Europe’s bold new energy plan will need wartime-like planning to meet goals, Rystad says

After the European Union revealed its REPowerEU plan to transform Europe’s energy system due to the current geopolitical crisis, Norway’s energy intelligence group Rystad Energy has forecasted that this energy plan and its budget may fall short of objectives with a further ramp-up of investments needed to reach its goals.

In a bid to come to grips with energy securities issues, which arose as a direct result of the geopolitical crisis caused by Russia’s invasion of Ukraine, the European Union disclosed an outline of its REPowerEU plan in early March 2022. The REPowerEU Plan was officially presented earlier during the month as a way forward to tackle a double urgency, seeking to reduce the EU’s dependency on Russian fossil fuels and accelerate the transition away from carbon-intensive energy sources.

Rystad Energy’s analysis indicates the European Commission’s cost estimate may fall short of objectives, as the plan will require at least €1 trillion (close to $1.1 trillion) in investment to meet the core objective of increasing renewable generation from 40 per cent to 45 per cent of total energy supply by 2030.

In addition, a scale-up of investment will be required to meet targets, including grid and battery storage developments to ensure a stable supply of energy as the whole European power system will need to be restructured, according to Rystad.

Carlos Torres Diaz, head of power research at Rystad Energy, remarked: “The ambition of the REPowerEU plan is huge. Power companies and energy markets will be looking for details on investments and infrastructure. While the targets are achievable, it will require wartime-like planning, levels of investment, construction, and production to meet goals by 2030.”

The energy intelligence firm points out that while the plan defines different angles to tackle the current crisis, the most detailed section outlines the roadmap for solar PV, aiming to bring online 320 gigawatts (GW) of solar PV by 2025 and almost 600 GW by 2030 in order to displace 9 billion cubic meters (Bcm) of gas demand.

As reported by Rystad, Europe currently has around 189 GW of installed solar PV capacity, meaning 131 GW need to be installed by the middle of the decade, or an equivalent of 44 GW per year. Therefore, the installation rate, which was 24 GW in 2021 and is expected to be 29 GW this year, would need to be almost doubled to meet this objective. Rystad Energy research shows that around 56 GW of new solar PV capacity would need to be installed during the following five years to reach the targeted 600 GW by 2030.

Based on Rystad’s research, installing 411 GW between now and 2030 would represent an investment of €452 billion (around $484 billion), assuming an average cost for solar PV of €1.1 million (almost $1.2 million) per megawatt (MW) of installed capacity. Additionally, Rystad believes that reaching 45 per cent renewable energy supply by 2030 requires significant investments in wind capacity for which the plan does not have a lot of detail.

In lieu of this, the energy intelligence firm’s estimates suggest another 450-490 GW of wind capacity would need to be installed by 2030 to reach the target of 45 per cent renewable energy supply, requiring an additional €820 billion or around $878 billion in investments.

Furthermore, Rystad explains that such a transition will require huge investments but thus far the European Commission has been unclear about the total amounts allocated to achieve its goals, as recent announcements and communications mention that €225 billion (about $241 billion) is already available in loans and that an additional investment of €300 billion or over $321 billion could be needed by 2030. As elaborated by Rystad, the figures seem to fall considerably below the required additional investment needed in power transmission, storage, gas infrastructure, and hydrogen production, regardless of the total amount being assigned to new renewable energy developments.

The Norwegian energy intelligence firm forecasts that such a large demand for new capacity will put additional pressure on the supply chain for solar panels and wind turbine manufacturing and could lead to a further increase in costs for these technologies.

Within its plan, the EU has identified six key areas to reach the REPowerEU targets including smart investment; tackling slow and complex permitting for major renewable projects; and saving energy by increasing binding energy efficiency targets from 9 per cent to 13 per cent while cutting gas and oil demand by 5 per cent through behavioural changes. The EU also intends to diversify fossil fuel supplies by developing a joint purchasing mechanism to negotiate gas purchases and establishing major hydrogen corridors in the Mediterranean and the North Sea.

In line with this, the EU plans to work on accelerating the rollout of renewable energy by increasing the target for renewables from 40 per cent to 45 per cent of the total energy supply by 2030; doubling solar PV capacity by 2025 and reaching 600 GW of installed capacity by 2030; doubling the rate of heat pump deployment; eliminating red tape for renewable energy project permitting; producing 10 million tonnes of renewable hydrogen and importing an additional 10 million tonnes by 2030.

The EU’s new energy plan takes into account the need to reduce fossil fuel consumption in industry and transport while also reducing natural gas consumption from the industrial sector by an additional 35 Bcm by 2030 through the use of renewable hydrogen, biogas, and biomethane.

Rystad further adds that REPowerEU acknowledged the need to address the bottlenecks in the permitting process, bearing in mind that a wind energy permit could currently take up to nine years. Thus, Rystad says that the European Commission put forward a new legislative proposal on renewables permitting based on three things to address this issue.

The EC plans to declare that renewables are presumed to be in “overriding public interest,” which would ensure renewable energy projects are prioritized, especially in the current scenario and until climate neutrality is reached.

The new legislative proposal also urges nations to create so-called “go-to” areas, which will be set following an environment assessment – declaring that renewable projects are not a direct threat to the environment – to ensure that these projects would be permitted within one year.

Lastly, the European Commission also intends to keep existing permitting deadlines (i.e. two years) for the normal new projects and one year for repowered projects.

Rystad concludes that speeding up the permitting process is crucial for the European Union to be able to meet its ambitious targets.