energy issues, such as bearing misalignments and blade erosion, can silently hamper turbine efficiency and have significant potential for optimisation.
Detection is all well and good, but in the industry’s prevalent systems, data points collected from monitoring are routinely fragmented into disparate silos, flooding into barely interpretable spreadsheets and inboxes. At its most inefficient, this process relies on manual email communication among maintenance teams, slowing response times even when an issue is routine. At sea, the demanding preparations necessary for offshore workers are even more incompatible with this approach.
Maintenance cases for offshore turbines need to be centralised and managed by joined-up, automated systems. Operators need to be able to look at an actionable, fleet-wide workflow to co-ordinate with servicing teams: what needs fixing next, what needs doing after, how, and by whom. Digital case management platforms enable that sequence to be intricately managed, month after month, year after year.
Digital communication across an offshore wind farm is important, but perhaps even more so across the supply chain itself. The industry must adopt a cooperative approach to data. From optimising turbine design to enabling large collaborative maintenance zones, advances in data analytics can revolutionise the sector over the next decade. But this will be unlocked only through sharing data with trusted partners, instead of letting it sit unused.
Digitalisation will mitigate the impact of soaring costs and supply chain challenges while enhancing productivity. For the offshore wind sector in particular, there are huge savings to be made in optimising marine logistics. Crew hire, offshore cranes, and jack-up vessels, for instance, all come at high costs.
By using digitalisation, owners and operators can rationalise vessel trips and even construct collaborative maintenance zones, where wind farms in close proximity synchronise O&M needs, sharing the cost burden.
Installing digital tools that monitor performance, predict and detect faults and control maintenance implementation — in drivetrain, blades, foundations, towers, and beyond — can maximise power output and reduce Opex, helping to drive down LCOE in a long-term and sustainable fashion.
The offshore wind sector stands also to gain significantly from turbine life extension, involving the timely replacement of specific parts and the tactical depowering of turbines wearing down their internal components too quickly. The greatest savings will only materialise, however, if life extension strategies are established early in asset lifecycles.
By using the latest diagnostics to inform life extension, the right predictive maintenance programme can extend useful asset life by 25%, saving on the monumental costs of whole-turbine replacement.
By implementing coherent digital strategies as early as possible, operators can support life-extension strategies from day one, ensuring that the offshore turbines of today keep performing optimally well into 2050. Asset owners looking to reduce Opex need to consider digital tools as early as the project planning stage, designing their operational processes and supporting digital systems at the same time—not implementing them as an afterthought.
Given the precariousness of the geopolitical and macroeconomic landscape, coupled with rocketing project demand across the world and the effect that this combination is having on supply chains, digitalisation presents offshore wind operators and owners with a chance to pre-emptively empower their operations and increase efficiencies, independent of other industry stakeholders.
This is an exciting but challenging time for the offshore wind industry. Huge demand for projects and a continual drive to lower LCOE is squeezing turbine manufacturers, limiting their ability to scale up and innovate. At the same time, the sector has seen a renewed boost in interest, investment and political support, and is set to expand rapidly in large markets such as the US and Asia.
There is not one cure-all solution to the challenges offshore wind must overcome, but there is great cause for optimism. It is high time that the roll out of digitalisation in offshore assets and fleets is expedited to drive wind’s role in the energy transition. •
Decarbonising and digitising the existing building stock is taking too long
Decarbonisation comes with a simple truth: kilowatt-hours that are not consumed do not have to be produced. They do not have to be stored or distributed. And when we are saving energy to avoid carbon emissions, this becomes all the more critical.
Efficiency is key, especially in the building sector. Buildings account for 40% of global energy consumption. But the average building still wastes up to 50% of the energy it consumes. Equipping or retrofitting a building with digitalised, networked and intelligent systems can reduce its ecological footprint by up to 80%.
Efficiency is more than modern insulation and state-of-the-art heating systems. We need smart building technologies and efficient building operations if we are going to move the needle on decarbonisation, especially in brownfield applications. A huge amount of leverage is being wasted. Buildings should—and can—contribute much more to the global decarbonisation effort.
Yet we must not focus just on buildings. We have to take into account synergies and efficiency gains on the community and city levels.
Each digitalised building is part of a much bigger picture: a networked community of electricity-prosuming, optimised buildings become an energy self-sufficient, smart urban district. And these net-zero urban districts are the backbone of zero-carbon cities. Cities that can ensure the healthy, sustainable and safe living conditions that we owe to future generations.
Imagine local renewable energy generation—most likely photovoltaics installed on neighbourhood rooftops—feeding into a district-level microgrid that ensures autonomous power supply.
Volatility in energy generation and consumption is balanced out by a smart energy management system. It juggles real-time demand fluctuations, adapts to the changing and increasingly challenging ambient conditions. And it keeps track of the available e-mobility charging capacity.
Digitalisation in the form of Internet of Things sensors and cloud technology make it possible to collect real-time insights and analytics about building usage, occupancy and ambient conditions. In conjunction, intelligent building controls and room automation solutions significantly improve energy efficiency as well as the well-being of building occupants.
Crucially, this is a picture of urban communities that puts people (and our planet) front and centre. The technology is, to stay in the metaphor, the high-quality paint that urban planners, architects, OEMs work with to create a sustainable, decarbonised future.
Fundamentally, the approach is holistic: microgrids and buildings that leverage data and artificial intelligence for the local generation of renewable energy, for electricity, heat, and resource optimisation, and for a powerful e-mobility charging infrastructure.
Only truly open platforms and ecosystems of customers, partners, and cross-industry players will generate the unprecedented momentum needed to tackle the challenges we are facing.
Humanity is building like never before. According to one estimate, cities need to add 13,000 buildings every day through 2050 to keep up with global population growth. These buildings will also need energy. A sad fact: only a tiny minority of buildings and grids today are modern, digitalised and net zero. At the current rate, it will take almost 100 years to decarbonise them all.
We do not have that time. This is why we must enable buildings to cooperate and interact. To create smart districts based on open-source solutions that are flexible and can adapt to future requirements. By inviting all stakeholders into an ecosystem where resources are shared, customers combine the right technological solutions for long-term and sustainable growth. `
Energy- and resource-efficient urban districts have a crucial role to play in the fight against global heating. That efficacy will be urgently needed as the urban population increases from 4.5 billion today to 7 billion in 2050.
It is the precondition that enables the switch to renewable power as the world seeks to achieve net-zero carbon emissions by 2050. As global decision makers and leaders it is our task to ensure we are moving towards a climate neutral future and we need to do it quickly. •
As well as shifting to clean generation, investment in grid upgrades is also imperative
As heatwaves continue to sweep across Europe and concerns build around securing gas supply for the winter, there have never been clearer, more tangible signals to accelerate the clean energy transition.
Continued reliance on fossil fuels endangers the climate, damages public health, and undermines the sovereignty and affordability of Europe’s energy, and ultimately its economy.
A clean electricity supply will play a leading role in the energy transition. The technologies which enable power sector decarbonisation are commercially mature and their costs continuously falling; as such, they are primed for rapid deployment.
When coupled with widespread electrification of end-use sectors, this constitutes one of the most cost-efficient ways to reduce emissions and decrease fossil fuel consumption across the whole economy.
Not only has a clean power system become recognised as a crucial enabler of wider energy system decarbonisation, but a clear consensus is emerging around 2035 as a key milestone.
Notable publications from the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC) state that advanced economies must achieve close to zero-emissions electricity generation by 2035 to remain within the limits of a Paris Agreement 1.5C compatible pathway.
Political commitments are starting to align with this milestone on the route to net zero. Most recently, leaders of the G7 committed to achieving a fully or predominantly decarbonised power system by 2035.
Achieving 2035 clean power in Europe means that the power system must be transformed in a relatively short period of time. It represents a steep increase from the current level of approximately 56% clean electricity supply.
Furthermore, it must accomplish the dual feat of decarbonising power generation while expanding supply to meet higher demand due to electrification and green hydrogen production.
A recent study confirmed that not only is this possible, but that achieving an almost fully (~95%) decarbonised power system by 2035 is actually cheaper than following the route laid out by current policies. The additional upfront investments required for accelerated action, such as the faster deployment of wind and solar, are offset by avoided infrastructure build and running costs of thermal assets.
Furthermore, the increasingly clean and expanded power supply enables wider energy system decarbonisation, resulting in significant cost savings from efficiency and avoided fossil fuel consumption, while also improving Europe’s energy sovereignty. We estimate the savings could be around a trillion euros and that is without accounting for an ongoing fossil fuel price crisis.
ACCEPTANCE AND COMMITMENT
As clean power by 2035 becomes ingrained within the narrative around net zero by 2050, the focus of debates is shifting from when to how. Delivering an almost fully decarbonised power system in the next twelve years represents a significant challenge and not only in terms of the required acceleration of efforts within relatively a tight timeframe.
Such change requires acceptance of and commitment to a paradigm shift towards a future power system that is highly flexible and highly renewable.
Today’s power system, one based primarily on thermal turbines whose output is adjusted according to conventional demand profiles, must be transformed and the future system set-up will appear quite different. This in itself is often a barrier to the energy transition as power system planners and operators struggle to place their confidence in a structure which will be among the first of its kind.
Commitment to clean power necessitates that Europe’s electricity supply becomes dominated by wind and solar production and the system supported by a high degree of flexibility on both the demand and supply sides.
This will allow fast response to variations in renewable output and power demand, ensuring system balance and supply reliability. Technical studies and accumulating real-world experiences demonstrate that such a system can be reliable and resilient to extreme events.
The central challenge of delivering a clean power system in the next twelve years is undoubtedly the acceleration of wind and solar deployment. As the cheapest and cleanest forms of electricity, wind and solar need to scale rapidly to become the backbone of an expanded power system.
Annual additions of wind and solar need to reach a rate approximately four times higher than the average of the previous decade, with solar poised for particularly rapid growth. While there are positive signs of growing momentum, plans for on-the-ground delivery appear to be falling short.
Resolving administrative barriers and developing effective enabling frameworks should be among the priority tasks of the EU and national governments in the next few months and years to bring about deployment at speed.
This significant transformation in supply will be accompanied by a parallel transformation in “background” infrastructure, that is, the power grid and its interface between consumers, producers and distributors.
This is imperative to support the rapid conversion to a highly renewable system. It includes a wide range of technologies, with perhaps the most notable for their necessity but currently limited levels of attention being interconnection and demand-side flexibility.
The latter, deriving from smart devices, battery storage and demand-side response, will allow system operators to shift demand by a number of hours to better coincide with periods of renewable output. Electrification must therefore be accompanied by policies that incentivise demand-side flexibility in heating, transport and industry.
Europe’s interconnected electricity grid, facilitating the distribution of supply to match demand over a large geographic region, will play an increasingly important role in providing system flexibility. As wind and solar scale become the dominant generation source, the level of Europe’s interconnectivity must similarly expand.
Indeed, a clean power system in Europe requires the existing interconnection capacity to double by 2035. Based on the typically long timeframes for commissioning such projects and our vicinity to 2035, securing a clean power system requires stepping up investments in this area immediately.
