This winter, the energy supply crisis has seldom been out of the headlines.
Rising gas prices, triggered mainly by previous reliance on cheaper imported Russian gas, are impacting on citizens and businesses alike. But the rising price of energy is also focusing minds on identifying long-term solutions that can address energy security and affordability for future generations.
Some European politicians and industry leaders argue that the solution to short-term challenges around rising prices lies in the development of a long-term strategy that puts electrification and renewables at the heart of the continent’s energy mix.
Ignacio Galán, Executive Chairman at Europe’s largest electricity company Iberdrola, is one of those who believes that stabilizing energy prices must be seen within the context of broader ambitions to decarbonise the European economy, while passing-on benefits of a renewables-based transition to consumers.
Issues around energy prices cannot be separated from the transition to a lower-carbon future,” Ignacio Galán argues. “What current energy prices demonstrate is an urgent need for member states and the Commission itself to accelerate the energy transition and shift Europe’s dependence from fossil fuel to a more sustainable and renewable energy-based power system. Wind and photovoltaic energy are now the cheapest forms of generation. If we had gone faster in building more renewables, we would have already reduced our dependence further. We need to go as fast as possible, with predictable and stable frameworks and agile permitting processes. We also need to continue improving the current market design, which has provided competitive prices for years, with the promotion of long-term contracts and capacity mechanisms that provide the right signals for renewables, ensure sufficient back-up capacity and create incentives for energy storage ”.
Transitioning from fossil fuels like gas to clean electrification is a long-term challenge. However, the impact of the Russian invasion of Ukraine on the import of fossil fuels has highlighted the very real risks that come from an overreliance on imports to power European homes and businesses.
Morten Helveg Petersen MEP is Vice Chair of the European Parliament’s Committee on Industry, Research, and Energy. He is clear that improving energy security requires action that takes a holistic approach to transition from dependency on imported gas.
“The quickest and most efficient way to reduce energy prices in Europe is to reduce European demand,” Petersen tells us. “At the moment we are somewhat stuck in a vicious spiral in which state subsidies across the continent support continued energy consumption.”
Fellow Committee member Pilar del Castillo Vera shares Petersen’s concerns. “Our priority must be to establish a well-integrated and interconnected internal energy market that benefits consumers," she explains.
The current crisis has made it clear to policymakers that dependency on imported fossil fuels is not only bad for the environment but is also jeopardising the EU’s wider economic outlook.
However, as Petersen argues, the response required needs to be strategic rather than piecemeal. Industry experts agree that a long-term strategy is needed that accelerates access to renewable energy, replaces Russian fossil fuels, and supports the development of cleaner energy infrastructure.
Ignacio Galán believes that for that strategy to succeed there must be action to address the current barriers that businesses face when seeking to invest in sustainable future solutions. Those actions can unlock the potential of the private sector to develop solutions to meet Europe’s future energy needs.
“Iberdrola has committed to invest €47 billion in the next 3 years to drive the energy transition,” Ignacio Galán explains. “We want that investment to have the biggest possible impact. But for that to happen we need a stable operating environment that provides certainty for both investors and consumers.”
For Ignacio Galán, a key element of that is a regulatory environment that is consistent across the different member states, and that provides a stable operating environment for businesses. This, he believes, will unlock additional investment in renewable capacity by reducing the risk that companies face when making major investment decisions. Shaping a framework which fosters the development of a long-term electricity market is necessary to ensure that in the future consumers can rely on stable electricity prices. Customers that have signed multi-year electricity supply agreements with their suppliers (both industry and household), have benefited enormously in recent months and years.
Regulatory alignment and reform of the long-term electricity market via the development of more multi-year contracts will offer all customers an insurance against electricity price volatility and the advantages of stable long-term prices. It could also open the door to enable and promote the acceleration of renewables by encouraging the development of the RES Power Purchase Agreements (PPAs) market. PPAs are the most efficient tool to deliver the low-priced RES investments needed for the EU´s decarbonisation and energy independence objectives.
The urgency of the issue has already led to the European Commission developing the REPowerEU Plan as a response to the European energy market disruption caused by Russia’s invasion of Ukraine. This Plan pursues the twin goals of reducing dependency on Russian fossil fuels, which currently cost European taxpayers €100 billion per year, and tackling the climate crisis.
Industry experts have welcomed the Plan but have cautioned that it needs to be accompanied by a range of other measures if we are to accelerate the switch to renewable electricity as the dominant form of generation in member states.
In particular, Ignacio Galán argues that more needs to be done to remove the barriers that can slow the development of new energy infrastructure.
“At the moment, there are often major delays in securing the permissions needed for new energy projects,” Ignacio Galán tells us. “The ambitions set out in the REPowerEU Plan are the right ones. However, if we are to achieve those ambitions, delays need to be addressed through an accelerated process of granting permissions that will increase the EU’s renewable energy capacity.”
The crisis caused by the constriction of cheaper imported gas is undoubtedly causing pressure for businesses and households. It also raises several important questions about the future energy mix. These can only truly be addressed by an accelerated transition to secure, sustainable and renewables-based sources of energy.
If we get that transition right then the continent’s energy future can be both more sustainable and more secure.