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05/12/2016

Europe’s renewable energy deployment ‘sub-optimal’, report says

Energy

Europe’s renewable energy deployment ‘sub-optimal’, report says

Wind farm, Canary Islands.

[Christine McIntosh/Flickr]

Europe could have saved itself $100 billion (€86bn) by installing solar power panels in sunnier countries and wind turbines in windier places, the World Economic Forum’s “Future of Electricity” platform said in a report released on Tuesday (20 January).

The report, written with consultancy Bain, added that another $40 bilion (€34.5bn) could have been saved by better cross-border coordination and bigger power cables between countries.

It said that even though Spain gets about 65% more solar energy than Germany (1750 kilowatt-hours per square metre/year compared to 1050 kWh/m2 for Germany), Germany has installed about 600% more solar photovoltaic capacity (33 gigawatts compared to 5 GW).

But while Spain has less wind than northern European countries, it has still installed 23 GW of wind power capacity.

“Such sub-optimal deployment of resources is estimated to have cost the EU approximately $100 billion more than if each country in the EU had invested in the most efficient capacity given its renewable resources,” the WEF report said.

Overcapacity

It also said that overinvestment in renewables has created huge overcapacity in Europe, weighing on utilities’ profits.

Over the past five years 130 GW of renewable generating capacity and 78 GW of conventional capacity have been added to the system in the EU, while only 44 GW of conventional capacity has been retired, the WEF report said.

At the same time, growth in demand for electricity in Europe has flattened to 0% in 2007-2012, compared with an annual growth rate of 2.7% since the 1970s.

As a result, return on invested capital has dropped 4.8 percentage points to around 6%. While the United States has seen a similar slackening of demand, retirement of old plants has more closely matched the advent of renewables, and American utilities have preserved their profit margins.

The report supported industry calls for a system that would pay utilities for keeping generating capacity on standby but acknowledged that “a strong consensus has yet to emerge on the optimum mechanisms for ensuring reliability and flexibility”.

Utilities such as Germany’s RWE and E.ON desperately want government help through the creation of a “capacity market” to fund the continued operation of their otherwise unprofitable gas and coal-fired plants, saying such a mechanism would boost security of supply, but German Chancellor Angela Merkel said earlier this month she does not support this idea.

>> Read: Gabriel rejects ‘senseless’ calls for surplus energy capacity

Background

"Capacity mechanism" describes a system in which power generation capacities are rewarded through financial compensation.

Supporters claim this model will prevent possible blackouts, such as on days with high demand and low wind and sun.

Under this model, compensation for secure supply is meant to help cover the costs of conventional power stations - mainly gas and coal.

Former EU Energy Commissioner Günther Oettinger has said he is critical of capacity mechanisms. "If the German government wants to take this path, then it must be a cross-border model. Otherwise it will become an undesirable cost driver," he warned.

Although capacity mechanisms are already on the daily agenda in many EU member states, Germany is still in the discovery phase.

>> Read: Oettinger warns Germany against solo efforts on energy

Further Reading

World Economic Forum