To become climate-neutral by 2050, Europe needs to transform its energy system, which accounts for 75% of the EU’s greenhouse gas emissions. The EU strategies for energy system integration and hydrogen, adopted today, will pave the way towards a more efficient and interconnected energy sector, driven by the twin goals of a cleaner planet and a stronger economy.
The two strategies present a new clean energy investment agenda, in line with the Commission’s Next Generation EU recovery package and the European Green Deal. The planned investments have the potential to stimulate the economic recovery from the coronavirus crisis. They create European jobs and boost our leadership and competitiveness in strategic industries, which are crucial to Europe’s resilience.
Energy System Integration
The EU Strategy for Energy System Integration will provide the framework for the green energy transition. The current model where energy consumption in transport, industry, gas and buildings is happening in ‘silos’ – each with separate value chains, rules, infrastructure, planning and operations – cannot deliver climate neutrality by 2050 in a cost efficient way; the changing costs of innovative solutions have to be integrated in the way we operate our energy system. New links between sectors must be created and technological progress exploited.
Energy system integration means that the system is planned and operated as a whole, linking different energy carriers, infrastructures, and consumption sectors. This connected and flexible system will be more efficient, and reduce costs for society. For example, this means a system where the electricity that fuels Europe’s cars could come from the solar panels on our roofs, while our buildings are kept warm with heat from a nearby factory, and the factory is fuelled by clean hydrogen produced from off-shore wind energy.
There are three main pillars to this strategy:
- First, a more ‘circular’ energy system, with energy efficiency at its core. The strategy will identify concrete actions to apply the ‘energy efficiency first’ principle in practice and to use local energy sources more effectively in our buildings or communities. There is significant potential in the reuse of waste heat from industrial sites, data centres, or other sources, and energy produced from bio-waste or in wastewater treatment plants. The Renovation Wave will be an important part of these reforms.
- Second, a greater direct electrification of end-use sectors. As the power sector has the highest share of renewables, we should increasingly use electricity where possible: for example for heat pumps in buildings, electric vehicles in transport or electric furnaces in certain industries. A network of one million electric vehicle charging points will be among the visible results, along with the expansion of solar and wind power.
- For those sectors where electrification is difficult, the strategy promotes clean fuels, including renewable hydrogen and sustainable biofuels and biogas. The Commission will propose a new classification and certification system for renewable and low-carbon fuels.
The strategy sets out 38 actions to create a more integrated energy system. These include the revision of existing legislation, financial support, research and deployment of new technologies and digital tools, guidance to Member States on fiscal measures and phasing out of fossil fuel subsidies, market governance reform and infrastructure planning, and improved information to consumers. The analysis of the existing barriers in these areas will inform our concrete proposals, for instance the revision of the TEN-E regulation by the end of 2020 or the revision of the energy taxation directive and the gas market regulatory framework in 2021.
In an integrated energy system, hydrogen can support the decarbonisation of industry, transport, power generation and buildings across Europe. The EU Hydrogen Strategy addresses how to transform this potential into reality, through investments, regulation, market creation and research and innovation.
Hydrogen can power sectors that are not suitable for electrification and provide storage to balance variable renewable energy flows, but this can only be achieved with coordinated action between the public and private sector, at EU level. The priority is to develop renewable hydrogen, produced using mainly wind and solar energy. However, in the short and medium term other forms of low-carbon hydrogen are needed to rapidly reduce emissions and support the development of a viable market.
This gradual transition will require a phased approach:
- From 2020 to 2024, we will support the installation of at least 6 gigawatts of renewable hydrogen electrolysers in the EU, and the production of up to one million tonnes of renewable hydrogen.
- From 2025 to 2030, hydrogen needs to become an intrinsic part of our integrated energy system, with at least 40 gigawatts of renewable hydrogen electrolysers and the production of up to ten million tonnes of renewable hydrogen in the EU.
- From 2030 to 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale across all hard-to-decarbonise sectors.
To help deliver on this Strategy, the Commission is launching today the European Clean Hydrogen Alliance with industry leaders, civil society, national and regional ministers and the European Investment Bank. The Alliance will build up an investment pipeline for scaled-up production and will support demand for clean hydrogen in the EU.
To target support at the cleanest available technologies, the Commission will work to introduce common standards, terminology and certification, based on life-cycle carbon emissions, anchored in existing climate and energy legislation, and in line with the EU taxonomy for sustainable investments. The Commission will propose policy and regulatory measures to create investor certainty, facilitate the uptake of hydrogen, promote the necessary infrastructure and logistical networks, adapt infrastructure planning tools, and support investments, in particular through the Next Generation EU recovery plan.
Quotes from members of the College of Commissioners
Executive Vice-President for the Green Deal, Frans Timmermans, said: “The strategies adopted today will bolster the European Green Deal and the green recovery, and put us firmly on the path of decarbonising our economy by 2050. The new hydrogen economy can be a growth engine to help overcome the economic damage caused by COVID-19. In developing and deploying a clean hydrogen value chain, Europe will become a global frontrunner and retain its leadership in clean tech.”