It is clear that early decarbonisation of the power system brings high value, not only as a key milestone for a successful, timely energy system transition but also by providing immediate, tangible benefits. Now is the moment to prepare the groundwork that will enable the development of a clean power system by 2035. The next few years will determine the course of Europe’s energy transition. •
The old energy world ran mostly on fossil fuels—coal, oil and natural gas—with a centralised structure. The paradigms for its design were to achieve a reliable energy supply with a regulated approach. The main actors were large companies running large, centralised assets and grids. This world will soon belong to the past.
What is considered the “new energy world” has, since the early 2000s, been widely acknowledged as a decarbonised, digital and decentralised energy system. Its key paradigms so far have been to develop a sustainable, reliable and affordable system with a market-driven, technology-neutral approach that fosters innovation.
The main actors in this pretty picture were to be private customers, to place “citizens at core” as the European Commission phrased it, running small, decentralised assets and realising efficiency improvements.
Energy companies were to play an important role in providing the backbone through utility-scale assets and grids. This view was alluring and meaningful—at that time. But what happens when the realisation of this new energy world just takes too long?
Administrative hurdles for grid upgrades are high, rooftop PV is developing slowly, the renovation of buildings is not picking up and cities are stuck in discussions on how to develop their energy infrastructures around electricity, gas or district heat.
The list is long. The 2050 climate target seems far away, but with energy infrastructure lifetimes of around 30 years, we need to build the new energy world from tomorrow.
In addition, the war in the Ukraine and surrounding geopolitical tensions are increasing the pressure to increase independence from fossil fuel imports. The debate now must move from “how can we optimise the energy transition?” to “how can we move fast enough?”
So, what options do we have to increase the speed of the transition? We can go down the path of more restrictions and regulations: banning natural gas boilers or limiting opposition to infrastructure developments such as wind power projects or new overhead power lines.
A recent study showed most of the younger generations in Germany see sustainability as crucial, but only a minority is ready to give up near-term on comfort for the sake of the climate. On this point they do not differ from older generations. This means climate protection will not come automatically via generational shift. It needs guardrails.
The success of green parties in favouring stronger regulations. The German election at the end of 2021 points to an increasing acceptance of such rules. We can also give up on the prosumer focus and shift the balance more towards large-scale generators.
Analysis shows that a more centralised approach—compared to an only small-scale and private customer-driven approach—has the potential to be faster, cheaper and more convenient for customers.
At the same time, not all citizens are enthusiastic about their own involvement or investments in the energy transition, while there is increasing interest in large companies doing the job.
Not going down such route is likely to increase pressure later to adopt controversial solutions, such as large-scale carbon capture and storage or nuclear power. There, we see discussion around potential risks—that stored carbon would escape at a later stage or that there are hazards in nuclear operation and storage of waste over many generations.
In this future energy world, the need for speed in decarbonisation and in securing a resilient supply is everything. Paradigms must develop quickly, with no time for trial and error anymore.
As for the actors, operators of utility-scale energy assets and grids must take centre stage to develop, together with regulators and in swift, coordinated approaches, new infrastructure for the future energy world.
Consumers can retain the possibility of being prosumers, with customer-centric solutions that add to the sustainability and resilience of the system, but don’t have to lead the transition if they do not want to. Moving towards a more “industrialised” transition is not completely new—and has already started.
While holding firm on the target of a sustainable, affordable and resilient energy system, the realities we are facing require us to constantly challenge our manner of progress. •
This opinion piece was originally published in the first edition of FORESIGHT Digest, a new magazine collaboration between E.ON and FORESIGHT Media Group. FORESIGHT Digest combines the best of FORESIGHT Climate & Energy’s in-depth journalism with original content and analysis from E.ON. You can read the rest of the issue here.
If you have a thoughtful response to the opinions expressed here or if you have an idea for a thought leadership article regarding an aspect of the global energy transition, please send a short pitch of 200 words outlining your thoughts and credentials to: email@example.com.
To create a masterpiece, start with a masterplan
Raoul Dufy’s 1937 fresco La Fée Électricité—an arresting 600 square metre tribute to “the great adventure of electricity”—depicts science and technology leaps such as Faraday’s discovery of electromagnetic induction, Gramme’s direct current dynamo, Baudot’s telegraph, and Edison’s incandescent light bulb. These developments changed the world in ways that were previously unfathomable.
Tackling the climate crisis while mitigating the impacts of the war in Ukraine and skyrocketing energy prices will require Europe’s lawmakers to champion a new class of energy pioneers in the months and years ahead: households.
Europe faces a step-change within a step-change. Securing a clean, affordable and reliable energy system is no longer a case of moving fast without breaking things. We must now accelerate while fixing things.
This means ramping up green generation at an unprecedented scale and pace, shunning imported gas without over-relying on expensive alternatives—such as hydrogen in its rainbow of varieties—or relapsing on brown fuels. We also need to secure energy supply, ensure grid reliability and help families and businesses stay out of the red.
No matter how many supply-side resources we pour into the mix, the perfect blend will elude us until we stop treating demand-side flexibility as a final flourish of glitter.
In fact, it is more like the primer—often unseen but foundational to reliability, managing price volatility, enhancing grid performance, efficiently integrating renewables, facilitating newly electrified technologies and reducing cost. Flexibility adds adhesion and endurance to the core principles of energy policy.
Demand-side flexibility means energy users changing how and when they use electricity in return for financial reward. They offer flexibility by drawing power from the grid at different times and by utilising energy efficiency, onsite generation and onsite storage, including electric vehicle batteries.
We need lots of flexibility and we need it now. The IEA estimates that, to reach net-zero emissions by 2050, a ten-fold increase of demand-side resources is required worldwide by 2030, compared with 2020 levels.
Industrial response receives most of the policy attention on the demand side, which is still only a fraction of that dedicated to supply-side resources. However, European Commission analysis concluded that the greatest potential for additional customer flexibility in 2030 actually lies within homes.
This is due to the, as yet, untapped nature of this sector, plus projected electrification and digitalisation of buildings and vehicles. The proportions in the graph below are striking—even though the capacity levels are likely to be underestimated, given the fast-paced technology and market evolution since the 2016 study.
To take advantage of these untapped resources, there are three policy actions that should be enacted now.
Firstly, make flexibility effortless and stress-free. Lawmakers need to stop putting the onus on individuals to solve structural problems. People are busy; they have kids to get to school, shifts to work and boilers and cars that fail at the worst times. It is not their job to become energy market experts, it is the job of energy market experts to ensure that people make decisions—even unconscious ones—that boost flexibility and reduce energy bills.
There should be an EU-wide “mandate for smartness”, requiring products and buildings to be electrified and “flex-ready”, with clear labelling and high-quality customer support. Deployment schemes are urgently required, including subsidies to fast-track uptake and drive down future costs, replicating the success of renewables.
The regulators’ role is to ensure digital inclusivity of marginalised and vulnerable groups and to adapt customer protection rules so they keep up with new retail offers, without picking winners or stifling innovation.
Secondly, allow wholesale pricing to reflect the true value of flexibility. To uncover the value of flexibility and reveal its full potential, wholesale electricity prices should reflect real-time conditions on the power system.
Interventions such as price caps mask the increased costs caused by inflexibility, reducing incentives for efficient actions. Households should be rewarded to increase demand when there is a surplus of renewable generation, for example, but measures like minimum price guarantees prevent payment via the wholesale market.
Safeguards such as supplier hedging, price relief mechanisms for extreme events and targeted support for low-income customers become increasingly important. The baseline, however, should be wholesale pricing and smart network tariffs that reward flexibility in a fair and non-discriminatory way. This creates a positive feedback loop of households embracing flexible assets and seeing tangible benefits, which further incentivises flexibility.
Finally, develop robust metrics for flexibility. Europe lacks a common methodology for assessing and quantifying the multi-faceted benefits of customer flexibility.
Unless we make this value visible and measure it consistently and fairly, we cannot reliably assess flexibility potential or design mechanisms to unlock it. Developing robust metrics supports policies that can accelerate flexibility deployment such as targets, trading platforms and obligations on suppliers to procure demand-side capacity. Standardisation also enables progress to be tracked across Member States.
Flexibility is a system resource, activating it requires systems thinking. That does not mean treating households like mindless cogs in the machine—a new social contract must be crafted for the age of automation, upheld by equity, agency and opportunity.
Europe’s lawmakers should take in the whole picture, rooting out market distortions, barriers to access and bad practices, while proactively showcasing and replicating positive examples of household flexibility, beyond pilot schemes.
If the artwork La Fée Électricité were recreated in the year 2035, what would we see? The fresco could show millions of homes, interacting seamlessly with the power system, for the benefit of people and the planet alike.
One thing is certain, we are going to need a bigger wall to paint it on. •
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Danish government is off course to deliver emissions reductions in transport
Heavy-duty trucks remain one of the great headaches in our decarbonisation efforts. But progress is too slow, many barriers have yet to be addressed and we have yet to see substantial carbon reductions.
Even though trucks currently make up just 2% of road vehicles in Europe, they still emit almost a quarter (23%) of all road traffic CO2 emissions. In a business as usual scenario truck emissions in Europe will increase by 21% before 2030.
A political agreement on the green transition of road transport from December 2020, saw the Danish Parliament adopt a kilometre-based toll for trucks over 12 tonnes effective from 2025.
The move is in line with several other EU countries such as Germany and Sweden and the EU’s recent revision of the Eurovignette directive, which moved toll charges for trucks from time-based to kilometre-driven-based taxation by 2030.
The Danish government is currently working on a national green strategy for heavy transport including the specifics on the new road tax as part of the political agreement. The strategy is expected to be presented later this year.
The stated goal of the government’s plans and the new toll is to push for a one million tonne reduction in the carbon footprint of heavy transport by 2030. Today, the Danish truck fleet emits 1.7 million tonnes of CO2 every year. To put that into perspective Denmark’s total national emissions every year is around 45 million tonnes of CO2.
Without further regulation, Denmark’s heavy road transport is expected to emit 1.5 million tonnes of CO2 in 2030 corresponding to a decrease of only 0.2 million tonnes compared to 2020.
Formulating a national green strategy, including a revision of taxes and new economic incentives, are an effective and very much-needed instrument for accelerating the decarbonisation of heavy road transport. But there is a risk Denmark is going about this in the wrong way.
From a climate and decarbonisation perspective, the suggested tax model—based on kilometres driven—is an inefficient and unconstructive way of taxing the transport sector.
It will be difficult to manage and the administrative burden will be costly. It will also potentially distort competition because when every kilometre counts, costs will vary depending on where and how far each truck is driving.
Instead, Denmark should pursue a model where it is not the number of kilometres trucks drive that is taxed, but the energy they consume. Denmark should adopt a tax on diesel or a general tax on CO2 emissions instead.
This is by far the best and most effective way to ensure a tax model that encourages further investments in trucks with a more energy-friendly profile. It is also a model that would be easier to control and administer.
This is also the recommendation from the independent Danish expert advisory, the Climate Council, which directly points out that a tax on carbon and an increase in the tax on diesel are a more precise means of targeting emissions other than tolls.
