Power sector points to high cost of low-carbon economy

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Power industry representatives debating options to finance clean energy policy on Tuesday (26 May) banked on carbon capture and storage and wind energy in the long run and gas in the short term, as the economic crisis increases the cost of investment in greener energy to reach the EU’s climate goals.

“There is definitely no signal that EU targets will be revised,” Piotr Tulej, head of the energy and environment unit at the European Commission’s environment department, told participants in a conference organised by Eurelectric and Eurogas. 

The European Union agreed a comprehensive energy and climate legislation package in December, aiming to slash emissions by 20% and raise the share of renewables to 20% of the bloc’s energy mix by 2020.

Electricity and gas experts argued, however, that meeting these targets would come at a higher price than expected now that the recession had set in, making investment in renewables and low-carbon technologies which have yet to be commercialised more risky.

“This has been the biggest investment phase in our sector, so the financial crisis has come at an inconvenient time,” said Vittorio d’Ecclesiis, risk office director at Edison. He argued the risk profile of the renewables industry had increased because production companies had accumulated larger debts and were now having difficulty obtaining credit. Volatile energy prices entail a market risk, he added.

Moreover, a new study from the International Energy Agency (IEA) showed that global electricity consumption could fall by up to 3.5% this year.

D’Ecclesiis dismissed claims that industry was trying to tone down the EU’s climate goals, insisting that it was instead trying to factor in the consequences of the financial crisis for implementation. 

His argument was supported by Eurelectric Secretary-General Hans ten Berge, who noted that the crisis would not become an obstacle to further investment if the EU continued to drive forward competitiveness in the sector and national authorities “avoided unhelpful interventions into the market system, including regulating electricity prices which hinder innovation”.

“The issue is about getting the targets at a reasonable price,” he stated.

Tax reductions for capital-intensive renewables, such as offshore wind and solar thermal energy, and higher feed-in tariffs were mentioned as promising means of promoting the uptake of low carbon technologies. A “reinsurance coverage” for investment was also proposed whereby governments would compensate for initial losses.

The low-carbon technologies of the future

Accepting that coal will continue to play a significant role in global power generation, several panellists cited carbon capture and underground storage (CCS) as one of the clean technologies that will definitely be part of Europe’s future energy landscape. 

At the moment, however, CCS is still at demonstration phase and is unlikely to contribute to reducing emissions in the run-up to the 2020 goal. Tulej stated that CCS would probably only take off on a commercial scale in 2025.

Wind energy was a second safe bet for returns on investment in the future, the panellists agreed. They said, however, that there must be more incentive to invest in offshore wind. It was suggested that in order to encourage private equity to do so, the EU would first have to reach the 2020 target.

In the meantime, however, using natural gas in power generation was seen as a shortcut to reaching the 2020 targets, helping to reduce emissions while low-carbon technologies and large-scale renewables are being developed.

With the credit crunch and the recession reducing global demand, the energy sector is finding it increasingly difficult to obtain loans for new project, raising concerns that the cost of halting global warming will skyrocket as investment in renewable energies stagnates.

The EU is hoping to use the crisis as a catalyst for moving to a low-carbon economy, driven by the climate legislation agreed in December 2008 (see EURACTIV LinksDossier). Investment in clean technologies and renewables will create jobs and open up lucrative markets, the EU executive has repeated tirelessly.

Moreover, on 28 January, the European Commission tabled a five-billion-euro recovery plan targeted mainly at clean energy projects and the deployment of broadband Internet connections in rural areas (EURACTIV 29/01/09). The plan, as agreed between EU lawmakers on 16 April, foresees €3.98 billion for grid interconnections, clean coal and offshore wind farms (EURACTIV 17/04/09).

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