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Free movement of energy is required for 21st century EU

US: European governments, the European Commission (EC) and the European Parliament have begun discussions on how the European energy system should look in 2050. To prepare for such a dramatic overhaul of our energy supply structure, this must be linked with political action for this decade, not leaving it for future generations to resolve.

With EU countries already agreeing to cut emissions by 80% before 2050 - by 95% if other countries sign up to similar action - and transport and agriculture needing the residual emissions, the power sector needs to be carbon free by 2050. This already means that no carbon-emitting power plant can be constructed in the EU after 2020 - surely a good starting point for discussions.  

So, what measures would any responsible politician propose to ensure that no such construction takes place?

Many stakeholders will, and are, pushing for a combination of renewable energy, nuclear energy and carbon capture and storage (CCS) to achieve zero-carbon power by 2050. This is a valid argument, but renewable energy alone can achieve a carbon-free power sector in 2050, with a massive contribution from onshore and offshore wind energy.

In 2000, 21% of new power capacity installed in the EU was from renewable energy technologies (19% from wind). In 2009, the share had increased to 61% (39% from wind). There are no fundamental technical barriers to fill the remaining 39% gap and have all our new power capacity from renewables by 2020. The wind energy sector should turn the focus of the energy debate from finding 100% zero-carbon through combined resources and state clearly that we need 100% renewable energy by 2050.

The fifth EU freedom

The simple way to meet the 2050 greenhouse gas target is to ban carbon emissions from new power plants starting in 2020. Meanwhile, we must use the next ten years to completely overhaul the way that electricity is produced, transmitted and consumed in Europe.

Europe's current electricity supply structure still bears the characteristics of the time in which it was developed. It is national in nature, the technologies are ageing and the supporting markets are underdeveloped. Given the international challenges now being faced, it is astounding that 24 years after the Single European Act established free movement of goods, services, capital and labour throughout Europe, we still do not have an internal market for electricity. We need urgently to establish the fifth freedom of movement within Europe. Free movement of energy.

Europe is faced with the global challenges of climate change, depleting indigenous energy resources, increasing fuel costs and the threat of supply disruptions. Over the next 12 years, 360GW of new electricity capacity - half of current EU capacity - needs to be built to replace ageing power plants and meet the expected increase in demand.

Europe must use the opportunity created by the large turnover in capacity to construct a new, modern power system capable of meeting the energy and climate challenges of the 21st century, while enhancing Europe's competitiveness.

The power system must be supported by modern infrastructure, technology, research and development (R&D), and well-functioning markets for electricity and transmission in which investors, not consumers, are exposed to carbon- and fuel-price risk.

As the most mature and affordable of the renewable energy technologies, onshore wind power will provide the largest power technology contribution to meeting the 2020 renewable energy target of 20%. As a consequence of the 2009 Renewable Energy Directive being adopted, the European Wind Energy Association (EWEA) increased its 2020 target from 180GW to 230GW, including 40GW of offshore wind power. When reached, this will produce approximately 600TWh per year in the EU, equivalent to 14-18% of estimated electricity demand in 2020.

These are conservative targets and the EC has already stated that wind power generation is capable of contributing up to 20% of EU electricity by 2020, and as much as 33% by 2030. By accelerating technology R&D, the development of European infrastructure and an internal market in electricity, wind energy could reach those penetration levels and we would be well under way for reaching 50% wind power in 2050.

A complete overhaul

Over the next decade, the already adopted EU Climate and Energy Package, establishing a mandatory 20% reduction in greenhouse gas emissions by 2020 and a mandatory 20% renewable energy target including 35% renewable electricity by 2020, must be accompanied by further efforts to increase energy efficiency. 

More intelligently managed infrastructure is needed and new technologies must be applied that move away from the current assumption that demand cannot be controlled. By 2020, the infrastructure, markets and technologies must be ready for the build-up of a modern renewable energy power system which, by 2050, will also provide a large share of Europe's transport needs through electric vehicles.

Wind energy is already a European industrial success. Supported by national frameworks and the 2001 EU Directive on the Promotion of Electricity from Renewable Energy Sources, the technology has developed to a point where, in the past two years, more new wind power capacity was installed than any other power generating technology. From 2002 to 2007, the wind energy sector created more than 60,000 new direct jobs in the EU, equal to 33 new jobs every day of the year. In 2008, European manufacturers had a 60% share of the Û36 billion global market for wind turbines.

With a real price on carbon emissions emerging, through 100% auctioning of CO2 allowances in the power sector from 2013 and high fuel prices, onshore wind energy is likely to be the cheapest option for new capacity in 2020. Onshore wind energy capacity will continue to increase up to 2030. Then, between 2030 and 2050, it will start to saturate and the market will gradually move towards replacement of old capacity, which is when offshore wind will become the main contributor to growth in wind-generated electricity.