Commissioner for Energy Kadri Simson, said: “With 75% of the EU’s greenhouse gas emissions coming from energy, we need a paradigm shift to reach our 2030 and 2050 targets. The EU’s energy system has to become better integrated, more flexible and able to accommodate the cleanest and most cost-effective solutions. Hydrogen will play a key role in this, as falling renewable energy prices and continuous innovation make it a viable solution for a climate-neutral economy.”
Commissioner for Internal Market, Thierry Breton, said: “The European Clean Hydrogen Alliance launched today will channel investments into hydrogen production. It will develop a pipeline of concrete projects to support the decarbonisation efforts of European energy intensive industries such as steel and chemicals. The Alliance is strategically important for our Green Deal ambitions and the resilience of our industry.”
The European Green Deal is the new growth strategy of the EU, a roadmap to make our economy sustainable by turning climate and environmental challenges into opportunities across all policy areas and making the transition just and inclusive for all. A better-integrated energy system is essential in order to move to climate neutrality by 2050, while also creating jobs, ensuring a fair transition and strengthening innovation in the EU and industrial leadership at a global level. The sector can make a key contribution to Europe’s economic recovery from the coronavirus crisis, as outlined in the Next Generation EU recovery package presented by the Commission on 27 May 2020.
Today’s energy system is still built on several parallel, vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors, wasting a significant amount of energy. For instance, petroleum products are predominant in the transport sector and as feedstock for industry. Coal and natural gas are mainly used to produce electricity and heating. Electricity and gas networks are planned and managed independently from each other. Market rules are also largely specific to different sectors. This model of separate silos cannot deliver a climate neutral economy. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency.
One way to deliver sector integration is by deploying renewable hydrogen. It can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it emits no CO2 and almost no air pollution when used. It therefore offers a solution to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve. All this makes hydrogen essential to support the EU’s commitment to reach carbon neutrality by 2050 and for the global effort to implement the Paris Agreement.
Solutions to accelerate renewables integration and power system resilience
Singapore and the International Energy Agency today co-hosted the second Global Ministerial Conference on System Integration of Renewables (SIR). The Conference was held as part of the Singapore International Energy Week (SIEW) 2020.
This is the first SIR Ministerial Conference to be held in Asia. Under the theme “Investment, Integration, and Resilience: A Secure, Clean Energy Future,” the SIR Ministerial Conference brought together close to 30 Energy Ministers, global CEOs and thought leaders to discuss emerging issues in the acceleration of renewables integration and power system resilience with a strong focus on Asia and Southeast Asia. The IEA also launched its new report on electricity security, Power Systems in Transition, at the Conference. The report provides important recommendations on modernising power grids for greater reliability and flexibility.
Singapore’s Minister in the Prime Minister’s Office and Second Minister for Trade & Industry, and Manpower and co-Chair of the SIR Ministerial Dr Tan See Leng said: “International cooperation and public-private partnerships remain vital as we navigate towards a more sustainable energy future. As we address the urgent need to future-proof our systems to create more resilience and flexibility, we must also increase the share of, and enhance the integration of renewable energy in our energy systems. We look forward to working with the IEA to advance global energy transitions.”
“The IEA is pleased to partner with Singapore for the 2nd Ministerial Conference on System Integration of Renewables as the country sits at the heart of Asia, a region that will be critical in shaping the future of global energy markets,” said Dr Fatih Birol, the IEA Executive Director. “Today, we shared important lessons from across Asia and beyond on how best to integrate growing shares of wind and solar into power systems while maintaining security of supply. This will be crucial if renewables are to become the fundamental cornerstone of global clean energy transitions.”
Singapore’s cooperation with the IEA has deepened significantly since it became an Association country of the IEA in 2016. Singapore and the IEA have co-hosted many innovative initiatives and programmes to advance the global energy agenda. These include the training programmes under the Singapore-Regional Training Hub, the Singapore-IEA Forum and the Capacity Building Roadmap on Energy Investment and Financing for ASEAN.
Impact of COVID-19 on Commodity Markets Heaviest on Energy Prices
While metal and agricultural commodities have recouped their losses from the COVID-19 pandemic and are expected to make modest gains in 2021, energy prices, despite some recovery, are expected to stabilize below pre-pandemic levels next year, the World Bank said.
Oil prices fell dramatically in the early stages of COVID-19 and have only partially regained pre-pandemic price levels, while metal prices declined relatively modestly and have returned to levels that preceded the shock, according to the semi-annual Commodity Markets Outlook report. Agriculture prices were relatively unaffected by the pandemic, but the number of people at risk of food insecurity has risen as a result of the broader effects of the global recession.
“The impact of COVID-19 on commodities has been uneven, and could have lasting effects for energy markets,” said Ayhan Kose, World Bank Group Acting Vice President for Equitable Growth, Finance & Institutions and Director for the Prospects Group. “When declines in commodity prices are short-lived, policy stimulus can buffer their impact. However, when prices remain depressed for an extended period, policy makers need to find solutions so their economies can adjust smoothly to a new normal. Because of COVID-19, the new normal for oil-exporting emerging and developing economies arrived earlier. In the post-COVID world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues.”
