Business Capgemini

The 7 economic facts that will define Europe’s energy market

October 28, 2016

The era of energy transition is underway in Europe. Across the continent, at individual nation and EU level, laws are being implemented to speed the transition. The broad aims are threefold: to decrease greenhouse gas emissions, to increase renewable energy generation, and to create more localized and autonomous networks. However, Europe is a complex environment. This stage of energy transition faces difficulties, whether that means inconsistent regulatory demands or uncompetitive business models. Beneath this complexity, there are some key strengths: Europe is getting ahead in the key technologies. It has a mature energy market with the potential to be transformed by digital technology. It has plans for infrastructure and the political will to change. 

The European Energy Markets Observatory, compiled by consultants and regional experts at Capgemini, has been tracking progress since 2002 in EU-28 (plus Norway and Switzerland). This year’s report reveals some fascinating data that defines both the problems, and potential solutions, facing the energy market in Europe today. 

3C global rise without the transition

The COP21 meeting in Paris this year achieved some remarkable progress. The agreement was signed by the two biggest emitters, China and the USA, who announced their support at the G20 meeting in September. The aim of the agreement is to keep the global average temperature increase below 2C between now and 2100. The agreement did some notable, and novel things: this includes a bottom-up structure of reporting, where each member country submits Intended Nationally Determined Contributions (INDCs). At the Paris meeting, the first INDCs were collated, which pointed to a global temperature increase of more than 3C, which makes the argument for energy market transition even stronger.

20% renewables in EU by 2020

The EU bloc has committed to achieving 20% renewable energy by 2020, driven by support schemes and falling costs for renewable technology. The latest Eurostat data looks promising: in 2014, the EU met 16% of its energy consumption from renewable sources, a doubling of the figure from 2004.

National targets for each member state vary according to their starting point and potential, but members have already published action plans that detail how each of their core sectors (electricity, heating and cooling, transport) will meet targets. By 2030, the EU expects to reach 27% of gross consumption of energy through renewables. 

$800 billion of lost energy savings 

Oil prices have fluctuated hard over the past year, with a general collapse causing major problems for long-term energy efficiency in transport. The IEA estimates that lower oil prices can wipe nearly 15% from achievable energy savings by 2040, equal to $800 billion. As consumers move away from energy efficient vehicles in times of low oil prices, this could represent a significant setback for transition to clean energy.

Low oil prices have impacted coal and gas prices and these commodities are used to generate electricity. Thanks to technology improvements, renewable costs have decreased, however to a lesser extent. Subsidies have enabled renewable energies to continue to develop. These subsidies will be lowered in the future as it is normal for maturing technologies, however the renewable energy will continue to increase their share in the electricity mix (probably at a slower pace) and the 2030 European target of 27% renewable in the energy mix should be met.

300MW capacity of Europe’s largest solar farm

Renewable power continues its journey towards closer price parity with coal, gas and nuclear. The largest European solar farm, built by Neoen outside Bordeaux, shows how scale and technology are causing PV prices to drop. The electricity generated here will cost 105 €/MW — cheaper (if the additional grid costs are not accounted for) than the 110 €/MW that the nuclear plants at Hinkley Point C will charge.

This is part of a wider trend of levelled costs between renewable, fossil fuels, and nuclear. Bloomberg Energy Outlook 2016 reports that utility-scale PV energy can be expected to drop by another 60% in 2040. Meanwhile the costs of carbon capture and storage, plus progressive carbon taxes and charges, will accelerate the move towards renewables. 

0.8% rise in annual energy demand over the next 10 years

Europe as a whole is expecting a rise in energy consumption over the next decade, which ENTSO-E predicts will average out as a 0.8% increase in demand each year. This will be met by new generation capacities, and in particular by renewables, such as the 700MW East Anglia ONE offshore wind farm and Germany’s 385MW Arkona wind project.

This means that conventional energy sources will decrease, especially in coal, nuclear and gas. At this point, the stability of supply becomes an issue. Intermittency in the energy mix will put pressure on peak load management, as the fluctuations in renewable generation become harder to balance with conventional energy sources. 

1000WM electricity superhighway

As renewables become more integrated into the European energy mix, the stability of supply at peak times requires a rethinking of how the international grid operates. ENTSO-E set out a Ten Year Network Development Plan for 2016 that aims for the rate of interconnection to rise from 10% in 2020 to 15% in 2030.

Such connections rely on heavy infrastructure development that will be accompanied by a harmonisation of the energy grid. One such project is the 1000MW ElecLink project, starting imminently, between the UK and France. The ElecLink project will take approximately 36 months to complete. It will be followed by several other major European interconnection projects, including ones between Germany and the Netherlands (1500MW) and Germany and Austria (2000MW).

71% think that SMEs and startups drive energy innovation

A recent Capgemini survey revealed that the majority of respondents from the energy industry saw startups and SMEs as driving innovations in large scale energy. Large companies were only seen as drivers of change by 56%. What does this tell us about innovation in Europe? If large companies are slow to innovate, what are the barriers holding them back? Regulation and financial considerations were named as the major obstacles to change, along with a lack of corporate guidance.

There is an urgent need to rectify this among large utilities, who are arguably best placed to make the major drives towards improved capacity, networks and innovation. In 2015, 12 of Europe’s biggest energy companies had to reduce the value of their assets by more than €30 billion in the face of low prices and chaotic markets. Restructuring, adopting new strategies and beating the smaller, nimbler challengers to greater technological and digital innovations will help them. 

 You can view the full report here.


By Ed Chipperfield 

Ed Chipperfield is a British journalist specialising in science and technology, and has contributed stories to the BBC, Sunday Times and Men’s Health. 


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