Setting up effective global regulatory systems has proven to be a challenge. But I'm a glass half-full-type of guy and believe that we can do better - if not globally, then at least starting in Europe.
The reality is that Europe needs a more integrated energy system if it is to achieve a better balance between its energy policy objectives of competitiveness, sustainability and security of supply.
Given the reforms discussions between European leaders and the increased focus on improving the region's competitiveness, now is the time to make a step-change in managing the energy transition.
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Let us consider a few facts that have arisen in recent years, as outlined in a recent study that Accenture conducted for EURELECTRIC, as well as other Accenture analysis:
- European utilities have lost more than half of their market capitalisation;
- Spending on electricity and gas has increased by 70 billion euros ($94 billion), largely due to renewable subsidies.
- Consumer bills have risen against a backdrop of falling disposable incomes
- Industrial energy consumers are paying twice as much for electricity as their counterparts in the U.S., which is impacting competitiveness
- Although across Europe carbon emissions are slowly coming down, they have actually increased in the highest emitting countries like Germany and the U.K. as cheap coal displaces cleaner-burning natural gas.
This situation has been caused by a patchwork of regulation that has led to limited optimization of the energy system across Europe. Other reasons include slower cost reductions of some new energy technologies than originally predicted, and energy efficiency being less rapidly and less widely implemented than expected.
On top of all this, the crisis in Ukraine and the uncertainty about gas supplies to Europe has only highlighted the need to diversify our fuel mix and energy imports.
Our analysis shows that if we continue with business as usual, in the next 15-20 years, spending on energy across Europe could increase by up to 50 percent; the average share of disposable income spent on electricity by European households could approach five percent; and European businesses could be paying closer to two and a half times more for their electricity than they would if they were in the U.S.
The best way to improve the environment for investors, achieve energy security, retain competitiveness and lower energy bills across Europe, is through more fuel diversity, and an energy system that is more optimized and integrated. This requires a system in which energy saving is stimulated, and supply and demand are managed close to real-time, making use of the flexibility of centralised and distributed generation, networks and demand.
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If we move in that direction, energy expenditure could be stabilised. Europe could reduce energy costs by a range of 27 billion-81 billion euros a year, already taking into account the upfront investment required. The result: an average saving of 100 euro a year for each customer, as outlined in the above mentioned Accenture study.
But to achieve these savings by 2030, we need to start now.
- It will come down to better co-ordination of renewable energy across Europe to make the most of individual countries' natural resources -- such as solar in the south and wind in the north.
- It will mean steadily phasing out subsidies and replacing them with an effective carbon price mechanism, and gradually exposing renewables to the electricity market.
- It will require full market integration across trading and transmission infrastructure, acceleration of smart grid deployments, and improved demand response and energy efficiency.
The European Commission estimates that approximately 1.5 trillion euros needs to be spent over the next 20 years to upgrade, replace and expand parts of the energy infrastructure network, so it makes sense to do this in a coordinated, cost-efficient way that will generate net savings and benefit society as a whole.
After all, everyone is striving for the same thing – sustainable, safe, reliable and affordable energy that enables a more competitive industry. But only a strong, organised response across Europe will reverse the current trajectory of rapidly rising energy costs and a European industry that is hampered from competing globally.
If we can't sort out our energy system, we might soon find ourselves in a world where nothing else can function.