Will energy infrastructure emerge as an ace up Europe’s decarbonisation sleeve?

With the energy crisis playing havoc on the global energy stage, Europe has taken measures to strengthen its energy security and address the energy trilemma, embarking on the transformation of its energy landscape with renewables and low-carbon sources to tackle both energy and climate crises. Ensuring the right energy infrastructure is in place, is seen as the key to achieving net-zero goals.

The prevailing concern of striking the right balance between affordability, reliability and sustainability has proven to be one of the most complex challenges facing the global energy sector. With the rising inflation, post-pandemic recovery, an energy crisis and a climate emergency, Europe has still put a significant effort into staying on track to achieve its aim of reducing emissions by 55 per cent by 2030 and reaching climate neutrality by 2050.

In light of the war in Ukraine, the European Union (EU) expressed its determination to end its reliance on Russian fossil fuels last year, intending to ban almost 90 per cent of Russian oil imports by the end of 2022. To this end, the EU presented its REPowerEU Plan, which is expected to assist in accelerating the energy transition while reducing dependence on Russian gas.

In June 2022, S&P Global Commodity Insights analysis outlined that Europe needed to ramp up its renewable power generation to meet its green hydrogen goal, which was seen as very important to meeting the goals outlined within REPowerEU. Europe’s renewable energy generation capacity is expected to be mostly boosted by onshore/offshore wind and solar.

In the sixth edition of its Energy Transition Outlook, DNV said in October 2022 that Europe was expected to double down on renewables and energy efficiency to increase its energy independence while gas consumption was predicted to fall dramatically, meeting only 10 per cent of Europe’s energy demand in 2050.

In a bid to shed some light on Europe’s current progress towards its net-zero goals, Siemens Energy and Roland Berger presented the first European Energy Transition Readiness Index report, titled Delivering on Europe’s energy transition, it’s time to get real, which was based on the collected feedback from more than 400 industry experts, NGOs and scientists across Europe.

The report highlights the key role energy infrastructure is playing in driving decarbonisation and offers insights into Europe’s key priorities put into focus by the ongoing energy trilemma while providing an in-depth analysis of the region’s energy transition.

Europe is certainly working on fortifying its existing energy infrastructure and building the new one to accommodate the expansion of its energy mix, as illustrated by the EuroAsia Interconnector, the H2Med subsea pipeline between Barcelona and Marseille, and seven hydrogen projects in the Netherlands, which received a subsidy of almost €800 million from the second wave of Hydrogen Important Projects of Common European Interest (IPCEIs).

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While the EU is pursuing financing for different clean fuels, hydrogen is taking centre stage, as shown by the H2Sines.RDAM project, aiming to produce green hydrogen on a unit in Sines, convert it to liquefied hydrogen and export it to Rotterdam via a dedicated liquid hydrogen carrier; and the progress made on Northwestern Europe’s first import, storage and handling terminal designed exclusively for hydrogen carriers, renewable energy products and low-carbon fuels.

Earlier this month, Masdar and four Dutch companies – Port of Amsterdam, SkyNRG, Evos Amsterdam and Zenith Energy Terminals – inked a memorandum of understanding (MoU) to explore the development of a green hydrogen supply chain between Abu Dhabi and Amsterdam to support Dutch and European markets.

Offshore Energy recently wrote about the inroads hydrogen was making with Europe at the helm of the proposed solutions to substitute natural gas with green hydrogen to remove emissions from hard-to-abate sectors. The potential this trend has to sideline gas as the key piece on the energy decarbonisation chessboard was considered from different angles.

However, the current situation in Europe led to the conclusion – recently accentuated by Frans Timmermans, the European Commission Executive Vice-President – that “gas will remain a transition fuel in many sectors and regions.” 

Recently, Boyana Achovski, Secretary General, Gas Infrastructure Europe, said: “Gas infrastructure is a pillar for Europe’s decarbonisation and security of supply. At the same time, we support diversification, inclusivity and equity in our sector and within decision-making processes to help tackle issues around future energy needs in the best possible way.”

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Torben Brabo, GIE President, Chairman of GIE Board and GIE General Assembly, stated: “We cannot manage to deliver on the 2030 or 2050 targets without being more diverse. The future energy systems will be more and more integrated and sector coupled. Thus, knowledge and understanding between ‘silos’ are important.”

The findings within the report from Siemens Energy and Roland Berger indicate that Europe performed well compared to other regions, which shows good “systems maturity” but “readiness” of the energy transition towards net-zero, which is currently at 33 per cent, is still lower than required and needs to improve.

