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The Recovery Package, ‘Digital Natives’ and Weather Shaping the Energy Future

The Recovery Package, ‘Digital Natives’ and Weather Shaping the Energy Future

Date: October 13th 2020

Author: Alenka L. Klopčič, Tanja Srnovršnik


Topic: Electricity , New technologies , Economy

Is the EU recovery package ‘now or never’ for the energy transition? What is the impact of the tighter 2030 climate targets on commodity markets? What is the future for the European power industry amid a ‘greening’ of the economy? And finally, is energy trading leading to a loss of the human touch? These were just some of the questions to which the recent Montel Energy Day tried to provide answers, while Montel’s latest podcast was devoted to the increasing weather extremes that are expected going forward.

Is the EU recovery package a game changer for the EU power sector?

“Is the EU recovery package a game changer or is it just leading to something that started a while ago, but at a faster pace?” This was the question addressed during the introductory presentation at the Montel Energy Day by Marion Labatut, the deputy director of the European affairs at French EDF, who recalled that several companies have commited to carbon neutrality. Nevertheless, she believes a 55% reduction in greenhouse gas (GHG) emissions by 2030 will be very hard to achieve.

Labatut also reminded participants that MEPs recently backed a 60% GHG emission reduction target for 2030, and even demanded that all EU member states achieve 2050 climate neutrality, which, according to Labatut, will be even harder, since countries have very different starting points and natural resources.

The European Parliament supported the raising of the EU’s greenhouse gas emissions reduction target to 60% by 2030 compared to 1990 last Wednesday. In doing so, MEPs called for a more ambitious target of at least 55% compared to that proposed by the European Commission (MORE).

lokalna skupnost 1So, is this also a game changer for the power sector? According to Labatut, the power sector is gaining new opportunities since, for instance, the EU Commission’s impact assessment of September 2020 foresees a rate of 30% of electrification with approximately 50% required to achieve EU decarbonisation objectives. The COVID-19 crisis is therefore adding a push to the process towards decarbonisation that has already started, she highlighted, adding that 30% of the total EU budget plus recovery and resilience facility (RRF) must support the objective of a carbon neutral Europe by 2050 as well as the 2030 increased objective.

“Therefore, spending must be aligned with the Paris Agreement and with the ‘do no harm’ principle of the EU Green Deal,” stressed Labatut, adding that spending must be started prior to the end of 2023. With this in mind, between 15 October 2020 and April 2021 member states must submit their national recovery plans to be evaluated by the EU Commission and the Council.

The support for green technologies will include EUR 6.7 billion for the thermal retrofitting of public buildings, EUR 1.2 billion to finance investments and operating expenditure dedicated to industry decarbonisation, EUR 1.2 billion to develop everyday green mobility, EUR 4.7 billion to develop railway transportation including freight, EUR 7 billion over 10 years (2021-2030) to develop green hydrogen, and EUR 470 million for nuclear innovation and skills, enumerated Labatut, highlighting small modular reactors technologies.

“So, yes, the recovery plan is an acceleration tool,” she said, returning to the introductory question, “however, not necessarily sufficient”. With this in mind, all sectors will have to contribute to the cleaner energy future, and a reduction in CO2 emissions must be the compass driving new measures to provide the right signals to investors, believes Labatut, whereas Mark Lewis, global head of sustainability research at BNP Paribas Asset Management, who spoke of the impact of the tighter 2030 climate targets on hydrogen and carbon markets, stressed that we are “entering an era of deep decarbonisation.”

No way forward without green hydrogen and corresponding carbon prices

It isn’t possible to get to net zero without green hydrogen playing a meaningful role in the energy system, said Larsen, adding that green hydrogen will therefore become an energy source that will displace grey hydrogen and eventually also fossil fuels. A clear sign that market participants in the carbon market are starting to think beyond coal-to gas fuel switching in the power sector is the fact that carbon prices have recovered across the EU from the benchmark 20 December price of EUR 14 per tonne in the early stages of the lockdowns across the EU to a near-record all-time high of EUR 30.8 per tonne in June, and have remained at pre-COVID levels ever since.

