In the energy sector, we have been doing much the same for decades. We have invested too much of our wealth in risky technologies with low capital cost and high and unpredictable fuel and operating cost. Energy policy decisions have been backed up by economic models from the International Energy Agency, the European Commission and national governments, that assume that fuel price risk, carbon price risk, supply risk and political risk does not exist in the energy market. Just as financial markets last year assumed that investing in collateralized debt obligations was as safe as a German government bond.
According to the European Commission, the EU is home to 0.8% of the world’s proven oil reserves; 2% of the world’s proven gas reserves, 3.5% of the world’s coal reserves, and 1.9% of the world’s uranium reserves. And out of the resources that it has, 80% is coal (the dirty one) and over two thirds of that coal is lignite (the really dirty one). Europe has no significant resources and the ones we have are extremely dirty. In this carbon and fuel constrained world, Europe has a considerable competitive disadvantage when it comes to conventional energy resources.
In the energy models, imports are the solution to Europe’s problem. The EU’s is already importing 54% of its energy and that proportion is rising fast as our indigenous resources deplete. A stable flow of energy imports requires a good relationship with the exporters. When it comes to energy, this means Russia and the Middle East. In January, Russia flexed its muscles and cut off its natural gas exports to Ukraine, Romania, Bulgaria, Greece, FYROM, Serbia and Croatia following a bitter row between Moscow and Kiev over pricing. A lot of time and energy has gone into discussing whether to blame Russia or Ukraine.
From a European security of supply perspective, it really does not matter. Both countries – independently from each other – have the power to leave Europe in the dark. Our gas imports rely upon two separate monopolies: one in supply and one in transmission.
So, here we are, stuck with a European supply structure exposed to all kinds of risk that our energy models still deny the existence of.
Meanwhile, Europe’s existing power plants are ageing and 50% of all the power generating capacity operating in the EU today needs to be replaced over the coming 15 years. The time is ripe for a complete overhaul of our electricity supply structure.
Acknowledging the risk of energy supply disruptions, fuel price increases and environmental degradation the European Commission, the European parliament and 27 heads of state decided to ignore their own models and passed a Climate and Energy Package which commits Member States to increase the share of renewable electricity in the EU from 15% today to more than one third of power demand by 2020.
The European Commission believes that wind power will meet 12% of the EU’s electricity demand by 2020, up from 4% today. Meeting the 12% electricity target for wind energy will require the EU countries to increase wind energy capacity by some 9.5 GW a year over the next 12 years. In 2008, wind energy capacity increased by 8.5 GW, so this is certainly an achievable task for the sector and EWEA believes that the technology can contribute significantly more than the 12% of EU demand in 2020, indicated by the European Commission.
In 2008, more wind power capacity was installed than any other electricity producing technology, including coal, gas and nuclear. According to statistics from the European Wind Energy Association (EWEA) and Platts Powervision, 36% of all new generating capacity installed in the EU was wind energy (29% was gas, 18% was solar photovoltaic, 3% was coal 2% was hydro and 0% nuclear).
In total, 58% of all new power generating capacity installed in the European Union during last year was from renewable energy sources – mainly wind energy and solar photovoltaic. We must use the coming twelve years, and the framework of the 2009 Renewable Energy Directive, to commercialise the many other renewable energy technologies that are already available today, including large-scale offshore wind energy. Twelve years ago, 12% of new power capacity installations in the EU was renewables; last year it was 58%; twelve years from now, in 2020, all our new capacity must be from renewable energy sources. If we achieve that, we can have a power system based on 100% renewable energy sources long before 2050.
Those who say that there is no silver bullet technology – that wind energy cannot do it alone – may be right. But we have at least twelve silver bullets in the chamber – consisting of the portfolio of existing and already available renewable energy technologies that can all be applied tomorrow if we create the right political frameworks.
The scientists tell us that global emissions will have to peak by 2015 and decline thereafter, for the world to limit global warming to below 2°C. By applying already available renewable energy technology, we have a chance of making the necessary reductions in carbon emissions, within that narrow window of opportunity we have to avoid irreversible damage to our climate. If greenhouse gas emissions must peak by 2015, it is clear that neither nuclear energy nor coal carbon capture and storage (CCS) can make any contribution to staying below 2°C. Nuclear energy takes too long to build and CCS will not be commercially available until after 2020.
Europe imported 54% of its energy in 2006 and these imports represented an estimated €350 billion, or around €700 for every EU citizen. We need to end this significant transfer of wealth and start putting a larger part of our citizens’ money to work in the European economies by nurturing the energy technologies where Europe has a real competitive advantage. The global market for wind power technology alone was €35 billion in 2008 and European companies had two thirds of that market.
In 2008, oil reached $150 and our economies tumbled. It is not clear how much high fuel prices contributed to the economic crisis. But what is clear is that the same economic laws apply to both the financial crisis and the energy crisis: we invested too heavily in cheap, risky assets with unpredictable returns and values and European citizens are forced to pick up the bill. By developing, deploying and exporting renewable energy technologies, we can simultaneously reduce the risk and cost of our energy supply; create jobs; and turn an inherent competitive disadvantage in conventional energy into a competitive advantage for Europe in a carbon and fuel constrained world.
By Christian Kjaer, Chief executive officer, European Wind energy Association (EWEA)