The council says that a carbon tax would be the most effective way to move the heavy transport sector in a more climate-friendly direction. It argues is also that a more broad carbon tax would be a technological neutral tax model, which would ensure that the government does not target or invest in the wrong technologies.
In regards to a tax increase on diesel, the Council recommends that the price be raised by €0.067 per litre to favour more energy-friendly transport. This is also in line with other countries such as Germany that have already raised the price of diesel.
Consequently, there is a need for the government in Denmark, but also in several other European countries, to look closely at the incentives and tax models for the heavy transport sector and abandon the idea that every kilometre should come with a price tag.
This is important if we are to make sure that the transport sector contributes with the carbon reductions necessary to meet our climate targets. •
Interest in proven investment solutions for energy efficiency bound to increase
The energy transition needs to happen on all fronts and reducing the energy intensity of existing infrastructure—be it public or private—is a key lever in the fight against climate change. After all, there is no cleaner form of energy than energy that is not consumed.
There is a wide range of highly effective energy efficiency measures with proven technologies readily available today.
Whether it be LED lighting, waste heat recovery, heat pumps or energetic building refurbishments—for instance replacement of inefficient boilers and chillers with latest technologies, implementation of smart energy management systems, renewal of roofs and windows—the importance of energy efficiency on the path to net-zero greenhouse gas emissions is no longer a subject of debate.
Nevertheless, the financial sector’s attention to it has been rather low.
The key reason for this lack of interest is the high degree of granularity in the market. Single energy efficiency measures generally lack the scale needed to attract institutional capital. If single projects had to be financed individually, the efforts associated with deal origination and inherent transaction costs would simply surpass the financial gains achieved.
At the same time, infrastructure owners, tenants, or municipalities often do not have the budgets, capacities, or the right incentives to take matters into their own hands. Energy efficiency measures require significant upfront capital investment and subsequently deliver energy and cost savings over extended periods of time.
What results is an impasse, in which long-term oriented investors such as pension funds and insurance companies seeking exposure in the energy efficiency segment do not have investment opportunities available through which they could do this at sufficient scale.
The good news is that with specialised investment teams and innovative financing structures, these challenges can be overcome.
Part of the solution lies in establishing long-term mutually beneficial relationships with the companies implementing these measures. These are often specialised energy service companies (ESCOs) or technology providers.
By signing long-term framework agreements with these companies, investment managers leave project origination to these partners, standardise deal execution and finance aggregate project portfolios thus creating the scale required to ensure profitability.
Through securing upfront financing provided by an institutional fund, the ESCO is able to offer contracting-based “Energy/Infrastructure-as-a-Service” solutions to its clients. This business model entails that the ESCO plans, installs, finances, and operates the energy efficiency asset for a certain period of time (usually between 8-15 years), during which the beneficiary of this measure is charged a service fee.
The resulting energy cost savings are utilised to cover interest and amortisation payments to the institutional fund while the remainder will stay with the client.
Ultimately, all three parties involved benefit: the client achieves annual energy cost savings that surpass the amortisation payments thereby lowering the cost base and making the business more competitive; the ESCO can generate more business with less capital; and the investor collects attractive risk-adjusted returns. There is also the significant positive impact of such projects towards climate change mitigation.
Such a financing structure is also applicable to other fragmented sectors of the energy transition market such as self-consumption solar PV, EV charging stations, or the electrification of largely fossil fuel-reliant sectors such as heating.
Nevertheless, the devil is usually in the details. While this roughly sketched financing structure has proven to be highly effective in enabling energy transition projects in fragmented sectors, it still requires a high degree of flexibility to accommodate for the specific needs of all counterparties. Accordingly, it requires the expertise of highly specialised investment managers to be executed in an efficient manner.
As the latest IPCC report made very clear, there is technically enough private capital available to make the energy transition and a path to net zero feasible. Small-scale measures will play a significant role in achieving this target, but ultimately, it will be up to investment managers to come up with innovative solutions that can accelerate the large-scale redirection of capital towards clean energy solutions we desperately need. •
Diesel-powered trucks still dominate sales despite the available low-emission alternatives
We know that we need to electrify our trucks. We know that we need this to happen now. But what many people don’t know is that we could in fact electrify around 30% of the entire truck fleet operating shorter distances, especially in inner-city and rural environments today.
Here, we actually already have the battery technology able to deliver the necessary 300-kilometre range and up to 540 kilowatt-hours (kWh) which is needed to cover a daily operation.
There is also positive momentum for this right now within the sector. Big truckmakers have scaled up ambitions and pledged to go zero-emission by 2040. They are investing massively in the improvement of battery technologies and several are planning to put electric heavy-duty vehicles (HDVs) into series production within the next couple of years.
On the consumer side, demand for electric trucks is growing. Logistics companies DHL and DFDS, but also companies with high sustainability ambitions such as IKEA, Carlsberg, Stark, Maersk, Unicon and COOP are beginning to invest in battery-powered trucks.
Despite this momentum, the prevalence of electric trucks remains limited. Data from the European Automobile Manufacturers Association (ACEA) shows that only 0.5% of the new trucks sold in the EU in 2021 were electric—only up by 0.1% compared to the year before. Diesel is still dominating sales of new medium and heavy trucks accounting for 95.8% of the market.
NOT ATTRACTIVE YET
So why are things still moving so slow despite the fact that both the technology and many companies are ready? Why are we not seeing a significant increase in the sales of electric trucks?
The short answer is that we have yet to make it an attractive business case. Looking at the total costs of ownership, battery-powered heavy trucks cannot yet compete with their conventional, fossil fuel-based counterparts.
An electric truck demands a three-times higher upfront investment than a diesel truck and the operational cost is still not low enough to compensate for that during the lifetime of the electric truck. Even if companies should be willing to pay some degree of extra price, the difference in costs between a diesel and an electric truck is simply too high.
On top of this, there is also the task of converting to an electricity-based process, which calls for new ways of working, new route planning and integration on the electricity grid. This is all before we get to a lack of clear plans and investments in charging infrastructure that can ensure the level of security needed by companies considering investing in battery-powered trucks.
The current energy crisis caused by the Russian invasion of Ukraine has not made this choice any easier. Spontaneously, one might think that there should be a greater pressure on companies to pursue decarbonisation and green technologies and the REPowerEU initiative—the European Union’s plan to end its dependency on Russian gas—is enormously positive for the prospect of cheaper green energy.
Unfortunately, the crisis is putting severe pressure on energy prices and many companies are experiencing cost pressures that are making them hold back on acquisitions. These investments in the energy transition are now falling under the “we can wait” category. Although diesel prices have risen, electricity prices have risen even more, which also affects the total cost of operation (TCO) of an electric truck.
POLITICAL ACTION NEEDED
To change this situation, and make electric trucks a more attractive choice, there needs to be further political action, decisions and plans to demonstrate that getting battery-powered trucks on the road is a high priority.
The first and obvious step is to introduce zero-emission city zones where only low emission vehicles are permitted—which a growing number of cities around the EU have already implemented or planned. This will make battery-powered trucks and goods vehicles a necessary way forward for all distribution and logistics companies operating in cities.
Furthermore, it is important to ensure clear and credible eco-labelling and branding so that companies can better promote their green fleet and price differentiate. Then it is essential to increase the production of renewable energy and improve the grid infrastructure in cities to meet the demand of a growing battery-powered truck fleet.
Another vital step is to revise the tax system to make it much more financially viable to go electric. This is something some countries have already implemented with great success. In Germany, up to 80% of the additional cost of purchasing an electric truck can be covered by the state.
Part of these plans should also include the revision of road tolls. The EU is already examining this issue with a new toll system that would catapult the decarbonisation of heavy transport. When doing this, though, it is important to ensure that the cost does not reflect the truck is driven, but the energy consumption and the type of energy used.
START WITH THE 30%
When designing new policies, tax systems, support packages and incentives, it is also important that we start with the 30% where electrification is possible already today. Focusing on the 30% would enable us to obtain substantial (and very much needed) reductions in the carbon emissions from heavy transport within a few years. In this segment, each electric truck would save 50 tons of CO2 per year in its operational life.
This would also provide a much better chance of succeeding with electrifying the remaining 70%: the long haul trucks, where limitation of battery size, weight and range poses challenges and where the widespread prevalence of 800 km battery-powered HDVs still seems unrealistic before 2030.
By paving the way for the electrification of the first 30%, we get the opportunity to learn, see and test how electric trucks work. This will help ensure further investments, innovation and exchange of experience in the field—all of which is necessary when we are to tackle the remaining 70%. •
Energy efficiency should be considered as important as other power generation fuel types
Despite it not often making the headlines, energy stakeholders and lawmakers know that energy efficiency can drastically reduce the carbon footprint of Europe’s building stock, which currently accounts for about 40% of the EU’s energy consumption and 36% of greenhouse gas emissions.
But what about energy efficiency as a form of fuel? That may sound like an absurd suggestion. Yet this is exactly the type of idea we need if Europe is to have even a remote chance of achieving any of its ambitious energy and climate goals, whether it is gaining energy independence, reducing its greenhouse gas (GHG) emissions by 55% by 2030 or becoming carbon neutral by 2050.
At least 75% of the EU building stock is energy inefficient. Among other factors, these buildings lack the proper insulation needed to keep heat in (or, in the summer, out). Therefore, they need higher flow temperatures to deliver the same level of indoor comfort. Needless to say, getting that higher temperature requires more energy.
This highlights the correlation between energy efficiency and energy use. With heating and cooling responsible for an estimated 35% of a building’s total energy consumption, increasing a building’s energy efficiency can go a long way in reducing fuel use.
In other words, the more efficient the building, the more energy saved. As these savings means less energy needs to be produced, energy efficiency should not only be included in the energy mix but given equal footing to other fuel types.
To see why energy efficiency must be at the centre of the energy mix, one needs only to look at the EU’s goal of installing 30 million heat pumps by 2030—part of its REPowerEU policy package to phase out the Union’s dependency on Russian fossil fuels.
Heat pumps use electricity to concentrate heat potential and are comparatively more energy efficient than gas boilers. It, therefore, stands to reason that replacing gas boilers with electric heat pumps would reduce both Europe’s dependence on foreign gas and its building stock’s total emissions. Unfortunately, this is easier said than done.
While heat pumps are a key part of Europe’s energy transition, shifting domestic heating from gas to electric creates a capacity challenge: in a decarbonised grid, there simply is not enough renewable energy to meet demand.
This challenge becomes even more acute when looking at seasonal impacts, such as winter peaks. With heat pumps, overall electricity demand for electric heating would increase by 356 terawatt-hours per year (TWh/year). However, the additional generation capacity needed to deliver this demand, due to winter peaks and generation troughs, would be 2129 TWh/year. That is nearly a fivefold increase over the current electricity supply.
AN ALTERNATIVE APPROACH
Traditionally, we would meet such an increase in demand by producing more energy. However, doing that sustainably—via renewable sources—would require significant investment into new energy capacities and infrastructure, resulting in an increased risk of blackouts and soaring energy system costs.