Cistejse tehnologijeIt seems that the EU ETS scheme is clearly showing the end of the fuel switching paradigm, demonstrated Lewis, adding that green hydrogen – as was the case for subsidised renewables in the past – can become competitive. So, how much is needed to build up the EU’s green hydrogen economy? His research estimates that total investments of EUR 391 billion will be required for 76 GW of electrolyser capacity yielding 9.6 Mt of green hydrogen by 2030, meaning EUR 391 billion.

“If the market is to really believe in green hydrogen as a solution, the carbon market will respond in pricing, leading to green hydrogen becoming competitive,” concluded Lewis, while Vincent Verbeke of French Engie stressed that the climate goals need “us to stay humble,” since all clean technologies will matter, he believes. “We need to be inclusive – both in terms of technologies as well as customers who will lead the way forward for the (power) sector too – and we need to be simple,” said Verbeke, adding that the path towards carbon neutrality also urgently needs ‘digital natives’.

The whole world is beginning a new paradigm, concluded Lewis, adding that in the debate on the future for European industry amid a ‘greening’ of the economy, the EU is not alone anymore in its efforts towards carbon neutrality. To this end, and with Verbeke’s statement in mind about the need for the ‘digital natives’, will machines eventually ‘take over’? Jan Egidi, a short-term power trader from Next Kraftwerke tried to answer this question.

Will machines ‘take over’ and, if so, when?

Umetna inteligenca Pixabay
Egidi explained that as far back as in 1952, a computer defeated a human in a game called Tic Tac Toe, whiles in 1979 a computer defeated a human in a game of backgammon. In 1997 human defeat came in the game of chess. This was followed in 2015 by defeat in the so-called ‘Go’ game, in 2017 in Poker 1v1, in 2019 in Starcraft II as well as in a Poker multiplayer. So, when will defeat in an intraday power market follow?

Automation already plays a big role today’s power markets, continued Egidi, adding that in 2019, 53% of the traded volume on the intraday power market was done manually, while only 35% of trades were manual.

AI will play an increasing role in the future of power trading, especially in price predictions and providing suggestions to humans, while human traders will play a role in knowing the changing rules; they will be the ones putting the ideas into the algorithms. “AI will not be better than intraday traders in the future, but there will be a co-existence between AI models and human traders,” believes Egidi.

A session on power purchase agreements (PPAs) followed – an area in which corporations such as Amazon, Facebook and Google are active. In this regard, the recent debate on PPAs during the SolarPower Summit highlighted that in a world without subsides, PPAs remain an important product for getting funding for projects and that there are two types of PPAs that are very popular on the corporate PPA market. In addition, the impact of the COVID-19 pandemic on the corporate PPA market has shown that corporates are less sensitive to market shocks and short-term price fluctuations than some utilities (MORE).

More weather extremes expected going forward

snegEurope is experiencing ever more extreme weather, with storms, floods and drought hitting several countries in 2020. This is part of a change from steady, predictable weather patterns to ones more dominated by extremes, which will also impact energy markets, according to a recent Montel Weekly podcast.

“The types of summer that we have seen over recent years are absolutely likely to occur much more frequently. Something that is considered now to be a freak will probably be average or ‘normal’ within 50 years or less. We are currently actually only seeing typical global temperatures somewhere around 1.2-1.3° Celsius above pre-industrial norms. There are many scenarios to suggest that unless things really do change quite dramatically, we could be heading for 2-3° Celsius above that by the end of this century. It is almost inevitable that we will see these sorts of extreme events,” explained Mark Stephens-Row, meteorologist at The Weather Company, an IBM Business.

The podcast is available HERE.

This article is available also in Slovene.

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