Arias Cañete highlights the role of the energy sector in reducing emissions and demands greater ambition on energy efficiency targets

Reynés emphasised in his speech how Spain “sees a window of opportunity and change in the energy sector’s transformation and also a necessary driving force for these times when there is a need for industrial sectors to invest and create jobs, and to adapt their working conditions to a future tied to the energy transition commitments”.

Impact of COVID-19 and energy efficiency

Arias Cañete, who was one of the prime movers behind the European climate agenda and its targets for 2030 and 2050, gave a comprehensive overview of how the European Union (EU) has spearheaded the climate plans since 2007, launching the 20-20-20 targets that have culminated in decarbonisation by 2050, envisaged in the Paris Agreement and the European Green Deal. “Europe has assumed both the risk and merit of being a pioneer in decarbonisation, developing new technologies and adapting the functioning of the electricity system to new sources of energy”, he added.

The former commissioner reminded his audience that the emission reduction target had been more than met in Europe so far and highlighted the efforts made by the electricity sector. “The reduction in emissions has occurred at the same time economic activity was growing by 62%, which shows that positive economic growth can be achieved in an environmentally friendly way, by reducing greenhouse gas emissions”, he said.

With regard to the EU’s renewable energy targets, he pointed out that “between 2010 and 2018, the production capacity of wind and solar energy rose from 110 GW to 261 GW, and the EU forecast for 2020 was that we could reach between 22.8% and 23.1% of final energy consumption”. On that point, he warned of the effects of the pandemic: “It has led to artificial reductions in consumption, which may result in our renewable energy targets being met, but without the structural means for achieving this, so that once the COVID-19 pandemic is over, we would be back to the previous situation”.

Arias Cañete also spoke about energy efficiency and, in particular, the ambitions of country National Integrated Energy and Climate Plans (NIECPs). “The problem with NIECPs is energy efficiency. According to the national plans, primary energy consumption would improve by 29.7%, a far cry from the target of 32.5%” set by the EU. Hence his belief that “energy efficiency continues to be difficult to achieve and, furthermore, has negative consequences, because failure to reach the targets in 2020 will make it even more difficult to achieve the 2030 targets”.

He also referred to the European Commission’s new emission reduction target, which has been increased from 50% to 55%. “This will mean a new, even more powerful regulatory framework for reaching the 2030 targets, as well as massive investments”. He calculates the EU will have to invest nearly €350 billion more in the energy sector between 2021 and 2030 than in the previous decade. “There will be public resources, but private ones will also have to be mobilised”, he asserted.

In his view, the next negotiations within the EU for tackling the new climate targets were going to be “complicated”. He mentioned, among other things, the change in the European system of emission rights, possible carbon taxes for border adjustments and the new binding targets for energy efficiency.

Paying attention to the impact on vulnerable customers and electro-intensive sectors

During his analysis of the need to revise the electricity regulatory framework, Luis Atienza stated that “we must not make the same mistakes as in the past by treating technologies in their early stages of development as commercial technologies” and that “attention has to be paid to the distributional effects of the changes, in particular on the most vulnerable consumers, as well as on the competitiveness of the electro-intensive sectors”.

In his view, “we are heading towards a system of electricity with a massive presence of renewable generation, with high fixed costs and practically zero variable costs, long periods of depreciation, intermittent production and low manageability, requiring a strong, flexible support capacity that ensures system balance and stability”.

The economic value in that system, he explained, lies in capacity and flexibility more than energy, because the variable cost of producing energy would approach zero for many hours during the year. “It’s going to be a system with more public intervention, which is why we have been staking so much in the quality of this intervention”, he remarked. Accordingly, he said that “the best economic signals for investing in renewable and support capacity” must be provided.

In his analysis of the challenges to regulation in light of this new scenario, he emphasised renewable energy auctions, to ensure the investments planned in the NIECPs at the lowest average cost, facilitate competition from independent producers and anticipate price reductions for consumers.

He also referred to the need to regulate generation and storage-capacity mechanisms, and to promote investments in electricity grids, which must facilitate the transition towards decarbonisation, digitisation and decentralisation, and prevent cyber-risks. “The costs for the electricity system associated with under-investment in electricity grid capacity and smart grids are much higher than the costs of over-investment”, he added.

The Naturgy Foundation chair, Rafael Villaseca, who concluded the event, stressed the main challenge on which transformation of the energy sector must be and is being based is climate change: “It is a genuine categorical imperative”.

Energy Prospects is a series of conversations that brings together nationally and internationally renowned figures for their experience, vision and knowledge of the energy sector, as well as business leaders, regulators, executives and academics. This initiative is one the activities run by the Naturgy Foundation on energy and environment-related issues, based on serious and rigorous discussion that is essentially aimed at promoting rational uses of energy resources and encouraging sustainable development.