It would also mean meeting the higher demand by using an energy supply that is more intermittent and that cannot be scaled up in response to demand.
An alternative approach is to retrofit those inefficient buildings so they are energy efficient and heat-pump ready—this starts with insulation. A well-insulated home will slow heat loss to the outside, allowing the water flow temperature to go as low as 35°C and still deliver a warm, comfortable home.
According to the Building Performance Institute Europe (BPIE), insulating a home’s attic and roof could save up to 14% of residential heating energy. This translates into annual energy savings equal to 26 billion cubic meters of fossil gas saved or about 16.77% of the EU’s 2021 imports from Russia.
Another recent BPIE analysis shows that rolling out building insulation in Germany, France, Slovakia, Slovenia, Czechia, Italy, Poland and Romania would lead to a 44% reduction in natural gas and save 45% of final energy demand for heating residential buildings in those countries.
FUEL OF CHOICE
What these numbers make clear is just how essential energy efficiency is to the energy transition. Without energy-efficient buildings, there is no foreseeable way forward to reduce our dependency on fossil fuels or achieve our climate goals.
Given its proven capability to serve as an alternative to new power capacity, energy efficiency deserves a front-row seat within EU energy policy.
A good place to start is to designate energy efficiency as the fuel of choice in all EU and national energy mixes. This would prioritise retrofitting buildings, thus ensuring all buildings are properly insulated and ready to support electric heating solutions and, as a result, Europe’s climate and energy ambitions. •
Buildings renovation must be made an energy security priority
It is high time that European citizens start reaping the rewards of a modern 21st Century sustainable energy strategy. The REPowerEU package to be published in mid-May must mark a significant shift in energy policy for the EU, away from supply-side measures and towards a more sustainable and effective demand-side process.
Such an imbalance, which has existed until now, is no longer acceptable. Europe must double down on efficiency policies and cut energy waste in buildings, currently accounting for about 40% of the EU’s energy consumption and 36% of greenhouse gas (GHG) emissions.
REPowerEU offers the ideal opportunity for a change of focus—and of mindset—which would finally put energy savings policies firmly in the limelight.
DELIVERY TASK FORCE
An EU-led Delivery Taskforce, established between all the different directorates, as well as the Member States, with a central focus on energy efficiency, should be set up and put to work as soon as possible.
The Commission has numerous departments working on energy efficiency, but they too often suffer from a lack of coherence and prioritisation. A dedicated Taskforce with the responsibility of cutting energy waste in buildings would effectively reorganise and marshal existing programmes and resources accordingly and with purpose, so they can be bolstered and aligned with REPowerEU’s main objectives.
In terms of funding, there is already massive financial firepower in the EU Recovery fund, Cohesion Funding, LIFE programme and Horizon Europe scheme for building renovations and fighting energy poverty, but it needs to be unlocked quicker and better.
A Delivery Taskforce would be perfectly placed to manage this operation, identifying where and when money can be released to fund renovations, energy-saving equipment and skills investment. It would also ensure the money is well spent, upscaling schemes and maximising potential to achieve deep renovation.
This Taskforce could also be given the clear mandate to boost the EU’s as-yet underdeveloped public awareness campaign about consuming energy responsibly in buildings.
BACK IN SHAPE
In addition to the Delivery Taskforce, the EU’s landmark “Fit-for-55” package of climate measures provides the correct framework for sustainable policies. But it is now clear that there is a disconnect between its ambition and the new realities.
To better reflect the new geopolitical context and achieve the REPowerEU objectives, the standards and targets proposed in the energy efficiency and energy performance of buildings directives (EED and EPBD, respectively) should be ratcheted up.
Minimum Energy Performance Standards (MEPS) are a proven way to upgrade and decarbonise the building stock. But under draft EPBD plans, the worst-performing buildings will only need to be improved by two levels of performance class and under the current timeline, they will only begin to pay off in the 2030s. This is unacceptably slow and shallow and will not be sufficient for the EU to meet its 2050 carbon neutrality goals.
The potential of MEPS must be fully tapped and now is the right time to unlock it, with unprecedented support and attention on citizens’ energy bills.
Amid a fast-moving geopolitical situation, REPowerEU absolutely has to maximise the tools and resources at the EU’s disposal to pull off two feats: securing Europe’s energy independence from Russia and sticking to its climate obligations.
Making energy efficiency an energy security priority in REPowerEU is a golden opportunity to achieve both of these objectives, sustainably. •
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Before the situation in Europe made energy consumption and supply a burning hot topic, the climate agenda was the main driver behind the transition to greener and more energy-efficient solutions
Regardless of the driving force, we now must act upon the fact that there is vast building stock in Europe that guzzles energy. And we need to update this building mass with equipment requiring minimum energy.
As energy prices increase, the payback time on installing new equipment becomes shorter. The benefits of energy renovations are simply larger and realised faster.
EUROPEAN GREEN DEAL
Let us start with a few facts: In the EU, there is a 40% energy efficiency goal, but more than 35% of the European building stock is over 50 years. About 75% of this stock is energy inefficient, wasting a large part of the energy used, and 85-95% of it is forecasted to still be in use by 2050.
The built environment is the single largest energy consumer in the EU, accounting for 40% of the energy consumption, and it is one of the largest carbon dioxide emitters with 36% greenhouse gas emissions. This is why they must be upgraded with more energy-efficient solutions—and fast.
If we renovated the existing built environment, we could reduce the energy consumption by up to 6% in the EU. But less than 1% of the building mass is renovated each year. That needs to be at least doubled to meet the EU climate and energy targets.
FAST TRACK TO GREEN TRANSITION
Old and inefficient fans installed in ventilation systems occupy up to 60% of the total energy consumption of the buildings. Therefore, retrofitting old ventilation systems with new high-efficiency fans will drastically reduce energy consumption and huge energy savings have been proved in several retrofit projects. For example, JK Tyres in Chennai, India, retrofitted the existing HVAC system in its tyre manufacturing plant with more efficient products and achieved energy savings of more than 50%.
Though upgrading existing building stock with new technology is often thought to be cumbersome, replacing old fans with high-efficiency fans is usually done quickly and without high refurbishment costs. At Keppel Bay Tower in Singapore, an existing centrifugal fan was retrofitted with a high-efficiency axial fan, resulting in energy savings of 43%. This exchange of fans led to a 22.3% reduction in the annual energy consumption of the building—a massive improvement for a retrofit operation that was completed in just 10 hours.
TECHNOLOGIES ARE AT HAND
New constructions are equally important to consider. Using high-efficiency fans based on the latest technologies, building owners and occupiers will benefit from fans that operate quietly for more than 20 years with zero downtime and a fan efficiency level of 92%. On top of that this type of fan is 98% recyclable and fits perfectly as per the sustainability requirements for new builds.
The numbers speak for themselves. Exchanging ventilation systems in large buildings like hotels, hospitals and airports is a significant contributor to a massive reduction in energy consumption.
High-efficiency fans also enable us to soften the hit from the soaring energy prices. The more we can reduce our energy consumption by implementing energy-efficient solutions, the more we can turn to renewables and be less dependent on Russian gas, where prices are going through the roof.
Europe’s reliance on imported natural gas from Russia has again been thrown into sharp relief by Russia’s invasion of Ukraine. In response to the situation, The International Energy Agency has recently issued a Ten-Point Plan for reducing reliance on Russian supplies by over a third while supporting the European Green Deal.
One of the points in the plan urges us to accelerate energy efficiency improvements in buildings and industry. Ramping up energy efficiency measures in homes and businesses would reduce gas use by close to two billion cubic metres within a year.
The Ten-Point Plan and the ever-present green agenda make energy efficiency projects highly urgent and all sectors have strong incentives to engage.
LACK OF PLANS
Even though European governments have official statements and objectives regarding climate goals in place, we still need more clear-cut plans detailing how we are to reach the green targets. It is not clear how and with which means we can reach the targets and reap the benefits.
Professional expert organisations working in the field of energy efficiency, renewables and electrification recommend looking at prioritising energy efficiency as a means to reach the targets of climate neutrality—both because the technology is readily available and because it enables us to complete the transitions at the pace needed.
From our point of view, we have seen building owners harvest huge energy savings when using high-efficiency fans. We have seen how the climate footprint of a building is heavily reduced from day one of operation. And we have seen the financial benefits in terms of a short return on investment.
What is left now is for the official bodies to support the building and construction sector with clear plans for building green in every corner of the building operation. •
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Reducing demand for foreign energy will help avoid future conflicts
Let me get this out the way first—this is not another article about how energy efficiency in our buildings is a good thing. While I could talk about the benefits of tackling the climate emergency, lowering poverty and bringing down extortionate bills, I am going to assume you have heard all this before. What is new is the added dimension that the gas crisis and now the appalling war in Ukraine, adds to the humble but powerful world of retrofitting our leaky buildings.
The obvious solution to breaking the hold of the gas crisis is reducing our reliance on gas, especially from Russia. Only 35% of the UK’s gas is used for electricity generation. Another 40% is piped directly into homes. When roughly half of our gas is through imports, and with declining gas production at home, even if we decarbonised the power sector totally tomorrow morning, we will still be reliant on imports.
If the UK reduced gas demand, fellow European gas producing countries such as Norway could divert supplies to countries far more reliant on Russian gas, such as Germany and Italy. So, by deliberating and not acting on all sectors of the economy that are heavy gas users, the UK is actively preventing Europe from weaning itself off dangerous Russian gas and other ruthless autocracies. Drawn up this way, we can see a complex spider’s web of gas reliance across our continent and the world.
If the UK truly wants to help reduce the world’s reliance on a dictator’s gas profits, rather than just its own reliance—not to mention climate change and fuel poverty—it must go further. Energy efficiency coupled with low carbon heating systems has been a route industry, political figures, campaigners and lawmakers (myself included) have advocated increasingly vocally for decades now.
There are challenges around implementation, political will, cost, the pace of change and plenty more besides. But with the prospect of planetary collapse and the most vulnerable in our country putting their health on the line, what could possibly be more persuasive to the national narrative for a shift to warm homes and clean heating? Well, there is one possibility—national security.
There is something about the immediacy of a national security debate that focuses minds. Psychologically, the direct link between using less gas and weakening the Russian war effort has fewer steps as a policy, than reducing gas demand as part of a package of policies across multiple different sectors as part of an international effort over several decades to keep global temperatures within acceptable levels.
While very different types of policies, the speed of the UK’s delayed sanctions feels like lightning next to the more methodical nature of UK climate policy.
On costs, while private finance desperately needs more room to fund those truly able to pay for the upgrade, subsidy schemes for vulnerable households will still be needed. Given the billions that have been funnelled into UK war efforts in previous years, the costs required for ending a key plank of the Russian war effort seem small in this context. This makes it a much more attractive prospect politically than finding new public spending for a new energy efficiency scheme.
Part of the appeal of energy efficiency as a national security argument too is its fundamentalism. Many conflicts, both currently and throughout history, have an element of a clash over resources. Imagine the war on terror without oil or how much less tension there would be in the South China Sea if not so much imported fossil fuels were flowing through it. It does not automatically solve the conflict, but by surgically removing the resource at the heart of it, it lifts a critical anchor to the underlying tension.
