Europe’s last dash before lights out Europe avoids

Irish Wind could have huge export potential Source: Irish Wind Energy Association

EUROPE’S LAST DASH BEFORE LIGHTS OUT

Europe breathed a sigh of relief at the end of October as Ukraine and Russia signed a deal that will keep gas flowing to central Europe this winter. But while Europe might have avoided a bleak cold winter without heat, the prospect of power blackouts grows menacingly near and quick-fixes are in short supply.

IN his last days as European Energy Commissioner, Germany’s Gunther Oettinger brokered a deal between Russia and Ukraine that should avoid any major gas supply disruptions this winter. As tensions between the two former Soviet states escalated, Russia had threatened to shut off gas supplies to its western neighbor, as happened in 2006 and 2009, when large parts of Europe shivered as gas stopped flowing west through Ukraine.

But the deal signed between Moscow and Kiev only lasts until March, and falls far short of removing European concerns over security of supply. As Europe’s own gas reserves in the North Sea dwindle, the continent depends on imported gas to meet its energy needs, and much of that comes from Russia. In 2013, Russian gas giant Gazprom said it sold 30 per cent of all gas consumed in the European Union. Oettinger and his Spanish successor, Miguel Cañete, and national ministers across the EU want to cut dependence on Russian gas, but there is no simple solution.

Energy ‘crunch’

Indeed, Europe faces a looming ‘energy crunch’ as much of the continent’s energy infrastructure nears the end of its useful life.

Coal and nuclear power plants have been the backbone of European power generation for nearly a century, but many old coalfired power plants have been shut, or mothballed, as a result of tighter environmental rules and emissions limits. Meanwhile most of the EU’s 200+ operational nuclear reactors were built over 40 years ago and are nearing the end of their design-life.

Four British reactors were taken offline in the summer for emergency maintenance after inspectors found a crack in one of their boilers, and those of similar design were closed as a precautionary measure. Germany permanently closed eight nuclear reactors in 2011 in response to safety concerns following the Fukushima disaster in Japan. Two reactors in Belgium were

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shut down for a second time in two years in March 2014 after cracks were found, and have yet to return to the grid. Even in France, which boasts Europe’s biggest and most modern nuclear fleet, technical problems forced the temporary closure of the country’s oldest power plant in April.

According to the World Nuclear Association, Europe stands to lose 120 Gigawatts of nuclear power capacity by 2050 unless a rapid program of new nuclear-build gets underway in the next decade. But at present only four reactors are currently under construction – in France, Finland and Slovakia – which together bring less than 5 gigawatts of additional capacity. At the same time less than 4 gigawatts of gas-fired power plant capacity is currently under construction, down from 12 gigawatts two years ago.

The prospect of a nuclear revival is tempered by the twin challenge of cost and the long lead-time needed to build new reactors. Nuclear developers want price guarantees to get new projects off the ground. Electricité de France’s plans for a new reactor at Hinkley Point in England is only set to go ahead after the UK government got EU approval to offer a 35-year fixed price agreement.

Patchwork policy

EU member states are looking increasingly at national support mechanisms to keep the lights on. The UK’s carbon floor price for nuclear is one example. The UK and several other countries are considering introducing ‘capacity payments’ to keep power plant on standby, ready to start up at short notice. Many see this as the inevitable consequence of the growing role of ‘intermittent’ renewable energy like wind and solar.

Renewables’ share of the EU power market is set to reach 35 per cent by 2020, and in October national government backed plans for a a binding EU target of at least a 40 per cent domestic reduction in GHG emissions by 2030 versus 1990; a target binding at EU level to source at least 27 per cent of its final energy demand from renewables; and a nonbinding EU target to improve energy efficiency by at least 27 per cent compared with energy demand projections.

Sweden already relies on renewables for 50 per cent of all energy (not just power) and Latvia and Finland are both nudging 40 per cent. This reliance on renewable energy means that countries become increasingly vulnerable to power cuts on calm, winter days when demand is high but production from wind and solar plant is very low.

Countries like Germany and France want to introduce a payments mechanism that would incentivise power generators to keep ailing coal- and gas-fired plants idle, ready to be pressed into service when renewable output is insufficient to meet demand. Without capacity payments, such plant – typically among the oldest and most expensive to run – would be decommissioned.

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Capacity payments could become inevitable in countries with a large share of renewables. But capacity payments, carbon floor prices and other forms of ‘state aid’ are firmly at odds with the EU’s policy to build a single energy market.

Brussels remains wedded to the belief that the answer to Europe’s energy woes is to further integrate EU energy markets, stimulate greater efficiencies through competition, and cut reliance on fossil fuels by promoting renewable energy and energy efficiency.

“The Internal Electricity Market faces the risk of fragmentation,” said out-going energy commissioner Oettinger in a speech at the annual gathering of the EU electricity industry, Eurelectric, in June. “It stems from uncoordinated national decisions run against our common objectives,” he warned, though he did accept that some state intervention could be justified if it did not distort the electricity market.

The fear is that capacity payments would offer a lifeline to obsolete plant that would otherwise be closed, and could deter investment in new plant, especially cross-border investment if the rules are different from state to state.

Level playing field

Eurelectric, for one, has called for even closer integration of national markets so that power can flow more readily across borders to resolve regional imbalances.

“However, the growth of renewables, which is necessary to pursue the European decarbonisation agenda, brings a new reality to power systems. In many markets the introduction of a capacity element is becoming increasingly important,” Eurelectric said in October as it called for stronger leadership on the energy market by the new EU Commission. But it said such capacity payments must create a level playing field.

All this underscores the fact that existing policy has created an uneven playing field, as those countries blessed with abundant renewable energy resources – those of the sun-drenched Mediterranean and windy Atlantic coasts – have greater resource potential. But under the EU’s existing rules they cannot export some of that potential to less-favoured countries. Policy-makers wanted to ensure that the likes of Poland could wean themselves off coal through national efforts rather than buying surplus wind and hydropower from neighbouring Sweden.

The result is that investment is not directed to where resource potential is greatest. Cloudy Britain is in the midst of a solar energy boom, while cash-strapped Italy and Spain clamp down on their solar sectors, no longer able to afford the feed-in tariffs that attract investments. Meanwhile windswept Ireland cannot unlock the vast potential of its onshore wind power because it cannot export to the UK, despite the fact that Irish wind is up to three times as productive as UK solar. And Germany has the world’s biggest wind sector despite inland wind speeds that allow many wind farms to generate only 15 per cent of the time.

Renewables restrictions

These economic irregularities were challenged in a European Court of Justice case brought after Sweden ruled that wind power generated on the Aland islands, between Sweden and Finland, did not qualify for Swedish renewable energy subsidies because the islands, despite being Swedish-speaking and connected to the Swedish power grid, are an autonomous part of neighbouring Finland.

The court’s leading advisor had said in January that Sweden’s action had broken EU rules on freedom of movement of goods, but in the final ruling this summer the ECJ ruled Sweden’s action was in line with the EU’s renewable energy directive, which allows national support. Therefore national support schemes for renewable energy are able to remain in place until at least 2020 while the capacity mechanisms and floor prices that national governments want to introduce are at odds with EU single market rules.

Yet without some guarantees for conventional generators, Europe faces an increased reliance on intermittent renewables and imported gas, both of which are at the behest of the weather, and the political climate. Meanwhile recent tensions between Russia and Ukraine highlight how much issues beyond EU borders can still make European capitals shiver. n