Europe's Road to a Sustainable Energy-Supply System
Authors: Schiffer Hans-Wilhelm 
Published: April 2015

This paper examines how power generation in the European Union (EU) can be modernised along the lines of a sustainable solution pursuant to WEC principles. This means a re-design with the goal of implementing the EU's internal market and far-reaching decarbonisation.

The example of Germany's energy U-turn shows one possible route, one that is marked by a massive expansion of renewable energies coupled with a phase-out of nuclear energy. Other European countries are pursuing different strategies. Current developments show that solutions chosen in any one country have direct implications for its neighbours. This is because electricity markets are continuing to grow together. In a spirit of solidarity between the member states, the closest possible review and coordination and/or harmonisation of policies are needed. This will allow the conversion process, which is associated with macroeconomic costs, to be shaped on a cost-efficient basis.

For utilities, the energy turnaround brings with it a multitude of challenges. Utilities must convert their generation portfolio and, in particular, perceptibly increase their share of low-carbon energies. Conventional power plants must be designed flexibly, so that – besides volatility in consumption – fluctuations in the feed-in of renewable energies, too, can be offset. In addition to this technical requirement, energy suppliers are facing a situation in which the utilisation period of conventional power stations is falling as a result of the growing feed-in of renewables. On top of this comes the fact that wholesale electricity prices on sunny days are pushed down despite high demand owing to the growing feed-in of electricity from photovoltaic systems. Both factors limit the options for obtaining the necessary contributions to cover fixed costs on the market. This raises the issue of the market design of the future. The launch of capacity mechanisms, ie remuneration for the product ‘firm capacity’ supplementing the income obtained from the sale of electricity, could help. At the same time, capacity mechanisms could be a suitable instrument for coping with power failures.

This brings politics into the game. With electricity markets growing together, the central requirement to be met by a capacity-market mechanism is that harmonised regulations, a discrimination-free design and technology neutrality are ensured throughout Europe. This is regarded as indispensable for creating a level playing field.

Also as regards reaching the goal of Europe's climate policy, viz. a lowering of greenhouse-gas emissions by at least 80% by 2050 compared with 1990, the rule must be to prioritise European solutions over any national regulation. In addition, a procedure in climate policy that is more stringently reviewed at international level is considered unavoidable. Cost efficiency in reaching climate goals means backing market instruments. CO2 emissions trading should be accorded the role of leading instrument in climate protection. The instrument can be used to achieve agreed quantity targets for CO2 emissions reliably and at the least possible costs.

One argument in favour of anchoring the trade in emissions as leading instrument to shape a sustainable energy supply is that the costs of transforming the energy system can be kept within bounds. Renewable energies enter the system with rising CO2 prices on a market-driven basis. The various technologies compete with one another and with other CO2- avoidance technologies, like increases in efficiency, utilisation of nuclear energy and CO2 capture and storage (CCS).

One current study says that the expected growth in electricity consumption in the EU by some 1,000 TWh by 2050 will be covered by adding renewable energies if the focus is on trade in emissions as leading instrument. This doubles the share of renewables in power generation by 2050 to about 50%. After 2030, with rising CO2 prices, CCS, too, becomes profitable. If we were to rule out this technology for lowering CO2, much higher costs for the aimed-at decarbonisation of power generation would have to be accepted.