Ariel Porat, Senior Vice President, Head of Hub Europe, Siemens Energy, remarked: “Energy is the lifeblood of an economy and society cannot prosper without secure, sustainable and affordable energy. We need to work together and act now to reduce emissions 55 per cent by 2030 and reach climate neutrality in Europe by 2050. It’s time to get real, we don’t have much time. We can do this but only through working in partnerships and with countries working in cooperation with each other.”

With energy security playing a central role, the report claims that 78 per cent of the participants in a survey said they believe the current situation will speed up the energy transition over the long term. On the other hand, only one-third think it will do so in the short term, as the current spike in natural gas prices pushes nations back to more polluting fuels, such as coal.

While Europe is striving to make its energy systems more sustainable, the report emphasises that this region needs “a strategically oriented, pragmatic and equally sustainable industrial policy, driven by political and business leaders alike.”

To build sustainable energy systems that can keep pace with global competition and reduce dependence on individual energy sources, the report claims that the share of renewable energies on the continent must “at least triple or even quadruple by 2050.”

“As a result of the transition to sustainability, energy is becoming less affordable in Europe,” underscores the report while pointing out that survey respondents “almost universally agreed on the relevance of energy infrastructure for Europe,” as this is seen as “fundamental” in the energy transition journey.

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The report claims that power transmission grids “must be expanded” in order to transport renewable power while infrastructure for importing LNG is needed to satisfy the increasing demand. In addition, the report says that Europe’s energy infrastructure “must be made resilient” to changing climate conditions and simplified to accelerate permitting processes for upgrading and expanding infrastructure.

Even though the EU’s target for achieving net-zero is 2050, fossil fuels – especially oil and gas – cannot be switched off overnight, since powerplants using fossil fuels are considered essential in the short and maybe even long term to ensure the stability of the power grid, given the volatile nature of renewable sources. Due to this, the fossil fuels industry will need to work more on reducing its carbon footprint.

While the report confirms that Europe is doing well in terms of accelerating renewables and driving exit strategies for coal, it also underlines that relatively little has been achieved so far in areas such as carbon capture and storage (CCS), sector coupling, reinventing energy business models and power-to-X solutions.

According to the report, Europe’s emissions need to fall to a level of 49 per cent below their 2005 level by 2030 to keep the 1.5 °C target and the goal of climate neutrality by 2050 within reach. As Europe achieved a reduction of 24 per cent in the 16 years between 2005 and 2021, this would mean that the emission reduction efforts need to more than double in the remaining years to 2030.

In a bid to reach this goal, emissions would need to be curbed in the energy, transportation and other industrial sectors, currently relying on fossil fuels. The report elaborates that electrification or the use of alternative fuels, such as hydrogen and biomass, will be key in reducing emissions in these sectors.

Dr Jörg Unger, Senior Vice President, Low Carbon Emission Technologies & Projects BASF (Europe Energy Talks), commented: “If you want to go fast, go alone. If you want to go far, go together. With the energy transition we must go far: We must minimize losses and maximize value wherever possible. This requires joint action along entire value chains that goes beyond our established supplier/customer relationships.”

The participants of the survey, which Roland Berger and Siemens Energy initiated, identified 11 priorities for tackling the energy transition with the acceleration of renewables getting pushed to the forefront as the key priority, since, renewables answer the need for both sustainability and energy security.

Bearing this in mind, the report points out that energy storage solutions are also needed with the growth of renewables to maintain the stability of the power grid while sector coupling is seen as a potential alternative solution.

Moreover, carbon capture and storage “will be essential in order to reach Europe’s ambitious national decarbonisation and climate-neutral goals. However, technical uncertainty and poor public acceptance for CSS currently stop it being ranked higher in the list of energy priorities,” underlines the report.

While the implementation rate for the acceleration of renewables is almost 66 per cent, the rate for other priorities, which are anticipated to result in significant decarbonisation levels and lead to net-zero emissions, is generally no more than 40 per cent, as indicated by the findings of this report.

As progress on exiting from coal is closely tied up with the specific situation in individual countries, for many EU countries coal plays a negligible role and almost 30 per cent of survey participants said that exit strategies for coal are not applicable in their case.

However, the survey participants highlight that policy is “the most important area where action is needed when it comes to the future development of the energy priorities overall.” Additionally, funding is ranked as the second crucial factor, which can be facilitated by the public sector with the introduction of tax incentive schemes, new auction concepts and cost and risk sharing.

On the other hand, power-to-X solutions and the resilience of the energy system are ranked on par with policy while supply chains have emerged as a new factor for accelerating renewables due to the ongoing lockdowns and pandemic-related restrictions in China. The report says that CCS is considered the most important area of technology going forward.

With global challenges spurring increased demand for sustainable heat generation and utilisation, more energy infrastructure is expected to be modified and built in Europe, as the drive towards low-carbon and low-cost is the energy industry’s paradigm.

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