Oil prices are expected to average $44 per barrel in 2021, up from an estimated $41 per barrel in 2020. Demand is expected to rise only slowly as tourism and travel continue to be held back by health concerns and as global economic activity is anticipated to return to pre-pandemic levels only in the year after next. Supply restraint is expected to be eased steadily. Energy prices overall —which also include natural gas and coal—are expected to rebound sizably in 2021, following large declines in 2020, an upward revision from April’s forecast. A resurgence of a second wave of the pandemic that results in more lockdowns and less consumption, and delays in vaccine development and distribution, could lead to lower energy prices than forecast.
Metal prices are expected to post modest increases in 2021 after falling in 2020, supported by the ongoing recovery in the global economy and continued stimulus from China. A prolonged period of weak global growth would lead to lower prices than forecast.
Agriculture prices are expected to rise slightly in 2021, following an estimated 3% increase in 2020 following some shortfall in edible oil production. Concerns about food insecurity remain relevant in several emerging market and developing economies. These concerns are prompted by hits to incomes from the global recession, bottlenecks in food availability at the local level, and border restrictions that have constrained labor supply. Food price inflation has spiked in several countries.
The pandemic is only the latest in a long history of shocks to commodity markets. A Special Focus looks at the nature of commodity price shocks on 27 commodities during 1970-2019. It finds that highly persistent (“permanent”) and short-lived (“transitory”) shocks have contributed almost equally to commodity price variation, although with wide variety across commodities. Permanent shocks account for most of agricultural commodity price variability while transitory shocks are more relevant in industrial commodity prices. The varied duration of such shocks points to a need for policy flexibility.
A transitory commodity price shock may call for stimulative fiscal policy to smooth consumption; countries that depend on exports of commodities subject to cyclical price swings may want to build fiscal buffers during the boom phase and use them in the bust period to support economic activity. In countries that rely heavily on commodities that are subject to permanent shocks, structural policies such as economic diversification and broadening the tax base may be needed to facilitate adjustments to new economic environments.
Countries Raise the Sails on Offshore Renewables Sector
Offshore renewables, including offshore wind, wave, tidal, ocean thermal, and floating solar PV, will witness substantial growth in capacity over the next decade and play an essential role in the global energy transformation. In this context, representatives from 40 countries gathered to identify collaboration areas and agree on concrete actions to accelerate progress and ensure rapid uptake of these promising technologies.
According to the International Renewable Energy Agency’s (IRENA) projections, global offshore wind and ocean energy installed capacity will reach 228 GW and 10 GW respectively by 2030.
During his welcoming remarks, IRENA Director-General Francesco La Camera stressed offshore renewables’ importance in meeting growing energy demands and improving living conditions. “Offshore renewables have the potential to meet more than four times the global energy demand of today, foster a blue economy, and bring socio-economic benefits to some of the most vulnerable areas to climate change such as small island territories and coastal areas,” he said.
The Collaborative Framework on Ocean Energy/Offshore Renewables first met on 25 June 2020, during which Members and States in Accession provided inputs on the thematic scope of the Collaborative Framework and agreed to include relevant stakeholders in future meetings. In response, this second meeting of the Collaborative Framework, moderated by H.E Ambassador ‘Akau’ola, Tonga’s Permanent Representative to IRENA, included participation, insights, and support from the Global Wind Energy Council (GWEC) and Ocean Energy Europe (OEE).
Currently, 90% of global installed offshore wind capacity is commissioned and operated in the North Sea and the nearby Atlantic Ocean. Mr. Ben Backwell, CEO of GWEC, attributed the rapid uptake of offshore wind in Europe to regional cooperation on interconnection, marine spatial planning (MSP), and sector coupling in the North Sea. Mr. Backwell highlighted the critical role that the Collaborative Framework can play in fostering similar regional partnerships in other parts of the world.
Representing the ocean energy sector in the Collaborative Framework, Mr. Rémi Gruet, CEO of OEE, suggested that ocean energy will become a game-changer, estimating that the sector can provide more than 1.2 million jobs worldwide by 2050. Mr. Gruet also underscored the predictability of ocean energy, which complements the variable renewable energy sources, as a compelling reason to make wave and tidal energy technologies essential additions to power systems that will be dominated by solar PV and wind.
Members also agreed on 13 topics of focus for the Collaborative Framework, around the areas of technology development, research and innovation, market incentives, and sustainability. The topics include analyses on accelerating technology cost reduction, grid integration, resource mapping, and coupling of offshore renewables with Power-to-X technologies. Participants also indicated the important role of IRENA and the Collaborative Framework in moving a global Offshore Renewables agenda forward in other relevant multilateral venues including the G20 and the COP26.
IRENA Members also agreed on modalities for future meetings under the Collaborative Framework, including the selection of Italy and Tonga as co-facilitators.
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