Posted by: Kari Kankaanpää
The European climate and energy policies and the European power markets are at acrossroads. In late October, the European leaders are expected to make decisions on the direction of the EU’s 2030 climate and energy policy. These decisions have far-reaching effects for European competitiveness as a whole. The key issues for all consumers, industry and decision makers are the supply, reliability, costs and climate impacts of energy.
These are among the topics discussed in the Fortum Energy Review published on 19 August 2014. The review highlights key trends in the European power market and focuses on the changes needed for the European climate and energy policy approach towards 2030.
Extensive investments in low-carbon generation and energy infrastructure needed
To a large extent, the rapid growth of renewable power generation in Europe in recent years has been enabled by vast financial support. The strong growth of subsidised energy production coupled with slow power demand growth have lowered wholesale power prices to a level last witnessed over a decade ago. Low market prices have challenged market-based, non-subsidised investments in new generation. Currently, while almost all new energy investments are based on subsidies, market-driven energy production is struggling with weakened profitability, reducing the ability of companies to invest. Several countries are already considering introducing support for conventional generation to ensure generation capacity.
Despite the current challenging investment climate, extensive investments in low-carbon generation will be needed already before 2030 to replace aging power plants and plants that have to be shut down due to tightening emissions standards. According to IEA*, a total of EUR 3,000-4,500 billion in investments will be needed in the European energy supply and energy efficiency by 2035.
Predictable and market-driven policies are a must
As European competitiveness is a key concern, a cost-efficient climate policy to minimise the price tag of decarbonisation for society is of utmost importance. Decisions on the 2030 climate targets and a structural reform of the ETS are urgently needed to boost the decarbonisation of society with the lowest possible cost. Lessons from the EU framework for 2020 must be drawn and multiple overlapping targets must be avoided; in case targets are set for renewables and energy efficiency, they must apply only for the non-ETS sectors. In an integrated European electricity market, the use of production capacity has to be optimised and investment signals have to be market-driven. In parallel, global efforts on the pricing of carbon should be accelerated. The growing global concern over climate change must translate to action, as climate change will not wait for better economic times.
To read more on our views about the European power market and our position on the EU 2030 climate and energy policy framework, please see the Fortum Energy Review>>
* IEA World Energy Investment Outlook 2014