Ultimately, a fundamental shift in the approach to energy efficiency and decarbonising our homes will not happen overnight. But maybe if national security enters the national narrative on how we go about it, it will add another arrow to our arsenal in tackling all these issues. •
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Europe could be the second-largest market for battery production by 2024 if the regulation is effective
While Europe is the second-largest market for e-vehicles and the third largest in stationary energy storage, the region only accounts for approximately 6% of the global cell and battery manufacturing capacity. However, Europe’s climate neutrality and energy transition path depend on batteries. Sustainable batteries are a key technology for a carbon-free economy and moreover, for the digitalisation ambitions of the EU.
It is crucial that when EU decision-makers discuss the new rules for batteries, they address the holistic picture and guarantee that all measures of the new EU Batteries Regulation can deliver on advancing the decarbonisation, as well as the energy and digital transitions, while also ensuring the European batteries industry becomes a competitive global leader.
In the context of the Russian war on Ukraine, the EU needs to realise the danger supply chain dependencies bring. The EU needs to develop a strong batteries value chain in Europe and decrease the high dependency on imported batteries. When moving away from fossil fuels, Europe should simultaneously become more autonomous and support the electrification and renewables development with a European batteries industry.
Since the creation of the European Battery Alliance in 2017, over a dozen Europe-based “gigafactories” have been announced. According to the European Battery Alliance, the European battery market is estimated at €250 billion from 2025 onward. Some 800,000 new jobs are expected to be created in Europe by 2023 alone.
In 2020, in the context of the EU Industrial Strategy update, the European Commission reviewed a number of areas that can be considered strategic for Europe’s interests. Lithium batteries were identified as one of the strategic areas of interest for the EU.
The Commission estimates that Europe could become the second-largest manufacturer of lithium-ion cells by 2024. Our share of global production capacity may increase to 14.7% by 2024 and 16.6% by 2029, compared to 5.9 % in 2019. The political ambition and objective being clear, we now need an efficient regulation to unlock the investments and potential.
UNDERSTANDING THE MARKET
The number of leading technologies is relatively limited: mainly zinc alkaline and lithium metal for primary batteries (non-rechargeable), and lead-acid, lithium-ion and nickel-based for the rechargeable batteries. Some other technologies are on the market, like sodium-based batteries, rechargeable zinc batteries, sodium-sulfur batteries and other technologies, however, they represent less than 0.1% of the global market.
Nevertheless, the number of applications where the batteries are used is very large, and growing, as many new applications are using batteries, such as drones, robots, Internet of Things (IoT) and existing applications such as cars, buses and trucks are also electrifying.
The vast majority of applications have dedicated battery design, suitable for the level of power and energy reserve they require for their usage and the service they deliver. As a result, the number of battery models is almost as large as the number of electrical equipment designs placed on the market. The number of battery models, per battery category, is very large: more than 500 models for Light Means of Transport (LMT) batteries, 1,500 models for automotive, about the same for EV models, more than 20,000 for portable applications and more than 100,000 for industrial batteries.
The lack of enforceability and market surveillance feasibility of proposed measures in the Batteries Regulation could jeopardise the overall ambition and success of the legislation. The introduced sustainability requirements—such as the carbon intensity and the recycled content provisions—could become useless if not implemented and enforced correctly at Member State level.
As a result, the selection of a relevant scope when deciding about a sustainability measure in the regulation is of the highest importance. The size of the scope (the number of models to which the measure is applicable) must be understood to make sure that the measure can be applied and enforced, particularly when the measures are requiring third-party verification.
A too ambitious initial scope, which cannot be verified and controlled effectively, can incentivise false declarations, knowing that control would become practically impossible, and jeopardise the effectiveness of the measure. The carbon footprint declaration can be of vital importance if the measure can be properly enforced and if it is based on fair and non-discriminating calculation rules.
Considering the limited environmental benefits of the recycled content requirements for batteries, the proposed obligation currently remains unjustified and creates an uneven playing field.
Battery waste, including production scrap, has reached significant volumes in Asia, making it easier for Asian companies to access recycled battery materials. Volumes of available secondary raw materials in Europe are still low and a too early recycled content obligation would jeopardise the competitiveness of European batteries. In the next ten years, a recycled content obligation will steepen EU dependency on third country (secondary) raw materials. The industry has recommended establishing Article 8 of the proposed regulation on the recycled content provisions is voluntary to begin with.
Based on the future availability of secondary materials, driven by clear recycling targets and end-of-waste criteria, meaningful targets for recycled content should be assessed in 2027 for the 2030 horizon.
The Batteries Regulation will shape how the European battery value chain will develop and how it will be able in meeting expectations to support Europe’s EU Green Deal and carbon-neutrality objectives. A thriving batteries industry is needed in Europe’s path to climate neutrality. The industry is ready to deliver, provided the Regulation sets an enabling framework. •
E-fuels are not yet widely available but have the potential to scale up this decade and meet the shipping sector’s needs
In early March, the UN’s Intergovernmental Panel on Climate Change (IPCC) issued a fresh set of warnings that climate change damages will worsen rapidly unless we speed up cutting emissions. Like all other sectors, international shipping is facing urgent demands to reduce its carbon impact, which amounts to 3% of total global emissions—similar to Germany’s total share. But unlike other sectors, shipping has been making record profits on the Covid-19 crisis, making this is an unprecedented opportunity to invest in a sustainable future.
Shipping’s incumbent fuel is uniquely polluting, and damaging to human health and marine life when spilt. Plus, if the European Union needed any further incentive to clean up shipping, Russia is by far the biggest supplier of fuel oil, accounting for around 40% of imports to Europe.
But shipping faces difficult choices: which propulsion technology to choose or fuel to invest in? These decisions now will determine the future of many shipping businesses as well as how much negative impact growing global trade flows have on our climate.
With several options on the table, it is critical that the industry does not get distracted with short-sighted solutions and instead invests now in future fuels that can scale to create a fully zero-carbon global trade system, within the limited time window climate science says we have.
A particularly dangerous, false alternative is Fossil Liquified Natural Gas (LNG) which has been embraced by some shipping lines as the “only available alternative” to reduce shipping’s environmental impact.
But the reality is that LNG is a fossil fuel and more investments into it will not bring us closer to climate neutrality. Burning LNG onboard vessels leads to significant leakage of methane, a gas with over 80 times more climate-warming than carbon dioxide.
The shipping industry is not the only one at risk of getting LNG wrong. Last month Transport & Environment warned that the EU’s draft law for marine fuels, currently in discussion, could drive up the share of fossil LNG from 6% today to a quarter of European shipping by 2030. This would undermine the EU’s own goal of reaching zero emissions by 2050, undermine the EU’s specific pledge at COP26 to reduce methane emissions by 30% by 2030, and it would heat the planet faster by putting more methane into the atmosphere.
The European Parliament expected to present its first set of amendments to the draft law by the end of March 2022. This is an opportunity for the Parliamentarian holding the pen, Swedish MEP Jörgen Warborn, to put the misguided proposal right.
Ending shipping’s huge climate impact requires that lawmakers stop listening to companies like Total and Shell pushing “alternative” but still fossil fuels, and instead take a science-based approach towards truly sustainable and scalable fuels.
We already have solid definitions of minimum sustainability and greenhouse gas saving criteria defined under EU legislation. Renewable electricity, biofuels or biogas produced from waste, and e-fuels produced from renewable electricity are sustainable fuels.
Scalable means fuel can be produced and deployed at a scale sufficient to meet the sector’s needs. This is important because shipping is a huge international sector, currently consuming around 5% of global oil demand—more than India.
There are many sustainable fuels, but not all of them are scalable for shipping. Genuinely sustainable advanced biofuels cannot be scaled up to even a fraction of shipping sector demand before they start becoming unsustainable, such as encroaching on rival land uses such as food production and forests.
Fuels matching both of these criteria are e-fuels, which refers to fuels produced from renewable electricity. They are not yet widely available but have the potential to scale up in this decade and ultimately meet shipping’s needs, provided that renewable energy capacity increases.
E-hydrogen and e-ammonia are especially promising for short- and long-distance shipping respectively. As they do not contain carbon, they have significant sustainability but also cost advantage among other possible e-fuel options.
Other types of e-fuels like e-methanol, e-diesel or e-LNG, which are typically produced from renewable hydrogen and carbon, can also be considered sustainable but only if sourced by direct air capture technology. Their advantage is that they can be used together with existing or new propulsion technology commercially available, making them very attractive today for shipowners.
However, the sustainability of these ships is not to be taken for granted: with dual-fuel technology, a methanol ship could also run on diesel, fossil methanol or unsustainable amounts of biomethanol.
We are urging the European Parliament to introduce a 6% quota by 2030 in the EU draft law to increase the share of renewable e-fuels in this decade and put EU shipping on track to zero-emission by 2050. Many such technologies already exist—green hydrogen for offshore vessels, passenger shuttles and ferries—with more to come.
The time is now for the shipping industry to invest in renewable e-fuels, especially considering their vast profits as freight rates surged ten-fold last year. This should go hand in hand with applying concrete and climate-friendly solutions to reduce fossil fuel consumption in the short term and speed up the uptake of green fuels in the long term.
Firstly, slow down. A mere 10% reduction in shipping speed reduces shipping emissions by a fifth. Secondly, harvest the power of wind. By installing smart wind propulsion technologies, ships can cut emissions by up to 20% already today, without any of the regulatory and social licence risks of methane-leaking LNG. Innovative companies, many of them based in Europe, are working on wind ship concepts to deliver further reductions.
Finally, connect ships to shore-side electricity for their energy needs at berth. This simple solution eliminates both air pollution and greenhouse gas emissions in ports. Some ports have already committed to provide shore-side electricity connection points for containerships and cruises by 2028. This again needs to be pushed by policies so that all types of ships can plug in at berth within the next ten years.
Although the future of clean shipping is not set yet, it is becoming clear that e-fuels produced from green hydrogen have an enormous potential. They are both sustainable and scalable, and their uptake should be backed by strong EU policy incentives that truly phase out fossil fuels. The ball is now with the European Parliament and EU governments to get shipping on track towards a zero-emissions future. •
Report into electricity market design is due to be published in April 2022
European electricity markets rely on a complex set of trading arrangements. As a result, any substantial changes would take years to design and implement. Market reform is, therefore, unlikely to provide solutions that alleviate the current energy price crisis. Nevertheless, it can reduce the chance of future crises.
For that, tomorrow’s market needs must be the blueprint for today’s reform agenda. The European power system must successfully decarbonise during the 2030s to meet the Paris Climate Agreement and the European Green Deal goals, and to support the reduction of the EU’s energy dependence. This shift means major changes to the energy resources used and how the system operates.
Although some Member States may decide to include nuclear and decarbonised gases in their energy mixes, a vast amount of electricity needs to come from renewables. Therefore, electricity markets must ensure the construction of enough new renewable capacity.
