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Energy Companies Still Underestimate the Costs of the Energy Transition

Energy Companies Still Underestimate the Costs of the Energy Transition

Date: December 2nd 2020

Author: Peter Palčec

Category: En.vision

Topic: Electricity , Renewables , Energy policy , CO2 emissions

“The energy industry is undergoing a huge transition, despite the COVID-19 pandemic. Nevertheless, our energy sources are still not sustainable enough. Achieving our climate targets will require the establishment of a decentralised and decarbonised energy system. However, energy companies still highly underestimate the costs it will take to achieve this. We are not talking about new solutions, but rather a completely changed industry of the future. Additionally, the fact that every regulator and country are trying to address the energy transition problems differently presents a huge problem,” said Gergely Szabó, the regional chairman of MET Central Europe, a subsidiary of the Swiss MET Group, at the Budapest Energy Summit 2020.

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According to Szabó, the energy industry is currently under huge pressure due to consolidation. “In the last 10 to 15 years, we have seen continuing standardisation of services and the vocabulary that the energy industry is using. Energy companies now provide the same type of solutions and services. The COVID-19 pandemic has created many opportunities that can improve energy companies, such as developing and providing better solutions and services for their clients. However, many companies will probably also leave the industry due to the pandemic,” explained Szabó.

He continued that the first pandemic wave in March showed the magnitude of the market risks that the energy industry is facing. “On the one hand we had low energy prices, while on the other we had low consumption, which resulted in huge losses for companies. The second wave has now shown the magnitude of credit risks that companies are facing. These two market anomalies are holding back a lot of current investments. It will now be interesting to see what solutions energy companies will use in addressing these two anomalies,” added Szabó. 

He concluded that one of the most interesting things that the COVID-19 pandemic has shown is the importance of digitalisation – or the lack of it – and how it affects companies’ everyday operations. 
 

Additional funds and mechanisms for building renovations are still needed in Europe


“The cleanest energy is the energy that we do not use. Increasing energy efficiency in buildings is one of the cornerstones of delivering the Green Deal. However, the pace of renovations in Europe is still much to slow. We need to make renovations cheaper and provide new funds and mechanisms to increase energy efficiency in buildings,” explained Kadri Simson, the Commissioner for Energy at the European Commission. 

She stressed that the global pandemic will not disrupt Europe’s ambitious climate plans, and the EU is now focusing even harder on green investments. “Large-scale electrification, renewable green gases and increasing energy efficiency are the three pillars that will enable the energy transition. We also need a more flexible system that will be based on energy system integration. Renewable electricity is already more price competitive than fossil fuel generated electricity. Natural gas will replace more polluting sources in the near future, but by 2050 the gas sector will need to become fully decarbonised,” added Simson.

Additionally, William D. Magwood, the Director-General of the Nuclear Energy Agency (NEA), added that nuclear energy can be the answer for some countries, such as Hungary, in the decarbonisation of their energy systems.

“We believe that many – not all, but many (people) – will look at nuclear energy as a major part of the solution. Renewable energy sources are part of the solution, but based on the technologies that we have today, and those that will most likely exist in the next twenty or so years, we need, and will need, to have a dispatchable resource of electricity production that can work independently from renewables and is a non-emitting source. That is nuclear,” said Magwood in an interview for Energetika.NET. Energetika.NET recently conducted a video interview with Magwood about the future of nuclear energy (MORE HERE).

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The pandemic has shown that focusing on just one energy source is not enough


In the meantime, István Kapitány, the global executive vice president of Shell Retail, stressed that the pandemic has shown us that concentrating a business on just one energy source or service is wrong.

“Companies that make business from just one source will have a hard time surviving. In terms of our ambitions to become a carbon neutral company, we are, for example, already slowly building up our energy network to change from diesel fuel to LNG. We are also working a lot on hydrogen. Our company is also focusing on projects involving nature-based solutions. Additionally, we are working on transforming our refineries into energy ports where hydrogen, biofuels and chemicals are produced,” emphasised Kapitány.

He pointed out that energy demand will return quickly despite the pandemic. “Identifying the most profitable solutions is key. We need to produce more energy and more clean energy,” he concluded. 

Zsolt Jamniczky, a member of the board of directors of E.ON Hungária Zrt, also concurred that diversifying investments in the future is the way to go. “Our business in Hungary is very complex, thus maintaining the security of supply can be very challenging. What I have learnt is that in our industry one should always expect the unexpected. During the pandemic, innovative customer care services were developed and digitalised. Our strategy, which focuses on the grid as one source of income and customers services as another, has helped us to cope with the losses that were generated due to the pandemic,” he explained. 

Jamniczky also agreed with Szabó that establishing a smart grid that is data-driven will require a lot of funds. Additionally, without customer participation, making grids smart enough will not be possible, since customers are becoming prosumers. “Customers will be able to provide flexibility services, produce energy and form communities. Additionally, energy storage will be a key success factor of the energy transition,” he concluded.



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