EU energy policy is well-intentioned but is not necessarily producing the results that were intended, according to a new report from Deloitte.
After analysing the energy markets in seven European countries – Belgium, France, Germany, Italy, Netherlands, Spain and UK – the report concludes that the EU needs to revisit its energy market design.
“We acknowledge that the 2030 framework for climate and energy agreed with the member states in October last year may alleviate some of the difficulties,” says Deloitte’s European power leader Veronique Laurent, “but there are still challenges to be tackled”.
The difficulties identified in European Energy and Climate Policies: Achievements and Challenges to 2020 and Beyond arose during implementation of what is known as the EU’s 20-20-20 strategy adopted in 2008.
The EU pledged to cut greenhouse gas emissions by 20 per cent over 1990 levels, to increase the amount of renewable-sourced energy in consumption to 20 per cent and increase energy efficiency by 20 per cent – all by 2020, while at the same time creating a single energy market.
The EU energy and climate package attracted criticism in the last few years, as each day has brought more evidence that the policy measures have had numerous unexpected or unintended impacts on energy markets and industry: an excess of intermittent sources of electricity causing disruption for grid operators; surplus electricity resulting in a price collapse on the wholesale electricity market; electricity price increases at retail level; exit of gas from the fuels for power generation and the advent of coal as an electricity price setter and a lack of investment in cross border interconnections.
At the same time, it also became evident that EU policy failed to solve the existing EU energy imbalances in general, Deloitte pointed out.
“Ironically, after years of huge investments aimed at achieving the ambitious policy targets, a number of objectives still seem to be a long way away – and may not be reached. Even though the economic crisis has placed them within easier reach, the levels of consumption and emissions against which they will be measured will be lower than expected,” it noted.
The report said that developments in technology – or the lack of them – were sometimes a surprise compared to the predictions of a decade ago. “Photovoltaic solar has crowded out concentrated solar. Carbon capture and storage to make the use of coal cleaner is still largely on the drawing board because the carbon price is not sending out the right signals. Wind has scaled up, but the technology is still largely the same. Second-generation biofuels that do not create fears of substituting fuel for food have been slow to materialise. On the plus side, smart meters and smart grids are now taking off, opening up new horizons for demand management,” Deloitte noted.
Looking ahead to 2030, the EU has set new ambitious targets as an interim step towards becoming a low-carbon economy by 2050. It aims to reduce greenhouse gases by 40 per cent and the renewables and energy-savings targets have risen by 27 per cent.
“But there is only a single EU target for renewables, while energy savings are hard to measure because there is no common yardstick,” it said.
“And more challenges lie ahead: there is a need to fix the emissions trading system (ETS) and get a carbon emission price that would be a true incentive to using alternatives or using carbon more efficiently.
“A better balance is needed between the cost of incentives to ensure that renewable energy targets are met taking into account the impact on energy prices and to avoid passing on that cost to consumers.
“And the market needs to move beyond the current focus on power generation and industry and reap the benefits from the still underutilised potential of transportation, buildings and forestry to contribute to the transition to a low-carbon economy,” the report said.
“The fundamental question is not the level of the targets or how they will be reached, but whether we need so many,” Ms Laurent said.
“The result has been complex regulation with sometimes perverse results in terms of price signals for investors – and consumers. There is a case for just having an emissions target, leaving member states to decide for themselves what policy and energy mix suits them best.”
http://www.deloitte.com/energy