The good news is that most countries are getting better at supporting renewables construction and their approaches can serve to accelerate the necessary investment. However, the main challenges have to do with the variable nature of wind and solar electricity.
Firstly, the grid infrastructure must be in place to ensure electric transport can serve centres of demand. However, power network infrastructure can take many years to construct and it is critical that transmission bottlenecks do not constrain renewable generation. This means it is necessary to anticipate where renewable capacity will be built and ensure the network infrastructure is in place ahead of need.
This anticipation is crucial in regions such as the North Sea, where a whole new grid will be necessary to connect offshore wind capacity. Beyond simply connecting renewable capacity, the network and associated trading arrangements must allow the electricity to flow across the continent.
This would ensure that Europe meets its energy needs most efficiently and reduces its dependence on gas as a backup fuel source. EU countries should not waste huge sums of money exploiting low-efficiency domestic resources. Instead, they should all have access to the strongest northern wind and the brightest southern sun. This must remain a core objective of the single EU energy market.
SUPPLY AND DEMAND
Even when renewable electricity is traded over wide geographical regions, it will still be necessary to align demand with available supply. To do this cost-effectively will be challenging.
Sadly, there is little consensus on how to design markets to utilise demand flexibility. There is also virtually no discussion on how to deploy devices and control infrastructure. Perhaps one point of agreement is that the current market and regulatory arrangements will not achieve what is required.
Unlike for power generation, there is no systematic framework to drive the deployment of assets that will deliver demand flexibility. It is difficult to imagine that short-term power market prices coupled with a complex array of grid service markets can trigger the necessary deployment rate.
Moreover, a price-driven approach would create social inequities, as those unable or unwilling to adopt new technologies would incur higher energy costs. Instead, the provision of demand flexibility should be part of an overall strategy to upgrade buildings alongside improvements in energy efficiency and heating decarbonisation.
Deployment of smart devices and control technologies in consumer premises alone will not be enough. It is also necessary to harmonise the approach to valuing demand flexibility at each location and time and use digital technologies to despatch demand resources efficiently. Currently, existing markets have not stimulated growth in demand flexibility.
Besides, system operators are wary of changing their approach to balancing supply and demand or exploiting the potential of digitalisation. Therefore, lawmakers must ensure the deployment of core digital infrastructure and clarify how consumers will provide services to the grid. In other words, they must define the future market arrangements.
New market arrangements must incentivise consumers to provide demand flexibility and other grid services. Here, a fundamental decision is whether consumers will have to respond to prices themselves or their devices will be disconnected automatically in line with a pre-determined set of rules.
It is also necessary to decide whether system operators will directly manage the interface with consumers or if it will be the role of aggregators contracted to provide services to system operators.
These issues must be addressed with urgency. Consumers will play a critical role in the power grid decarbonisation. However, current market structures do not encourage their participation or provide sufficient protection from market volatility.
The analysis by the Association for Cooperation of Energy Regulators must go beyond assessing today’s energy crunch and, instead, evaluate how the current market design supports the transition to net zero in the 2030s. The question is not whether market reform is necessary but how to progress it urgently to meet tomorrow’s challenges. •
To advance the energy transition, utilities are a vital part of getting clean energy to where it is needed at the times it is needed. Whether it is helping integrate EVs or heat pumps, or to protect consumers from sudden price increases, utilities can make a significant contribution to decarbonise the energy system
This week, the team is joined by Greg Jackson, founder and CEO of Octopus Energy, a UK utility with nearly 2.5 million customers, placing it among the largest power companies in the country. In our discussion with Greg, we discuss the energy price crisis, the role of consumers, digitalisation and heat pumps.
Listen and subscribe to Watt Matters wherever you get podcasts! Follow us on Twitter at @WattMattersPod or email us at firstname.lastname@example.org
Illustration: Masha Krasnova-Shabaeva. Art director: Trine Natskår.
Michaela’s What Caught My Eye:
Energy Transition Drew Record $755 Billion of Investment in 2021
12 Insights on Hydrogen
David’s What Caught My Eye:
New Dutch Government is seriously ambitious on climate and wind energy | WindEurope
Greg’s What Caught My Eye:
Analysis: Cutting the ‘green crap’ has added £2.5bn to UK energy bills – Carbon Brief
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Finding synergies across industry, production and renewable energy is key to 2050 net-zero reduction targets
Global warming has been a constant topic of discussion since the turn of the century. However, since the Paris Climate Agreement in 2015, the severity of the matter has become clear, as has the need for action from all major greenhouse gas contributors. In response, many companies have already or are just beginning to intensify their efforts to address the climate crisis.
Most major enterprises now have comprehensive sustainability strategies and are also beginning to set specific carbon reduction targets to contribute to the global goal of net-zero by or before 2050. To get more carbon under management, most companies break down their emissions into three scopes, according to the GHG Protocol.
When it comes to corporate carbon footprint, it is important that emissions across all three scopes are reduced. Scope 3 accounts for the most significant share of those emissions by far, in some cases as much as 85-95% of a company’s total. For many, Scope 3—and specifically the carbon footprint of the supply chain—holds the key to getting started with meaningful and attainable emissions reductions.
SUSTAINABLE SUPPLY CHAIN
The supplier carbon footprint (SCF) can become a rabbit hole of complex reduction opportunities, but in the short-term it is a great starting point where companies can identify “low hanging fruit”. Once a company is able to measure SCF contribution to its overall CO2 emissions, it can see which of its suppliers are major contributors to its total emissions.
At first, one might think this could create tension in the working relations between companies and suppliers—but that is far from the truth. Often, companies value the relationships that have developed with their suppliers and beyond that, changes in supply are not always simple to implement.
Instead, this opens the door for companies to begin working with their highest-emitting suppliers to reduce their footprint. This is where this “low hanging fruit” comes into play.
ENERGY AND PRODUCTION
If we are going to curb the trend on global warming, businesses should and must work together with suppliers to decarbonise their production. Not only is this the right choice for the climate, but as this topic grows heavier on the public consciousness, it becomes a competitive advantage for both parties.
One of the most immediate ways suppliers can impact their carbon footprint is by switching their production energy supply to renewable energy sources. If companies already have a handle on their carbon management internally, one of the most effective ways they can support suppliers in this switch is by setting targets.
For instance, if a company sees that a supplier is one of its highest emitters, they can set clear reduction targets for suppliers so they know the exact range of reduction they need to achieve and by when, in order to maintain future working relationships.
This means rather than receiving a vague and possibly confusing ultimatum from a company, suppliers can instead enter a dialogue about decarbonisation and develop a plan to meet targets. This energy transition will not happen overnight, but if given the necessary targets, suppliers can take the first steps to planning their energy switch.
When looking at the overall decarbonisation of value chains, the link to the transformation of the energy sector as moving in a more sustainable direction becomes clear.
We should push to expand our thinking on how this shift can be used to benefit not only residential and commercial users, but industries as a whole for more environmentally sustainable production.
The more that the sector continues to expand renewable energy sources, the more affordable those energy options become, acting as a sustainable driver throughout other sectors. •
Changes to European regulations provide opportunities and barriers for the cement sector
New targets from the European Union commit member states to lower emissions of greenhouse gases by 55% by 2030. It is a substantial increase on the previous goal and will require significant investment in green technologies.
The EU Taxonomy for Sustainable Activities is a major pillar of the bloc’s strategy to mobilise the necessary finance and achieve the targeted reduction. Its aim is to bring transparency to the green-finance debate by clearly defining what is and what is not a sustainable investment—although the politicians are still squabbling over the details.
It does this by requiring companies to report their economic activities against six objectives: climate change mitigation, climate change adaption, pollution prevention, circular economy, healthy ecosystem and finally sustainable use of water and marine resources.
Economic activity is considered environmentally sustainable if it makes a “substantial contribution” to at least one of these six areas; so-called Technical Screening Criteria (TSC) are used to define in detail what it means for economic activity to contribute to an objective. The activity must also do “no significant harm” to any of the objectives and must respect minimum social safeguards—such as the International Bill of Human Rights.
The taxonomy model is going to represent a challenge to the cement industry. According to our research, of the 156 cement plants that operate in the EU, 75% are at risk of not aligning with the TSC for cement manufacturing. Only 11% operate below the threshold; for the remainder, the data was not available. There is then much need for improvement and investment if the industry is to align with the performance thresholds. What incentives are there to put the effort in?
The introduction of the EU Taxonomy means from 2023, cement companies will have to report how much of their production aligns with two minimum performance thresholds: The first is for clinker and specifies emissions below 0.766 tonnes per CO2-equivalent (tCO2e) per tonne of clinker. The second specifies emissions below 0.498 tCO2e per tonne of cement or alternative binder. The worldwide average is about 0.840 tCO2e per tonne of cement.
It is therefore important that the industry begins to consider how—and how much—the EU Taxonomy may change the way businesses operate. This can be in regard to securing finance, winning new business, maintaining a social licence to operate, and attracting and retaining workers.
The cost associated with the green transition will depend on the individual path taken by producers – for some, the availability of clay will enable them to reduce the use of clinker, while for others carbon capture solutions might be needed. This obviously comes at a cost but needs to be considered in the context of the expected reform of the EU Emissions Trading System (ETS). The cement industry, which has so far been receiving CO2 allowances for free are likely to pay for at least half of them by the end of the decade with the recurrent reform proposal. We estimate this could cost the industry €4.7 billion in 2030. Over the five years between 2026—when the phase-out of free allowances is scheduled to begin—and 2030, the cumulative impact could total €13 billion.
The EU Taxonomy is designed to channel funds into projects that will help meet the EU’s ambitious climate goals by providing transparency and standardised measures of sustainability performance. It is also important to note that investors will have to report their own alignment with the EU Taxonomy: for instance, what proportion of their investments are in, and revenues come from, taxonomy-aligned activities.
Sustainability measures will therefore play an increasingly important role in determining where investors place their capital; at the extreme, it is possible that companies with poor levels of alignment to the EU Taxonomy will find it much more difficult or expensive to access capital markets.
As the EU Taxonomy will influence where investors put their cash, this can determine purchasing decisions. Companies are increasingly likely to judge potential suppliers according to their sustainability performance. This will be particularly important for the cement industry should public procurement on large-scale construction projects be linked to a certain level of alignment with the EU Taxonomy.
Having a social licence to operate is the most intangible of the three incentives mentioned so far, but perhaps the most important. A social license is based on the goodwill of neighbouring communities, businesses, governments—all of which could be endangered if a company is seen to be ignoring its environmental responsibilities by failing to align with the EU Taxonomy. Remember also that social performance indicators are included in the EU Taxonomy.
Finally, a company’s workers are the lifeblood of its operations; its ability to recruit and retain employees is therefore essential. This is particularly so for those workers who are more highly educated and who also tend to be more mobile. In an ageing sector such as the EU cement industry, attracting new and diverse talent is necessary simply to keep the lights on—let alone to tackle the new challenges facing the industry.
But these younger, highly-skilled workers are generally more climate-conscious and likely to consider a wider range of factors in their employment decisions than simply the financial benefits. The cement industry is already thought of as old fashioned and dirty: aligning with the EU Taxonomy could therefore be an important factor in changing perceptions of the industry and attracting the necessary talent.
