European energy policy is facing major challenges. In order to tackle the climate crisis, a dramatic reduction in greenhouse gas (GHG) emissions is essential, while also keeping in mind the considerations of security of supply and affordability. The energy sector is of the utmost importance in this respect, given that energy consumption is by far the largest source of GHG emissions (Chapter 1). A reduction of energy consumption by increasing energy efficiency is the greatest and easily accessible source of cost reduction. Furthermore, there is excellent technical potential for change within the power sector, as well as relatively small GHG reduction costs. Many conventional power plants in EU Member States are old and will need to be replaced or modernised in the coming years and decades.
This will require sizeable investment, which will influence future energy prices and costs – with or without climate protection policies. This is both a challenge and a great opportunity. If the necessary modernisation of Europe’s energy infrastructure, in particular power plants, electricity grids, and heating systems, is undertaken in a climate-friendly manner, additional costs can be avoided. On the other hand, conventional modernisation based on fossil and nuclear energies will lead to high environmental costs, and potentially to costly stranded investments (Chapter 2).
While it is clear that investment in new and environmentally sound power plants is essential, electricity markets in many Member States are failing to send the economic signals necessary for investment. Additional funds are needed if investment is to be made, whether in conventional or renewable plants (Chapter 3). In order to decide to facilitate new conventional power plants or renewables, the full costs of the new installations need to be compared. A number of studies show that onshore wind energy – soon to be joined by solar PV – is no more expensive than conventional power. Since the trend is for conventional energy to become more expensive and for renewables to become cheaper, it is likely that most renewables will cost less than conventional energy in the future (Chapter 4). This is even more true if the external costs of climate damage or insurance against the risk of nuclear accidents, for example, are factored in (Chapter 5). The need for back-up systems for variable renewables such as wind and solar does not change this calculation. There are a number of inexpensive technologies with huge potential, the use of which would represent only a small share of total electricity production costs (Chapter 6).
Often forgotten, but very much worthy of emphasis, is the fact that a rapid expansion of renewable energy sources has a number of important advantages. Besides reducing GHG emissions and other environmental and social burdens, renewables reduce energy import dependency and costs, increase energy security, strengthen local economies, and create jobs (Chapter 7).
The documents accompanying the White Paper on a 2030 framework for climate and energy policies presented by the European Commission at the end of January 2014 show that while energy prices will continue to rise, this increase will not be due to renewables. Nevertheless, it is important to note that the Impact Assessment of the Commission presents misleading figures that make renewables appear more expensive than they are in reality. In particular, the cost estimates for nuclear power plants featured in the impact assessment are far too low, while those for solar PV are much too high. In the event that realistic cost estimates were used, it is highly likely that
a renewable strategy would prove to be much cheaper to implement than a conventional strategy (Chapter 8). Together with energy efficiency measures, total energy costs for European industries and citizens could even fall.
Table of contents
Executive Summary 4
Policy Recommendations 5
1 The Challenges Facing European Electricity Supply 6
2 The Need for the Renewal of the Energy Infrastructure 8
3 The Failure of the Existing Electricity Market 9
4 Production Costs for Renewable and Conventional Power Generation 13
5 The Hidden Costs of Conventional Energy: Environmental Damage and Conventional Subsidies 18
6 The Additional Costs of Balancing Renewable Energy Fluctuations 20
7 Further Advantages of the Expansion of Renewables 23
8 Documents Accompanying the EC White Paper on A 2030 Framework for Climate and Energy Policies 24
List of Abbreviations 27