The transition from fossil fuels to cleaner and more sustainable renewable energy sources is the most pressing challenge in the global energy industry and for the private sector, built environment and transport sector.
At COP 21 in Paris, many countries committed to limit global warming to two degrees Celsius above pre-industrial levels. Our shared vision is a sustainable future, including electrified heating and transport networks. To achieve this ambition, we need to maximise renewable energy sources. In the Netherlands, this topic is high on the political agenda.
But what does this entail for society? And what opportunities and challenges does this transition bring for those operating and investing in the renewable energy industry?
The energy transition is a vision of a certain type of future that will require big changes. Those that can anticipate them will be first to take advantage of opportunities and have the chance to influence policy direction through early leadership.
Look at the electrification of transport. The Netherlands was the sixth country in the world to reach 100,000 electric vehicles (EVs), and the long term plan is that, from 2035, only clean-fuel cars can be sold – a target that is more than achievable. This will provide a substantial reduction in CO2 emissions. At Royal HaskoningDHV, we’re piloting an EV fleet of 26 cars – saving up to 100 tonnes of CO2 every year.
However, this move towards EVs means a huge rise in electricity demand. The European Environment Agency estimates that EVs could account for 9.5 per cent of European electricity demand by 2020 – up from 0.03 per cent today. Governments are aware of this – perhaps this is why many are reluctant to accelerate the phase-out of coal. It’s up to the renewable industry to step forward with solutions and campaign for change.
To illustrate this, consider another example: electrification of heating. The Dutch government has promised to scrap gas for domestic heating and cooking by 2050 under its recent energy strategy – a huge undertaking. At the moment, the plan is thwarted by a legal requirement for DNOs to connect new housing developments to the gas network. Two political parties have submitted a bill stating that this requirement must be removed, allowing developers to save on costs and build cleaner, electric-only, gas-free neighbourhoods for the first time.
How will the renewable industry respond? Hopefully by stepping forward with bold propositions for distributed energy so that the extra demand is met by clean sources. Perhaps by bringing in partners from the smart technology space.
The challenge for our industry is to stand truly on its own two feet and outcompete fossil fuels without public money
The opportunity exists to show the world that a gas-free future is possible, and that it can benefit consumers. Our industry must be part of these major changes from the outset – the challenge is to identify, then give our backing to the most important ones.
Renewable finance – standing on our own two feet
Subsidies have been hugely successful in getting renewable sources off the ground. In my home country of the Netherlands, the Stimulation of Sustainable Energy Production (SDE+) scheme has been a great triumph; so much so that last year’s €9 billion funding has been increased to €12 billion in 2017. Similar success stories have been seen across Europe.
However, subsidies are not the only answer and weren’t designed to be long-term. What’s more, they are vulnerable to political change and can have negative, unpredicted side effects on the transition. For example, despite its overall success, the SDE+ scheme currently favours the most profitable technology. This has led to increased funding for biomass substitutes in coal fired plants, meaning that solar and wind energy are competing with subsidised fossil fuel plants, which is a step in the wrong direction.
There are other ways that governments can provide support. Tax on renewable energy production could be cut to give suppliers a competitive advantage. Alternatively, fossil fuel industry tax revenues could be used to fund renewable energy projects, as well as schemes to mitigate the negative effects of non-renewable energy generation.
The challenge is to move away from public funding. But when developing new financing methods, we should be aware of the challenges – renewable energy projects have higher risk profiles, longer-term ROI and relatively complicated division of profit. A number of innovative sources of finance are used in the Netherlands, including new players such as revolving funds, crowdfunding and financial participation.
For example, the province of Overijssel has experimented with issuing equity and debt in renewable energy schemes, raising funds without subsidy and has now started an arrangement for measures at a domestic level.
The challenge for our industry is to stand truly on its own two feet and outcompete fossil fuels without public money.
A cautionary tale from the Dutch fossil fuel industry: in Groningen, natural gas extraction has caused earthquakes and significant large-scale damage since the 1960s. A report commissioned by the local government estimates the cost of repairing properties and protecting them against future earthquakes at €30 billion over the next 30 years. However, action has been thin on the ground – which has eroded public trust.
It’s too easy to take the moral high-ground as members of the renewable energy industry, but we ignore our own impact on the public at our peril. In our justifiable enthusiasm for renewables, we fill fields with panels and turbines. In a small country like the Netherlands, this is not always appropriate and can foster dissent among communities.
If renewables are to become the backbone of society’s energy infrastructure, we need the public onside. We can start by looking at better asset locations, such as alongside the road network.
Then we must look to build positive affinity with renewables – to secure social buy-in to the energy transition. One way to do so is by literally encouraging buy-in – allowing communities near renewable assets to share in the financial gains they bring. This may be through lower energy costs or even the possibility for local communities to invest capital. This could be one of the quickest ways to secure public support.
A smart approach
Just as the Netherlands’ size doesn’t lend itself to vast solar fields, Germany’s does. Similarly, the land-locked Czech Republic is unlikely to build a large offshore wind industry. The situation in each country differs, but a more interconnected, smarter European grid could create enhanced opportunities for working together. By making use of smart grids, we can begin to locate resources more logically.
On a local level, adjustments to the grid are also part of the solution. Think about the potential role of energy storage in a neighbourhood or even in one household. While the supply of wind and solar energy fluctuates, storage technologies could help ensure a stable energy supply. Meanwhile, smart electronic appliances could better match energy demand with peak supply.
Cooperation and competition
Businesses thrive on competition, but they also thrive on support and collaboration. For the renewable energy industry looking to realise the energy transition, some of that support will come from governments – either through subsidies or supportive regulatory regimes.
A great deal more support can come from industry peers. Working together to further the interests of the industry and collaborate on challenges is a more promising route to a clean energy future than cut-throat competition. In that spirit, it’s important that companies across Europe come together to discuss their challenges and opportunities and work through solutions together, whether they be focused on renewables or conventional generation. POWER-GEN Europe 2017 will see more than 400 companies from Europe’s power industry come together to do just that.
POWER-GEN Europe and Renewable Energy World will be held in Cologne, Germany from 27 to 29 June 2017. Click here to find out more and register for the event.