In many respects, the EU Taxonomy is the carrot by which the EU is hoping to encourage companies to align with its climate goals; there is however also a stick. Reform of the EU ETS is happening alongside the introduction of the EU Taxonomy with big implications for the cement industry, which is set to lose the free emissions allowances it has long enjoyed.
It is clear that the EU is charting a course that could see turbulence in the cement industry. And while we welcome the ambition being shown in both the EU Taxonomy and reforms of the EU ETS; we also acknowledge the substantial challenges ahead.
The reality is that researchers and industry experts have come a long way in solving the emission challenges so inherent in cement production, but there is no “one-size fits all” solution or quick fix. To optimise its production, cement producers need to evaluate their options based on local availability of alternative fuels such as municipal solid wastes or biomass, replacing the resource-intensive clinker with clay or recycled concrete, or venturing into carbon capture. •
Smart grids accelerating the green energy transition raise cybersecurity challenges
The rapid expansion of renewable energy capacity since 2006 has largely been made possible by digital transformation in clean energy, which relies on disruptive technologies and innovations to integrate different types of renewable energy into the grid. But this rapid growth has added an enormous cybersecurity complexity to wind and solar assets, as well as the entire grid.
Until now, conventional grids have operated using a centralised power generation model with power and information flowing in one direction. As the grid adopts and integrates more distributed renewable energy sources—such as residential solar panels—it requires a two-way flow of both power and information. Similarly, smart grids enable the bidirectional flow of energy, as well as two-way communication and control capabilities.
These transformations increase cybersecurity risk. According to the latest EY Global Information Security Survey (GISS), more than half (53%) of Power & Utility cybersecurity leaders have never been as concerned as they are now about their ability to manage the threat.
Distributed Energy Resources (DERs) simultaneously increase the number of actors and devices and decrease cybersecurity compliance. Consumers and small companies primarily own these smaller distributed sources, increasing the number of non-utility actors. At the same time, the number of devices connected to the grid is increasing, widening the attack surface. In this environment, unified cybersecurity practices are difficult to achieve and owners typically lack the expertise to implement and maintain sufficient cybersecurity.
Furthermore, renewable energy resources connected to legacy operational technology (OT) introduces opportunities for scaled attacks. Renewables are often geographically distributed in remote areas and operate using advanced controls and digital sensors near generation sources. OT is an integral part of renewable energy plants, not originally intended to connect to the internet. Connecting these resources to the power grid also creates a higher risk for scaled attacks that extend past local resources and into the bulk energy OT systems.
Sophisticated data collection increases data security and privacy challenges. Traditional grids collect primitive data from limited data points to measure major changes in the load or voltage data over a long duration.
Innovative smart grids with DERs, however, collect a vast amount of data from smart meters, sensors and elsewhere. This data is then analysed for fault detection, to determine load proﬁle patterns and to issue personalised energy consumption reports. Data collected crossing multiple connections and networks increases the possibility of breaches and requires a huge investment in data security measures that not all companies are prepared to make.
Renewable energy cyber attacks will increase in frequency and magnitude. Although renewable energy currently comprises a small portion of the total energy sector, it is poised to suffer from a disproportionate impact in terms of the frequency and aggressiveness of cyberattacks, which will only accelerate as renewables expand their share of the energy market.
A single cyberattack on a smart grid could have the catastrophic cascading effect of shutting down the power grid since most of these connected devices are omnipresent in society. In addition, as these devices are generally homogenous, once a single device is compromised, it can quickly develop into a mass event.
Yet, according to EY’s GISS even as new digital technologies expand the cyberattack surface, during the Covid-19 pandemic, 81% of organisations sidestepped cyber processes and did not consult cybersecurity teams at the planning stage of new business initiatives.
The green energy transition needs to begin with cybersecurity risk thinking, not end with it. As digital transformations continue to extend across the energy ecosystem, powering the green energy transition, companies need to proactively protect their assets, support infrastructure and information capital adequately, and ensure their resilience to cyber threats. A security-by-design approach can instil a cyber risk optimisation mindset and embed trust into renewable energy digital transformations from the outset.
Chief Information Security Officers (CISOs) will need to justify their demands for cyber investment by factoring in the risk associated with cyberattacks, compliance requirements and the organisation’s needs for digitisation and system expansion. Establishing cybersecurity governance will help to secure sufficient resources for the cybersecurity program.
Energy companies will want to establish a governance framework and develop an effective threat, compliance and risk management methodology, with a road map to achieve digital maturity. They will also want to establish metrics to continuously track the status of adoption of the updated procedures and control directives. At the same time, they will need to hire, upskill or reskill the workforce to achieve the right blend of knowledge, skills and competencies to operate with confidence in the new digital environment.
A lack of visibility across renewable energy operating assets puts them at risk of attack. This is especially true as operators seek to protect distributed power generation assets far from their central location such as an offshore wind project. To secure these assets, energy companies will want to undertake and maintain a comprehensive and continuous discovery and inventory of operating assets to better understand their current status and their associated vulnerabilities.
Conducting periodic assessments will allow energy companies to identify security susceptibilities holistically across the energy environment and prioritise remediation efforts across all technologies based on business impact and risk appetite—before a vulnerability becomes a liability. Energy companies will also want to consider acquiring components from certified suppliers to ensure compliance with leading standards.
Assessing cybersecurity risks when engaging or integrating with third parties and understanding the potential impacts on the power grid are critical steps in identifying and mitigating gaps before integrating them into the organisation’s ecosystem. Similarly, energy companies will want to define security measures as part of the contract terms and align them with relevant critical infrastructure regulations to ensure compliance.
Digitally driven change requires cybersecurity resilience to reach a green energy world. Embedding security-by-design principles into renewable energy digital transformations and embracing a cybersecurity resilience framework can help energy companies manage a wide range of cyber threats across the entire ecosystem. It can also inspire confidence in digital transformations designed to fast-track the transition to renewables and pave the way to global decarbonisation.
To thrive in a green energy world, renewable energy companies need to both seize the opportunities from digitally driven transformation and protect themselves from the associated risks to maintain operational resilience and the trust of their stakeholders. As the attack landscape exponentially expands, there is no time to delay. •
The supply of tomorrow’s greenfield lithium must be secured and financed today
Lithium is the technology of choice for battery-powered mobility. The combination of being light in weight and high in energy density makes it the key enabling feature of the electrification of transportation and in turn decarbonisation. This once in a hundred-year technological change will impact over 15% of global gross domestic product from mobility alone.
Without even factoring in the growth of renewable power and related battery storage applications, the economic impact and emission reductions will be profound.
The World Health Organisation attributes local air pollution as the single largest environmental health risk contributing to 4.2 million deaths per year. Electric vehicles (EVs) are expected to reduce carbon emissions by 54% as compared to internal combustion engines and this figure will increase as power generation continues to transition to renewable sources combined with battery storage.
Incorporating full lifecycle emissions of an electric vehicle they are still 51% lower than internal combustion engines. German car manufacturer Daimler predicts advances in battery manufacturing will contribute to a further 30% reduction in Greenhouse Gases from electric vehicles.
Consensus estimates on electric vehicle penetration are increasing rapidly. Assuming the market is 50% EVs by 2030 means lithium production needs to go from 500,000 tonnes per year to three million tonnes per year, a six-fold increase. Despite the abundance of lithium on the planet, greenfield production from new mines is very limited. The most recent successful greenfield mine is in the South American lithium triangle which started production in 2015.
Prior to that, it had been over two decades since a new project successfully ramped up. Lithium America’s Cauchari-Olaroz project in Argentina should be the next new greenfield to start production in 2022. The time between new projects has decreased, from decades to, most recently, just seven years. However, the lithium market demand is forecast to grow by at least 150,000 tonnes per year in Lithium Carbonate Equivalent (LCE) terms for the foreseeable future, one project every seven years will not come close to meeting the coming demand.
Adding new capacity to solve the coming lithium shortage has not been for lack of trying. Companies around the world and especially from Australia, Canada, the United Kingdom and the United States have worked on developing new projects for years. Depressed lithium prices in 2019 and 2020 caused lithium financing to essentially dry up leading to a severe lack of exploration and development. Like in many other sectors, the supply of tomorrow must be secured and financed today given the lead times involved for equipment, human capital, and the overall supply chain.
The world is starting to take note: lithium prices have more than doubled or tripled compared to the same period in 2020. This is naturally attracting investor attention and has led to over $8.3 billion in capital fundraisings in the lithium sector in 2021 (an increase of 1785%). Governments around the world including Canada, the European Union and the United States have added lithium to their respective Critical Mineral’s list.
This is remarkable progress, but more can and should be done as forecasts suggest that the lithium demand will exceed over one million tonnes LCE by 2025 and three million tonnes by 2030 and will require over $15 billion just to keep up with demand projections that have so far understated electric vehicle adoption.
The legacy of lithium production is rooted in the lithium-rich brines of South America. Chilean and Argentinian lithium extraction is complex and has associated water use issues. The next wave of lithium development companies such as Sigma Lithium Resources Corporation are focused on hard rock pegmatite resources with the environmentally friendly use of dry-stacked tailings, limited water use that is confined to non-potable resources, water recycling systems and renewable power.
Investments enabling the development of key lithium resources are increasing and should consider various ESG factors including economic activity and the introduction of renewable power for remote disconnected communities, impacts on potable water resources, renewable power use for extraction and processing activities, surface disruption, land reclamation and additional infrastructure benefits to the local communities.
It is estimated that the lithium market in 2021 will be double that of 2017 and will double yet again by 2024. For the next five years, the industry will need on average ten new commercial-sized lithium chemical plants of roughly 20,000 tonnes per plant every year to satisfy projected demand. This is a tall order for an industry that has struggled to add a fraction of that over longer periods of time. That said, with the proper government policy, investor enthusiasm and environmental stewardship, the Lithium Decades have just begun.
Enterprise and fleet charging holds significant potential to decarbonise transport and create additional revenues
Transportation still accounts for more than one-fourth of the European Union’s greenhouse gas emissions. The European Green Deal aims to transform the EU economy and society with measures designed to meet climate goals—including scaling up a carbon-neutral mobility solution.
Announced in July 2021, the plans aim to phase out combustion engines in new cars by 2035, underscoring the EU’s commitment to a fully decarbonised mobility sector. At the same time, proposed legislation would require member states to create the necessary infrastructure along major highways by 2025, with publicly accessible charging points placed no more than 60 kilometres apart.
To reach the EU Green Deal target of one million publicly accessible charging points by 2025, 3000 new charging stations would be needed every week.
However, we have to look beyond public charging, especially since the substantial majority of EV drivers charge at home or at work. This is where the private sector comes in. It can complement this public system and play a key role in decarbonising the transportation sector.
At any typical company location you will find a lot of cars—including the company fleet, vehicles of employees, as well as those of customers. Imagine how much CO2 could be saved if they were all electric. The contribution of companies could be significant if they introduced “enterprise charging”—offering charging options for employees as well as customers and switching to an all-electric company fleet.
