Eurelectric: Stepping up Europe’s 2030 climate ambition

Ahead of last week’s European Council more than 3500 European power companies, represented through Eurelectric, announced their support for the ambition to reduce the greenhouse gas emissions by at least -55% by 2030 and called for an electrification strategy in a letter to the Heads of State and Government.

This strategy, aimed at driving investments and enabling the uptake of clean electric solutions, is a critical element to meet the target, which has now been endorsed by European leaders.

Why is an electrification strategy so urgently needed?

First, accelerated decarbonisation ambitions trigger higher investment needs, and put a stronger pressure on those Member States that are at earlier stages of the energy transition. Investors need clear signals to allocate funds to such capital intensive projects. It is therefore essential to get the budget right, and to devise compensatory measures, proportionally to the new climate commitments, to mitigate associated compliance costs.

Second, the deployment of renewables must be accelerated. To meet the objectives, within the next 10 years, the pace of deploying wind and solar capacities must at least double. 480 GW of renewable capacities should be added by 2030, representing almost half of the total power capacity in the EU. This is a fascinating perspective, which would bring the share of carbon-free sources in the power mix to 83% just ten years from now.

But urgent action will be needed, as a number of barriers are still hampering the electrification and decarbonisation processes. Among those, there are the permit granting procedures, which often delay the deployment of new projects by up to 10 years. If this doesn’t change, we would have to have every single project decided before Christmas, in order to achieve the targeted deployment by 2030.

Third, the electrification rates must increase to make use of the added renewable supply. This is needed to decarbonise transport, heating and industries, but speeding up the electrification of end-use sectors is also necessary to avoid a situation where the oversupply of renewable-based electricity negatively impacts prices and markets. It is striking that the European Commission foresees only 1 percent increase in electricity’s share of total final energy consumption by 2030, while at the same time planning capacity additions corresponding to half of the entire power system!

2020 saw a significant drop in power prices, driven by a slump in demand and favourable weather conditions which led to a high share of renewables in the mix. This is great news for emission reductions in the short term. On the other hand, very low or even negative prices will hamper the sector’s ability to invest. With the new plans we will be moving in to a new era, where the majority of new assets can be expected to have low-marginal costs and some level of support for their capital costs. How will this affect market behaviour and price formation. This will be critical to understand both for industry and policy makers. This is why Eurelectric is calling on EU leaders to thoroughly assess how this situation will affect the market going forward.