The missing link

Europe needs dramatically improved competition in the internal energy market through new electricity infrastructure, changes in system operation and the development of effective electricity markets throughout the EU, including markets for balancing power, intra-day markets and greater demand response.

While the 2009 EU Energy and Climate Package has set the direction for renewable technology and CO2 reductions in the short term, the missing element today is a common European vision for the architecture of a future pan-European electricity network - onshore and offshore.

The only way to develop and implement such a vision is to reinforce governance at a European level, make structural changes and develop effective power markets throughout the EU. It requires a European approach and includes a rapid creation and transparent operation of the agency for European regulators, ACER, and better cooperation between transmission system operators (TSOs) through ENTSO-E.

A single European grid and effective competition in the European power markets are essential elements, not only for the integration of large-scale wind power and other renewables, but also to ensure that consumers have access to affordable and domestically produced energy.

Investors take the risk

Effective competition and a single European grid will ensure affordable and indigenous electricity that reduces exposure of European citizens and companies to supply disruptions, and carbon- and fuel-price risk. Market structures need to be developed to ensure that investors take these risks, ending the current practice of passing them to consumers and society at large.

Only then will the cost-competitiveness of onshore wind in 2020 be reflected in market demand so consumers can enjoy predictable future energy costs from indigenous renewable resources. 

The European electricity infrastructure is ageing and far too little has been invested in new grids. Yet groundbreaking grid technology is available that enables the power sector to link generation and consumption of electricity irrespective of distance and without the substantial power losses that characterise today's infrastructure. Although commercially available, the technology is not yet applied on any significant scale, partly because of the adverse incentives inherent in the vertically integrated power company structure in many EU countries. 

Electricity grids are, and should be, regulated as the natural monopolies they are. But grid access and operation must be improved, so, new business models for building cross-border infrastructure must be developed with electricity transmission activities effectively separated from electricity production. 

Regulation must also reflect the characteristics of wind energy. Intra-day markets, regulated Europe-wide power trading and markets for power balancing should all be encouraged. Wind farm production must be pooled to minimise the overall balancing costs to consumers and the cost to individual wind farm operators. Existing procedures that are not essential for safe operation of the grid should be removed, such as those that prevent trading of power right up to the hour of delivery.

No great offshore challenge

As with oil and gas, the majority of Europe's exploitable future energy resource is located at sea, although there is still a vast unexploited European potential for onshore wind energy. Through dramatically increased R&D and economies of scale, the cost of offshore wind energy will follow the same path as onshore wind energy.

Figures from EWEA suggest that offshore wind development follows onshore development in Europe by 15 years. By 2020, most of the EU's renewable electricity will be produced by onshore wind farms. But Europe must start now to prepare for the large-scale exploitation of offshore wind power. 

The challenges are greater offshore but no greater than when the North Sea oil and gas industry took existing onshore extraction technology and adapted it to the more hostile environment at sea. An entire new offshore wind power industry and supply chain must be developed on a scale that will match the North Sea oil and gas endeavour.

When it comes to offshore must we stop thinking of electrical grids as national infrastructure and develop them as European corridors of electricity trade. The faster it is developed, the faster we will have a domestic substitute if future fuel imports are disrupted or the costs become prohibitive, as the world experienced during 2008 when the oil price touched $150 per barrel for the first time.

A European offshore grid system operator and a European offshore regulator need to be established. A new business model for investing in offshore power grids and interconnectors should be rapidly introduced, based on a regulated rate of return for new investments. And a clear signal of European political commitment should be sent to those who will develop the offshore technology and its related support industries.

Offshore wind power plants of up to 1GW each must be interconnected through a grid capable of delivering the electricity in several different states, depending on price and demand. To accelerate development and attract investors, a European offshore wind energy payment mechanism could be introduced, a voluntary action by the relevant states (coordinated by the EC) according to Article 11 of the 2009 Renewable Energy Directive.

This mechanism must not interfere with the national frameworks that are being developed in accordance with the 2009 directive. It would serve as a "one-technology controlled experiment" from which valuable experience could be drawn.

Offshore wind is the largest untapped indigenous energy resource left in Europe. Its development must be pursued through effective spatial planning through the EU Maritime Policy and comprehensive mapping of the resource. By 2020, the initial stages of an offshore pan-European grid should be operating and a plan agreed for its expansion to accommodate 2030 and 2050 ambitions.

I have no doubt that, ten years from now, wind energy will be the most cost-competitive power technology in the world. But only if the overall power markets are functioning and competition is fair and effective will we, as a sector, be able to prove it. Without adequate infrastructure there will be no effective competition.

Without effective competition, consumers - not investors - will continue to be exposed to carbon and fuel price risk. And that would make it less likely that wind energy will dominate global power sector investments in the 21st century.   

For more see: 'EUROPE: The organisations that need to meet the challenges ahead'


Christian Kjaer is CEO of EWEA

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