Switching entire corporate fleets to electric vehicles (EVs) will be crucial, since company cars account for more than half of the new vehicles sold in the EU, with the vast majority still powered by internal combustion engines. In addition, company cars travel disproportionately large distances compared to private vehicles – 2.25 times further on average.
For companies to begin switching their fleets to electric, it might make sense to start small and then scale up quickly with growing demand. The first step is to roll out charging options on premises. The second step is to expand overall charging opportunities. This means offering easy access to existing public charging options for fleet drivers. With such a service, drivers of company-owned electric vehicles can charge the same way wherever they are, using just one company charging card and app.
The shift to EVs in the private sector will especially affect companies operating large corporate fleets. With their own charging infrastructure, they can take control and optimise their energy consumption and efficiency through economies of scale. They can save on maintenance costs and integrate the charging points with their overall building and energy management systems in a way that is tailored to their specific business operations.
Companies that generate renewable energy—through rooftop solar PV panels, for instance—can use it to power their charging infrastructure, further saving costs and avoiding emissions.
While cost savings and emissions avoidance are valid reasons for setting up an enterprise charging infrastructure, companies with sufficiently large workforces can also offer their employees the benefit of being able to charge their EVs they use for daily commutes.
Many large corporations are located in urban settings, with employees travelling between their workplace and home on the periphery where the charging infrastructure is still much less dense. Half of all drivers in Europe do not have access to off-street charging. By providing charging options, companies can support and encourage the use of EVs, positioning themselves as attractive employers and showcasing their brand’s commitment to sustainability.
As a courtesy or service, they can extend the same convenience to customers who wish to plug in their cars while visiting the company’s premises for business. This may soon become a standard option.
With the European Green Deal, the EU member states have committed to cutting emissions by at least 55% by the end of this decade and incentivising measures to achieve the long-term net-zero goal by 2050. This explicitly includes the charging infrastructure for both short- and long-haul travel. In addition to cost savings and more sustainable operations, companies can also benefit from incentive measures for charging infrastructures, depending on country regulations.
In Germany, for example, the Federal Ministry of Transport and Digital Infrastructure is providing €300 million in financial support for local charging infrastructures specifically intended to encourage small and medium-sized enterprises to invest in e-mobility.
However, the EU still lacks an integrated strategy for the deployment of charging infrastructure, according to a May 2021 report by the European Court of Auditors. Such a strategy should ensure equitable access to charging options in accordance with the demand of a growing EV market.
Incentivising the rollout of charging stations, including for enterprise fleets, must be a coordinated effort that also includes interoperability between all charging points and payment methods—and, as a result, simplicity for all EV drivers. Only then will we be able to harness this technology’s full potential for achieving the targets of the Paris Agreement and the European Green Deal, which should be the shared goal of all public authorities, OEMs, corporate operators of electric vehicle fleets, and private citizens. •
The cement industry is stepping up to the challenge of providing clean products, additional regulatory support will help real-world adoption
Under its 2030 Climate Target Plan, the European Union (EU) has agreed to accelerate the pace at which the bloc reduces its greenhouse gas emissions.
The new target commits member states to lowering their emissions by at least 55% below 1990 levels by 2030. It is a substantial increase on the previous target of at least 40% and will require the bloc to cut its emissions by more in the next nine years than it has in the previous three decades.
To achieve this ambitious new goal, the European Commission announced the Fit-for-55 package of legislation in July of this year. Its 12 proposals—eight amendments to existing legislation and four new laws—outline the main measures the EU will implement to cut emissions and all sectors are concerned.
Key to meeting the 55% goal is a reform of the EU Emissions Trading System (ETS). The proposed reform includes measures to both reduce the overall availability of emissions allowances and to progressively phase out the free allowances that have been provided to large industrial facilities, including cement plants. According to analysts, these measures could raise the price of emissions allowances to €90 per tonne of CO2 by 2030.
This is a drastic change to the EU cement industry, which is used to receiving CO2 allowances for free but by the end of the decade, it will have to pay for at least half of them. We estimated this could cost €4.7 billion in 2030.
Over the five years between 2026—when the phase-out of free allowances is scheduled to begin—and 2030, the cumulative impact could total €13 billion. This is significant.
Non-EU cement producers that import to the EU will also be hit by the proposals through the implementation of a Carbon Border Adjustment Mechanism (CBAM). This aims to maintain a level playing field between EU and non-EU producers by placing an equivalent carbon price on imports.
TIME FOR CHANGE
Overall, the cement industry should embrace these suggestions as they are providing clear impetus for the sector to meet its climate change obligations. There is now a clear financial imperative—on top of the existing environmental imperative—to decarbonise cement.
This is not about draining the cement industry of money. This is about creating an incentive for producers to invest today in low-carbon technologies. The way forward for the industry is clear; a massive green transition of its own is needed.
The winners will be those that act now to reduce emissions and get prepared to deliver the cement needed with the smallest possible environmental footprint.
The good news is that many of the solutions are already here. At FLSmidth, we want to deliver the technology needed to enable zero CO2 emission cement production by 2030.
We are not alone. We are joined by many other technology providers with equally strong sustainability pledges and ambitions. The engineering and innovative processes are at full speed and new partnerships have formed to support the needed green transition of the industry.
These include a variety of initiatives such as carbon capture, alternative fuels and supplementary cementitious materials (such as calcined clay) as well as advanced digital solutions that optimise the energy and process efficiency.
The industry is also taking the challenge seriously with several innovative low-carbon types of cement and carbon-neutral concrete now on the market from major cement companies.
The European cement association, CEMBUREAU, is also aligned with EU goals, releasing its Carbon Neutrality Roadmap last year that sets out the ambition to achieve net-zero emissions from the cement and concrete value chain by 2050.
It is one thing for the industry to provide green cement. We also need to get it out and onto construction sites—to create a market demand for it or the needle will not budge. Producing “green” cement is not massively more expensive than the traditional process—and the cost of cement in a construction project is often marginal.
But it involves different processes and investments in new equipment that cement producers would not otherwise need to replace or acquire. They will need a return-on-investment on this equipment.
Carbon capture technology, an essential part of getting to zero emissions, is not a current process at many sites and therefore an added cost. On the other hand, electrification, clay calcination and alternative fuel costs will eventually reduce the cost of production.
The construction industry is relatively conservative and the introduction of new construction material is very slow—too slow for the challenges we are facing in terms of reducing emissions.
Here green public procurement, in particular, can play a catalytic role and serve as a driver when it comes to demand for low-carbon cement. One of the biggest purchasers of cement is public bodies.
By having green public procurement policies, you can quickly create a market for low-carbon cement. Public procurement guidelines should specify the use of construction materials with the lowest available environmental footprint and cement is a good place to start.
Construction regulations should also be updated to reflect new and more environmentally friendly alternatives—this is work that needs to be accelerated. It is a point that takes on particular relevance now, as any increase in European cement demand is expected to be driven by public infrastructure spending sparked by pandemic recovery programmes.
Hurdles doubtless remain. Building standards and regulations must keep pace with innovations in low-carbon building materials. New technologies are needed, not least in the area of carbon capture, utilisation and storage. It appears, however, that the Fit-for-55 package gives clear direction and should accelerate action. •
A combination of private sector collaboration and public sector backing could revolutionise hydrogen’s fortunes
Climate change is finally receiving the attention it deserves. According to IPSOS, a market research firm, two-thirds of the global population is concerned about the consequences of global warming and expects more action from public and private leadership. The Sixth Assessment Report of the United Nations Intergovernmental Panel on Climate Change, released in August 2021, was a wake-up call for all of us. The window of opportunity to avoid climate chaos is closing fast.
The energy sector has traditionally been a major source of greenhouse gas emissions. However, in recent years, clean energy solutions have been developed that are quickly becoming the bedrock of positive climate action. Renewable energies, storage solutions, carbon capture and storage (CCS), and hydrogen are proving to be cost-effective alternatives to the unabated combustion of fossil fuels.
With increasing deployment, economies of scale, and ever higher efficiencies, modern renewable electricity is now on average cheaper than conventional fossil power.
Among these clean solutions, low carbon hydrogen will play a crucial role in our decarbonised future economy. In a system soon to be dominated by renewables such as solar and wind, hydrogen links electricity with industrial heat, materials such as steel and fertiliser, space heating, and transport fuels. Furthermore, hydrogen can be seasonally stored and transported cost-effectively over long distances, to a large extent using existing natural gas infrastructure.
The exciting reality is that green hydrogen—made from renewable electricity and water—in combination with green electricity has the potential to entirely replace hydrocarbons. In the short to medium term, blue hydrogen—made from natural gas with CCS—also has an important role to play in helping meet hydrogen demand. More than half of all hydrogen initiatives are in Europe and predictions for hydrogen’s share in the EU’s final energy demand by 2050 range from 24% to 50%.
Although still more expensive than conventional hydrogen, green hydrogen is expected to become cost-competitive within a decade. The 2020s are described as “hydrogen’s decade” by the likes of HSBC and Wood Mackenzie, building on the IEA’s landmark 2019 report “The Future of Hydrogen” which called for international action to tap into this molecule’s potential.
With all its promise, hydrogen still faces multiple barriers before it can become a globally accepted energy commodity. Many aspects of the hydrogen ecosystem require extensive research and development, there is a lack of internationally recognised standards and it is still unclear what financial mechanisms are most suitable to cover the short-to-medium term cost gap. A joined-up approach between the public and private sector is required.
At the United Nations Climate Change Conference (COP26) in Glasgow later this year, governments must achieve consensus on decisive climate action. Clean energy and hydrogen will be part of the solution to the climate crisis.
Immediately after COP26, ADIPEC, the largest annual global gathering of energy executives, will take place in Abu Dhabi and this year includes a full subsection of sessions dedicated to hydrogen. Both of these events highlights the energy sector’s belief that hydrogen can play a role in the future energy mix.
If the 2020s are indeed to be hydrogen’s decade, several elements appear critical to its success. Firstly, the technology must be integrated in post-Covid recovery programmes. The momentum unleashed by governments in the wake of the pandemic must be channeled in the right direction, as expressed in the often-used phrase “build back better”. The global tragedy could be used to start a transformation towards a just and more inclusive societal fabric, built around clean energy.
Secondly, it needs a conducive policy framework to incentivise the necessary investments. The private sector is more than capable of innovating and providing the capital for this energy transformation. Governments should provide the policy frameworks for the private sector to do so at the required speed and in the right direction, for example by setting standards, providing carrots (subsidies) and sticks (quotas), devising international treaties and regulating markets.
Thirdly, we need rapid scaling-up of technologies to reduce the cost gap. Above all else, support for innovation, research, development and demonstration will lead to accelerated deployment of low-carbon hydrogen.
There is great momentum for green hydrogen in Europe, following last summer’s publication of the European Hydrogen Strategy and this year’s Fit-for-55 Package. But hydrogen developments are also ramping up in the Middle East, Latin America and Asia-Pacific. It is time for the sector to come together around this small molecule’s immense potential. •